Suit: Boardwalk shareholders shortchanged

Bill Gang

Wednesday, Sept. 29, 1999 | 11 a.m.

A class action lawsuit claims Mirage Resorts and several board members and officials of the Boardwalk Casino conspired to devalue the tiny Strip property and set the stage for another mega-resort.

The takeover of the tiny Strip property at Harmon Avenue completes a parcel that is about the size as that used by Mirage Chairman Steve Wynn to build the Bellagio hotel-casino.

But the lawsuit filed by Boardwalk stockholder Harvey Cohen contends that he and other minority shareholders were manipulated by corporation board members and other officials into taking a "grossly undervalued rate" of $5 per share for their stocks.

The problem, according to the lawsuit, is that the board members had been given "additional inducements" by the Mirage to get their cooperation in the merger when their legal duty actually was to the other stockholders.

Cohen had 74,000 shares at the time of the June 1998 buyout.

In addition to the Mirage, the lawsuit names Jeffrey Jacobs, Louis Sposato, James Scibelli, Forrest Woodward, Avis Jansen and Acquisition Sub Inc. a Mirage-owned company used to procure development land.

Woodward, the president and CEO of Boardwalk, and Sposato, the Boardwalk's chief financial officer, were both put to work after the buyout as executives for Acquisition Sub, according to the lawsuit filed through attorney Randall Jones.

The suit said Jansen, the chairwoman of the board, sold a separate 1-acre piece of land to Mirage for a high price in a deal that cut off one avenue for potential expansion for the Boardwalk, the second smallest casino on the Strip.

Jacobs, a major stockholder, cut off another avenue for expansion by selling a 3.7 acre piece adjacent to the Boardwalk in a lucrative side deal, the lawsuit stated.

"That ended the Boardwalk's ability to expand or negotiate a better deal with Mirage," the lawsuit alleged.

Scibelli, a stockholder and a former member of the Boardwalk's board of directors, was hired by the board to analyze the Mirage merger offer and make a recommendation to shareholders, the suit said.

The problem, according to the lawsuit, was that a large fee for the service was contingent upon the merger going through and Scibelli, in fact, recommended the questioned buyout and collected a $450,000 fee.

What attracted Mirage was the Boardwalk's 1,200 feet of Strip frontage nestled between the Bellagio and the Monte Carlo. The 33,000-square-foot casino and 654-room hotel sat on 7.8 acres.

Mirage already owned 23 acres that was part of the old Dunes hotel-casino golf course and adjacent to the Boardwalk property.

The lawsuit detailed how Mirage purchased 1.4 acres close to the Boardwalk for $9.4 million and then acquired the lease for the Country Star restaurant for $1.65 million. The 1-acre Jansen property was purchased for $8 million.

Mirage also bought $50 million in Boardwalk bonds to solidify the preliminary steps to prepare for the inevitable merger.

The lawsuit complains that the deal for the Boardwalk stock compensated shareholders only $4.6 million an acre, the lawsuit stated.

Cohen, who filed the lawsuit on behalf on himself and all minority stockholders, alleges in the legal action that Mirage "employed deceptive means to shrink the value of the Boardwalk by surreptitiously acquiring the bonds and surrounding parcels."

"To accomplish the purchase of the Boardwalk at a deflated price, Mirage sought and induced members of the board of directors to participate in and approve the undervaluing and sale of the Boardwalk," the lawsuit stated.

Mirage officials could not be reached for comment today.