By Jeff German (contact)

Fri, Sep 8, 2006 (7:28 a.m.)

The Las Vegas City Council got tough with strip club owner Rick Rizzolo this week - sending a signal that public officials won't tolerate the behavior that led to his criminal troubles.

What the council apparently didn't foresee, however, was that its strong response jeopardizes the work of the federal authorities whose investigation led to Rizzolo's downfall.

That realization weighed on the mind Thursday of Las Vegas Councilwoman Lois Tarkanian, one of six council members who voted the previous day to strip Rizzolo of his liquor license at the Crazy Horse Too and fine him $2.2 million.

"The vote that we took spawned action in a direction I don't think we anticipated, one of which is the possible falling apart of the federal punishment of Rizzolo," Tarkanian said.

Rizzolo's attorneys and sources at the federal courthouse voiced concerns that the City Council's vote could inhibit Rizzolo's ability to pay $17 million in restitution to the federal government and a Kansas City-area man who was left a quadriplegic following a beating at the Crazy Horse Too in 2001.

As part of an agreement with the government that ended a decadelong criminal racketeering investigation, Rizzolo pleaded guilty in federal court June 1 to tax evasion and agreed to pay the hefty restitution and serve up to 16 months in prison. Sixteen of his employees also pleaded guilty to criminal charges in the deal.

Rizzolo's lawyer, Tony Sgro, said the City Council left his client with little wherewithal to fulfill the financial obligations outlined in the plea agreement.

"They tampered with a plea negotiation with the federal government that took four years to accomplish," Sgro said. "Without a liquor license, we can't financially perform."

Sgro said he filed a complaint in District Court late Wednesday to overturn the vote and sought a temporary restraining order Thursday to stop the city from revoking the liquor license. The city served the revocation order to the club about 4 p.m. Thursday.

Without a license, the club's value has plummeted, and a prospective buyer is no longer interested, Sgro said.

Rizzolo, the attorney said, was counting on selling the popular club at a strong market price to pay for the $17 million in restitution, $10 million of which is supposed to go to the Kansas City-area man, Kirk Henry.

"The City Council simply exacted an additional pound of flesh, when there were only a couple of ounces left," Sgro said.

Natalie Collins, a spokeswoman for the U.S. attorney's office, which negotiated the plea agreement with Rizzolo, declined to comment.

But Sgro said federal authorities involved in those negotiations are as astonished as he is over Wednesday's vote.

"There isn't anyone associated with this case who isn't completely surprised by the council's decision," Sgro said.

But not everyone at the federal courthouse is as upset as Sgro.

"At the end of the day, the City Council had every right to do what it did," one courthouse source said. "There's a belief by some that Rizzolo is more well-off financially than he's led people to believe."

Last August, the Sun reported that Rizzolo had signed a generous divorce settlement with his longtime wife, Lisa, turning over a large portion of financial assets to her. He gave her a $7.2 million investment fund, three homes totaling more than $2 million and three luxury cars. He also agreed to pay her $1 million in alimony over five years.

Sgro, nevertheless, found an unlikely ally in Henry, whose wife, Amy, pleaded with the City Council on Wednesday not to take away Crazy Horse Too's liquor license.

On Thursday, her Las Vegas lawyer, Stan Hunterton, said the council's action made it tougher for the Henrys to get their money.

The Henrys, he said, have received only $1 million so far from Rizzolo.

"Five of the City Council members made speeches about how important it was for the Henrys to be paid, and then they voted to make it harder for them to be paid," Hunterton said. "I don't ever remember seeing such hypocrisy in a public body."

Despite her reservations about the vote, Tarkanian and other council members defended it.

"The written material we received was not supportive of leniency," Tarkanian said.

Councilman Gary Reese said he and his colleagues had no other choice but to be tough on Rizzolo.

"What else could we have done?" he said. "To me, the steak was on the plate, and we had to eat it."

Councilman Steve Wolfson described the vote as an easy call, saying the council had an obligation to protect the city's integrity.

"It was the right thing to do," he said.