LV Entertainment Network confirms SEC investigation

David Strow

Thursday, Aug. 24, 2000 | 11:34 a.m.

Las Vegas Entertainment Network Inc., the Los Angeles company involved in a bizarre unsolicited takeover bid for Jackpot Enterprises Inc. of Las Vegas last October, said Wednesday it is under investigation by the Securities and Exchange Commission.

The revelation came in a form filed Wednesday with the SEC. In the report, LVEN said its independent auditor had resigned after being called as a witness by the SEC.

"The Commission has raised a number of questions concerning LVEN's financial statements for prior years as well as transactions that may be reflected in LVEN's financial statements for the fiscal year ended Oct. 31, 1999," said auditor Victor Hollander in a July 13 letter to LVEN Chairman Joseph Corazzi that was included in Wednesday's filing. "Under these circumstances, we question whether we can continue to remain independent and to complete an audit of those financial statements. Therefore, we have determined not to take any further audit work for LVEN."

Because of the resignation, LVEN said it will be unable to provide current reports to the SEC for the time being. The company has not filed quarterly financial reports with the SEC since September 1999.

LVEN officials could not be reached for comment. The number for Hollander's firm provided with the filing is now the number for Sooriya Networks, an unrelated technology firm in Encino, Calif.

The federal government first intervened in the LVEN case on Oct. 18, when it ordered Nasdaq officials to suspend trading in the company's stock. At the time, the SEC said it "is of the opinion that the public interest and protection of investors require a suspension" of LVEN trading.

The suspension came after LVEN made a $95 million unsolicited bid for Jackpot Enterprises Inc. News of the bid caused LVEN stock to more than double in value in a single day, then crash to a level lower than its market open. LVEN withdrew the Jackpot offer one day later.

While the SEC has not said why it's investigating LVEN, the unusual trading activity in LVEN stock last year indicates the federal agency is looking into whether the stock price was manipulated to the detriment of outside investors.

LVEN was also a central figure in International Thoroughbred Breeders' efforts to sell the defunct El Rancho hotel-casino on the Las Vegas Strip. Throughout last year, LVEN said it was brokering a deal to sell the hotel on behalf of ITB, and said it would be eligible to receive a portion of proceeds from this deal.

Turnberry Associates purchased the El Rancho in May for $45 million. It is not known if LVEN participated in this deal.

An unusual element in the Jackpot "bid" was the involvement of Las Vegas resident Fred Cruz, who was supposedly providing $190 million to help finance the Jackpot acquisition, as well as the acquisition of a slot machine business in Brazil. The SEC later cited this alleged investment as a point of concern in its investigation of the LVEN filings.

The company was formally delisted from the Nasdaq in March. At that time, LVEN said it had rescinded the transaction with Cruz and canceled the shares issued to him.

Despite the split with LVEN, Cruz's company, Countryland Wellness Resorts Inc. of Las Vegasa, has continued with its unusual financing activities. In May, Countryland said in an SEC filing that it had sold mining interests in Plumas County, Calif., for $2.7 billion in treasury bills and certificates of deposit.

The T-bills and CDs weren't backed by U.S. dollars, but by the "Dominion of Melchizedek," a self-identified "ecclasistical (sic) sovereignty" that claims sovereignity over several small islands in the Pacific Ocean and portions of Antarctica. The sale, Countryland's filing stated, would allow the dominion to issue Internet-based and printed currency backed by gold.

Countryland now lists its assets at $2.7 billion, as it claims "Dominion dollars" are exchangeable one-for-one into U.S. dollars. However, it said repayment of the T-bills would be dependent on the successful development of the Plumas County mines.

In another apparently unrelated recent twist, former International Thoroughbred Breeders principal Robert Brennan was arrested last month in New Jersey on charges of bankruptcy fraud.

Prosecutors said Brennan attempted to hide from creditors $500,000 in chips he cashed at the Mirage hotel-casino.