Thursday, Nov. 3, 2011 | 10:02 p.m.
Accountants studying the finances of the bankrupt Las Vegas Mob Experience at the Tropicana say they need more time to figure out what millions of dollars in Experience funds were spent on.
The organized crime-themed Experience opened this spring, but its parent company Murder Inc. filed for bankruptcy protection Oct. 17 after its finances were hurt by disappointing visitor counts and it was the subject of at least 13 lawsuits involving unpaid bills and infighting among investors. The Experience remains open as it works its way through the Chapter 11 bankruptcy process.
Outside of the bankruptcy case, an attorney for accountant Larry Bertsch, a court-appointed special master in one of the many Mob Experience lawsuits, on Wednesday filed Bertsch?s preliminary report on the Experience?s finances.
The report was filed in a lawsuit pitting Mob Experience creditors against Experience developer Jay Bloom, his wife Carolyn Farkas and three Bloom companies.
Creditors Vion Operations LLC and Strategic Funding Source Inc. charged in their lawsuit that Bloom defrauded them by hiding financial problems at the attraction to induce them to fund $3.1 million for the Experience in a deal in which they would be repaid with future Experience receipts; and that Bloom had looted the Experience of more than $1 million.
Bloom has denied those allegations and says it was his former partner, current Experience manager Louis Ventre, who looted the business ? charges denied by Ventre.
Bertsch, who was appointed by Clark County District Court Judge Gloria Sturman to help sort out the parties? financial claims against each other, raised several red flags in his first report Wednesday. For instance, he said some of the funding for the Experience originated with more than $10 million in promissory notes issued to investors, most paying 18 percent interest. This was part of about $13.559 million in secured and unsecured debt raised by the Experience, records show.
Bertsch raised the possibility that Experience creditors may seek to recover any payments that were made to these investors as "the interests in revenue and personal property of Murder Inc. claimed by most of the note holders do not appear to have been'' documented in financing statements.
He added: "Special master reserves comment on federal and state securities law issues raised by issuance of such notes.??
Attorneys for Vion and Strategic have charged in their lawsuit that the issuance of the notes amounted to the sale of unregistered securities in violation of state and federal law ? charges denied by Bloom, who has been pursuing counterclaims against Vion and Strategic.
In looking at the finances of Murder Inc., Bertsch found that between March 2009 and Sept. 29, 2011, it made "unspecified payments?? of $2.497 million to individuals and $1.018 million to companies "for purposes the special master cannot presently determine.??
Similarly, more than $343,000 was categorized as "unknown expense?? due to lack of proper categorization and documentation. This included more than $218,000 "for ATM withdrawals, house payments, meals and travel.??
Bloom left management of the Experience by July and it wasn?t specified in Wednesday?s report how much of these payments were made before and how much were made after he left.
Murder Inc.?s former parent company, Bloom's Eagle Group Holdings LLC, owns a $1.3 million "residence apparently purchased for Bloom?? and "Bloom states that the operating agreement of Eagle Group Holdings provides that he be furnished a residence,?? the special master reported.
Eagle Group Holdings similarly was identified in the report as making "unspecified payments?? of $607,822 "to individuals for purposes the special master cannot presently determine?? the report said.
Bertsch also reported that Eagle Group Holdings owes $343,104 in payroll taxes.
"Special Master has reason to believe that funds were transferred to Eagle Group Holdings for payroll and payroll taxes; payroll was paid to certain employees by Eagle Group Holdings; but payroll withholding and applicable taxes were not withheld or disbursed,?? his report said.
In looking at deposits and draws made to and from three of the companies by Bloom and Ventre on a cash accounting basis, Bloom?s net withdrawals totaled $466,904 and Ventre?s totaled $476,924. These draws and deposits were made between March 2009 and Sept. 29, 2011, for Murder Inc.; from March 2009 to July 1, 2011, for Eagle Group Holdings; and for Order 66 Productions LLC between March 15, 2011, and July 1, 2011.
Order 66 was a Bloom company that was a vehicle for infusing capital into Murder Inc. and at one point it was trying to bring a Star Wars attraction to the New York-New York hotel-casino, the special master said. Ventre was reported as making no deposits or draws from this company. The report said Bloom contributed $100 to Order 66 and withdrew $203,045 from that firm. The $203,045 is part of his net draws of $466,904.
Besides these three companies, the report covered five more related companies: A.D.D. Productions LLC, a Bloom company that was set up to operate a showroom at the Tropicana; Eagle Group Productions LLC, Eagle Group Marketing LLC, Vegas Con Xpress and Wear LLC and The Mafia Collection LLC, "which purports to have acquired various artifacts from living members of persons alleged to have had associations with organized crime,?? the report said.
In looking at their additions and draws from the businesses on an accrual basis of accounting, relying on books and records rather than cash entries, Bertsch found Bloom had net draws of $218,458 while Ventre?s net draws totaled $396,896.
It?s not known which accounting method is more accurate.
The lack of detailed information about the companies? finances and contradictory information that was discovered caused Bertsch to comment in the report that his team "found substantial discrepancies between the few available legal documents and accounting entries.??
The report concluded, "Bloom and Ventre might have had an interesting and perhaps marketable idea for a unique attraction. They were able to solicit investor/lenders for substantial seed money and, in part, to commence a collection of curiosities from a romanticized period of American and Las Vegas history.??
"At some point, apparently sooner rather than later, at least one promoter believed in his own welfare rather than that of the idea or the business,?? the report said without naming names.
"What was a seemingly cash-rich core, Murder became a spending machine. Murder spent its money on the Mob Experience project and transferred its money to related business entities,?? the report said. "Instead of using the investor/lender funds to further operations, Murder was forced to borrow against future revenue. Then the Experience began to languish as Murder began to collateralize (back up) its other debt obligations with the same collateral: artifacts and future revenue.??
Issuance of the report follows an updated bankruptcy court filing this week in which Murder Inc. reported it has assets of $324,389 against liabilities of $26.643 million.
In the bankruptcy case, Murder Inc. plans to sell its assets to an existing Experience investor, John Vipulis, for about $2 million.
A message for comment was left with Ventre about the Bertsch report showing his draws from the Mob Experience companies exceeded Bloom?s ? an assertion Ventre is expected to deny as his attorneys blame Bloom for spending the unaccounted for funds.
Bloom, in the meantime, said the report confirmed what he has said all along, that "no funds, much less the millions of dollars claimed, are `missing? or `unaccounted for? as alleged by the (lawsuit) plaintiffs.??
Noting Bertsch?s report found Ventre?s draws of $476,924 (by one method of accounting) exceeded Bloom?s draws from Murder Inc. and Eagle Group Holdings by more than $200,000, Bloom said: "Because Ventre's extra $200,000 could only have come over the last several months after his taking control of the checkbook in July 2011, Mr. Bertsch's report appears to bear out the allegations against Ventre.??
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