Report details irregularities in Mob Experience financing
Financing for the Las Vegas Mob Experience tourist attraction likely involved a "fraudulent transaction" and "the earmarks of a Ponzi scheme," a court-appointed accountant has determined.
The accountant and "special master" in one of the many Mob Experience lawsuits, Larry Bertsch, also suggested in an update to a report he issued last year that securities laws weren’t complied with as investors were induced into pumping millions of dollars into the project by Las Vegas businessman Jay Bloom.
The report filed Thursday in Clark County District Court will likely be used against Bloom in the multiple lawsuits he faces over the failure of the Experience at the Tropicana. It filed for bankruptcy with $20.8 million in debt last year, and its space at the Tropicana is now occupied by the Mob Attraction.
The Mob Attraction has many of the artifacts, features and staff from Bloom’s old Mob Experience company.
The owner of the Mob Attraction, businessman John Vipulis, bought certain Mob Experience assets out of bankruptcy. He and other creditors are now fighting with Bloom over ownership of the artifacts there. Bloom claims one of his companies owns them and had leased them to the Experience.
Vipulis and another creditor, GC-Global Capital, say they have the right to foreclose on the artifacts after Bloom’s companies defaulted on $5.3 million in loans to them.
In the lawsuits against Bloom, investors and creditors have complained that some of the reasons the Experience failed were that Bloom failed to disclose the true financial conditions of his companies and that he improperly diverted some of the investors’ money to himself.
Bloom has denied those charges and claims the Experience failed because former partner Louis Ventre improperly put it into bankruptcy.
Bertsch, in his updated report, weighed in on many of the issues that are being litigated in the lawsuits.
• Bloom used $3 million in investors’ money for a Jekyll & Hyde project that never materialized to help finance the Experience and related companies Mafia Collection LLC and Murder Inc., but this wasn’t properly documented and resulted in money from new Experience investors paying returns to old Jekyll & Hyde investors.
• "The investment plan developed by Murder and Mafia, under the apparent direction of Bloom, bears the earmarks of a Ponzi scheme. In this plan, investors in an unrelated venture, Jekyll & Hyde (early investors), were treated as 'negative equity.' In effect, investors in Murder and Mafia (later investors) were diluted by the early investors."
• Bloom’s practice of classifying the obligations to investors in Jekyll & Hyde as "negative retained earnings" of Murder Inc. "indicates a fraudulent transaction." That's because "Murder received no benefit or consideration for the debt transfer'' from Jekyll & Hyde.
• Claims by Bloom that his company the Mafia Collection leased artifacts to the parent of the Experience, Murder Inc., were not recorded on the books of either company. This was a "glaring error" that likely understated Murder Inc.'s liabilities.
• Claims that investors, also called "note holders," have a secured collateral claim against the artifacts for the most part "do not appear to have been perfected." The one exception appears to be the lien of the Vipulis/GC-Global Capital creditors, which would back up their argument that they have the right to foreclosure on the artifacts.
• Bloom claimed he was to be paid under the operating agreements of his various companies, but "Bloom does not appear to have reported his compensation as an expense of operations on any disclosure to lenders or investors."
• In submitting financial information to certain creditors, Bloom’s company Murder Inc. failed to disclose compensation being paid to Bloom and his partner Ventre, the use of investors’ funds to buy a $1.3 million home for Bloom in Southern Highlands and to lease a home for Ventre, and for certain other financial obligations.
• Evidence couldn't be found to show that Bloom had reported to the IRS certain compensation, such as his house payments made by Murder Inc.
Bloom on Thursday attacked the involvement of Bertsch in the case, with his attorney filing a motion to disqualify the law firm Lionel Sawyer & Collins from the suit in which Bertsch is the special master. Lionel Sawyer & Collins represents a creditor suing Bloom in the case.
Bloom’s attorney complained that Bertsch has been a client of Lionel Sawyer & Collins in an unrelated case.
"Lionel Sawyer & Collins was actively seeking to have one of its current clients appointed by this court as a special master in this case," Bloom’s filing said. "This is a clear and unequivocal conflict of interest requiring disqualification."
A request for comment was placed with the Lionel Sawyer & Collins attorneys representing the creditor, Vion Operations LLC, in the suit against Bloom.
In a letter that’s part of the court record, one of the Lionel Sawyer & Collins attorneys, Todd Touton, informed Bloom’s attorney and the judge in the case in August that he had just learned that his law firm had represented Bertsch in an unrelated case during the second half of 2011, which is the period in which Bertsch was named special master in Bloom’s case.
The services were provided principally through the law firm’s Reno office, he said in the letter.
Bloom on Friday called the Special Master report "flawed and factually incorrect."
"I am eager to move forward with this case so that I can be vindicated, once and for all, of the Special Master's erroneous report and the false, misleading and frivolous allegations of Vion and Lionel Sawyer," he said.