Charges fly among Las Vegas nightclub investors

Sam Morris / File photo

Patrons step up to the bar and fill the dance floor at Pure in Caesars Palace.

Infighting among investors in the Pure nightclub empire in Las Vegas is escalating, with a new lawsuit demanding that the company’s CEO be removed and the firm be placed under control of a receiver.

Pure’s owner, Angel Management Group, on Wednesday said the demands lacked merit because they were made by an investor who is accused of “misdealing” and has faced multiple lawsuits over his conduct, including alleged racketeering.

Pure at Caesars Palace is the centerpiece of Angel Management Group, formally known as AMG Management LLC.

Headed by CEO Neil Moffitt, Angel Management has been operating nightclubs in Las Vegas since 2005 and expanded last year with the purchase of Pure Management Group. Besides its namesake club, Pure operated other clubs such as LAX at the Luxor.

Since the acquisition, several investors in Pure including Andre Agassi and Steffi Graf have been fighting Angel Management Group investor Gary Dragul.

In one lawsuit, he was accused of failing to pay Agassi, Graf and other investors in Pure under deals in which he agreed to buy them out. In another suit, he was accused of failing to pay profit distributions to investors — profits owed them before the closing of the sale of their interests in Pure.

Later, Angel Management and a sister company sued Dragul and one of his business partners, Alan Fox, charging that in trying to buy out other investors, they had violated the company operating agreement giving the company and other investors first right of refusal to buy out investors and that such transfers of ownership had to be approved in advance.

Another suit alleged fraud and racketeering. It charged that after discussions for them to invest $20 million in the company culminated in an investment deal and Dragul becoming an Angel Management manager: “Alan Fox and Gary Dragul have engaged in a systematic, pervasive and fraudulent scheme to steal plaintiff’s corporate opportunities, loot the plaintiffs of cash and other assets, breach promises and covenants they make and enrich themselves at the expense of those companies, their creditors and other stakeholders.”

Those lawsuits are active, with Dragul and Fox last month getting a court order allowing them to see more financial information about Angel Management Group than they had been receiving.

Attorneys for Angel Management Group have been concerned that Dragul and Fox may use such information to hurt Angel Management, as they claim that Dragul and Fox are developing a competing venue, Senor Frog’s at Treasure Island.

The attorneys specifically want to make sure Dragul and Fox don’t obtain Angel Management customer and employee lists as they’re concerned the investors may seek to recruit employees and patrons.

District Judge Susan Scann said during a July 20 hearing that Angel Management must provide Dragul and Fox information on profit distributions, as they claim to own more than one third of the company.

“He (Dragul) certainly is entitled as a 35 percent owner to look at the financial records of the business and to the benefits of the operating agreement,” she said.

Now, Dragul and Fox are suing Angel Management Group, Moffitt and investors allied with Moffitt, seeking Moffitt’s removal from the company, appointment of a receiver to run the company and dissolution of the company.

Dragul has a company in Greenwood Village, Colo., called GDA Real Estate Management Inc. Fox has a business in Studio City, Calif., called ACF Property Management Inc.

Together, they’re known to have invested in real estate opportunities in Denver.

Their Las Vegas lawsuit, filed Monday in District Court, is full of charges and countercharges typical of when investors turn against each other.

The charges are similar to those leveled by investors against each other in the battles for control of the N9NE Group at the Palms and the Sheri’s Ranch brothel in Pahrump.

The N9NE Group suit was settled under undisclosed terms in which restaurateur Michael Morton left the company; while the Sheri’s Ranch case is open with the judge having appointed a special master to look into the operations of the company.

In this week’s suit against Moffitt and Angel Management’s parent company, AMG Management LLC, Dragul and Fox say they own about 35 percent of the company.

They claim that in late 2010, “the defendants hatched a scheme to remove Dragul as a manager of AMG Management” and to deprive “Dragul and Fox of their significant interests in the company and to take control of the company.”

The suit claims Moffitt has exhibited “a pattern of violent and boorish behavior that put AMG Management’s business endeavors at serious risk.”

