Las Vegas Sun

March 28, 2024

Shareholders allege conflict involving Las Vegas investor, Vestin Mortgage

SUN STAFF AND WIRE REPORTS

SYRACUSE, N.Y. -- A Las Vegas investor and his associates have been accused of bilking an upstate New York harness race track of $7.5 million in questionable loan fees.

A lawsuit filed Wednesday in federal court by three shareholders also claims Shawn Scott lied to gain control of the stock of Vernon Downs' parent company, Mid-State Raceway Inc.

Scott said Thursday he had not seen the lawsuit. "We have to wait until we read it to respond," he told The Post-Standard of Syracuse.

The lawsuit was filed by John Signorelli, a former track executive who resigned in 2001 after being fined by state regulators; Jeff Gural, a New York City businessman whose recent offer to buy the track was spurned by Scott; and longtime shareholder Gary Greenberg.

"Scott and his affiliates looted Mid-State, obtaining millions of dollars in exorbitant commitment and loan fees and excessive interest payments," the lawsuit says. It cited an interest rate of 25 percent on the most recent loan, track payments of nearly $1.5 million in fees for a $1.5 million loan in January, plus $2 million in fees for a $3 million loan in June.

Meanwhile, Vernon Downs is losing about $5 million a year with the debt now at $23 million owed to Vestin Mortgage of Las Vegas, of which Scott is an investor, the suit alleged.

The lawsuit comes as the track, 35 miles east of Syracuse, is trying to get licenses to race horses next season and to open a casino as early as February. Track officials say the casino's electronic gaming machines could bring in $80 million a year. The casino can't open unless the track has a license to race horses.

Scott began to exert influence over Vernon Downs in 2002 when he loaned the financially ailing track about $9 million. Through that loan and a series of others, he has gained the rights to appoint the majority of the Mid-State board and buy up 80 percent of the company's stock.

The lawsuit says that Scott won those rights only by defrauding the board and stockholders. Last week, his mother, Victoria Scott, exercised some of those rights and bought a majority share of the track.

Stacy Clifford, a spokeswoman for the state Racing and Wagering Board, said the board will review the lawsuit in deciding whether to let Vernon Downs race horses next year.

"It will be looked at in the track license application along with many, many other factors," Clifford told the newspaper.

A spokeswoman for the state Lottery Division, which issues the race track casino licenses, declined to comment.

In Business Las Vegas, a sister newspaper to the Las Vegas Sun, reported in September that Vestin agreed to arrange a $23 million loan for Mid-State's harness track in central New York that aims to install slot machines to boost its financial performance as a "racino."

About $2.7 million of the loan will initially be reserved for the construction of a slot machine casino at the track that would offer at least 500 machines, In Business reported.

The initial loan was to be $20.3 million, In Business reported.

In Business reported that of the $23 million loan, Vestin funded $12 million, Owens Mortgage Investment Fund provided $8 million and All Capital -- a limited liability company of which Scott is the owner -- funded $3 million.

Vestin received a fee of $1.84 million to arrange the loan, documents show.

Vestin Mortgage was named as a defendant in the shareholders' suit. Vestin officials denied the allegations and vowed to fight the suit.

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