Lawsuit accuses Stratosphere, Stupak of stock fraud

Rachael Levy

Tuesday, Aug. 6, 1996 | 11:59 a.m.

A class-action lawsuit accusing the Stratosphere and former Chairman Bob Stupak of stock fraud is the latest blow to the financially faltering hotel-casino.

Shareholders Michael Ceaser and Samuel Tolwin filed the lawsuit Monday in Las Vegas federal court. They said they lost thousands of dollars because of false and misleading statements made by Stupak, the Stratosphere's controlling shareholder, Grand Casinos Inc., and others.

Stratosphere stock was selling at $3.12 a share, unchanged from the day before, in mid-morning trading today. The stock hit a high of $14 a share earlier this year.

Ceaser holds 600 shares and Tolwin 1,000, the suit said.

"The word 'stratosphere' certainly does not describe ... the price of Stratosphere Corp. stock," attorney Lenard Schwartzer wrote in the lawsuit. "But it does describe the amount of profit defendant Stupak pocketed by selling his shares before the truth regarding Stratosphere was disclosed: $8.25 million."

Stupak recently resigned as chairman over disagreements about how to run the casino.

Stratosphere reported an $11 million loss in the second quarter of this year, the suit said. Recently, one Wall Street analyst suggested bankruptcy was in the offing for the hotel-casino.

A Stratosphere spokeswoman declined to comment on the allegations, but added that officials are planning ways to turn the corporation around.

"We haven't seen the complaint; we would be commenting from a point of ignorance," public relations director Patricia Marvel said.

Some of the proposed changes are expected to include a push to complete additional hotel rooms and retail shops as quickly as possible. Analysts have said the 1,000 rooms scheduled to open in January would add $50 million in casino revenue and $83 million in total revenue to the resort.

Officials also plan to redesign the casino floor to counter a cramped appearance and to institute a stronger marketing effort featuring advertising that highlights gaming products instead of focusing on the resort's 1,149-foot tower.

The plaintiffs allege in their suit that little effort was made to market the Stratosphere. They quote Grand Casinos Chief Executive Officer Lyle Berman, who allegedly said officials subscribed to the marketing philosophy of "build it and they will come."

Grand Casinos owns 42 percent of Stratosphere's stock.

In particular, the lawsuit accuses Stupak of illegally profiting through inside information. The plaintiffs contend that Stupak was aware that a 1995 financial report filed on Form 110K contained false and misleading information.

The class-action suit is attempting to represent those who purchased stock from Dec. 19, 1995, to July 22, 1996. Currently, there are more than 58 million shares outstanding, the lawsuit said.

Others named as defendants: Berman, former President David Wirshing, General Counsel Andrew Blumen, Director Thomas Bell, Chief Financial Officer Thomas Lettero and Bob Stupak Enterprises.