The lawsuit charges that in one incident, Moffitt assaulted an AMG employee and threw him over a table in front of at least 10 witnesses; and that in another incident he provoked and engaged in a physical altercation with a manager of the Vanity nightclub at the Hard Rock resort, resulting in Moffitt being banned from the Hard Rock.

The suit claims Moffitt at times neglected his duties as a manager, neglected to pursue key business relationships, improperly put his girlfriend “Heidi” on the payroll and misrepresented to investors that Angel Management had lucrative contracts at Mandalay Bay for Moorea Beach Club, Mix Restaurant and Lounge and Eye Candy Lounge when in fact, the lawsuit says, those deals never existed or had been terminated.

By February, with the relationship deteriorating between Moffitt, Dragul and Fox, Moffitt aligned himself with a Beverly Hills, Calif., investment firm called Levine Leichtman Capital Partners that had also invested in Angel Management Group, the lawsuit says.

Levine Leichtman, a defendant in Monday’s lawsuit, then worked with Moffitt to remove Dragul from the company’s board of managers over allegations Dragul had engaged in improper insider deals and submitted inflated expense reports, the lawsuit charges.

Angel Management’s many allegations against Dragul include a claim that he had the company pay $104,000 in personal expenses that he falsely identified as business expenses.

A special committee examining disputes among the investors focused on Dragul while neglecting to look into the allegations against Moffitt, the lawsuit charges.

Dragul said in the lawsuit the expense reimbursements he applied for were legitimate expenses and that the committee’s findings of “wrongdoing and improper conduct against Dragul are tainted as they were manufactured by defendants as part of a scheme to oust Dragul from his managerial position” and deprive he and Fox of their interests in the company, the suit says.

The suit alleges breach of contract, breach of fiduciary duties on the part of Moffitt and others, and misappropriation and waste of corporate assets; and seeks and accounting of all money spent by the special committee in its investigation.

The suit alleges conversion as Dragul and Fox say Angel Management has failed to pay them $700,000 in profit distributions they claim they are owed.

The suit also seeks a declaratory judgment allowing Dragul and Fox to remove Moffitt as manager, appointment of a receiver for and an orderly dissolution of AMG Management LLC.

“Plaintiffs believe that the management and business of AMG Management is being conducted improperly by the defendants in breach of the AMG Management operating agreement and Nevada law for their own benefit and to the detriment of AMG Management and its members,” charges the suit, filed by attorneys with the Las Vegas law firm McDonald Carano Wilson LLP.

In a statement Wednesday, AMG Management said: “The company initiated litigation against Mr. Dragul and others nearly four months ago alleging numerous acts of misdealing by Mr. Dragul. Gary Dragul’s recent lawsuit merely duplicates the claims he made in defending the suit initiated by the company. Therefore, it appears that Mr. Dragul filed his recent lawsuit for no other purpose than to generate media coverage.”

“In fact, Mr. Dragul’s involvement in the business of AMG Management has resulted in him being named as a defendant in at least four lawsuits in 2011 alone (including multiple suits filed by third parties that have engaged in transactions with Dragul). The company vehemently disputes Gary Dragul’s allegations of wrongdoing and will vigorously defend those claims, as well as Dragul’s self-serving request to dissolve the company, while continuing to pursue its own claims against Mr. Dragul and others,” AMG’s statement said.

Levine Leichtman, in the meantime, filed its own suit against Dragul in federal court in New York in April alleging violations of a contract related to a $41.5 million note offering by the old Pure Management Group.

The suit covered allegations that a Dragul company failed to pay $3.2 million to certain investors, including Agassi and Graf; and that Dragul had failed to pay $4.5 million to Moffitt arising out of Dragul’s purchase from Moffitt of an interest in a Moffitt company called AMG Entertainment.

These alleged breaches caused Levine Leichtman to allege that Dragul would also breach his obligations to pay $1.168 million for some of the Pure Management Group notes.

Attorneys for Dragul denied the allegations and said Levine Leichtman had breached the note sale deal by working to have Dragul removed from Angel Management.

That suit was dismissed May 18 for lack of jurisdiction.

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