Bank seeks to foreclose on club, leaving others owed with zilch

By Jeff German (contact)

Tuesday, Oct. 21, 2008 | 2 a.m.

The federal government’s stalled efforts to sell the Crazy Horse Too are once more falling victim to the nation’s economic crunch.

An impatient California bank has asked U.S. District Judge Philip Pro to lift his stay prohibiting the bank from foreclosing on the government-seized strip club to satisfy a $5 million loan it made to former owner Rick Rizzolo.

If the judge allows California Security Bank to grab the property, the government would no longer have anything to sell, and that could dim a Kansas City-area man’s chances of collecting a $9 million settlement from the Crazy Horse Too stemming from paralyzing injuries he suffered in a 2001 fight there.

The U.S. Marshals Service was hoping to use proceeds from the club’s sale to pay Kirk Henry and take care of millions more Rizzolo owes the government as a result of a deal to plead guilty to tax evasion in June 2006.

But the bank is one notch ahead of Henry on the court-approved list of creditors.

“In these perilous economic times, there is no justification for forcing Security Pacific to sit on the sidelines while trouble in the credit market and banking and real estate industries destroys its asset’s value,” lawyers for the bank said in court papers Monday.

Since losing its city liquor license in June, the Crazy Horse Too’s value has plummeted under the supervision of the Marshals Service from roughly $30 million to $4.6 million, the bank’s lawyers said.

The marshals have done little to market the club in the past four months.

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In a historic opinion, U.S. Bankruptcy Judge Bruce Markell has instructed the Nevada Gaming Control Board to turn over parts of the original license application of billionaire Sheldon Adelson to lawyers for Las Vegas Review-Journal columnist John L. Smith.

The 87-page application, filed in 1989, is considered confidential by state law, but Markell ordered the Control Board to give Smith’s attorneys, Don Campbell and Richard McKnight, seven pages relevant to their defense of Smith in a libel suit brought by Adelson. The suit, which stems from the way Smith portrayed Adelson in his book, “Sharks in the Desert,” was moved to Bankruptcy Court after Smith sought to reorganize his debts there.

Not since 1986, during the course of former Sen. Paul Laxalt’s libel suit against McClatchy Newspapers, has a court ordered the board to turn over any secret files.

Markell went behind closed doors Oct. 10 to review Adelson’s license application, along with the Control Board’s 367-page investigative report. The judge reported that he didn’t find any information relevant to Smith’s defense in the investigative file, but he instructed the Control Board to give Smith’s attorneys the confidential application pages, some in censored form.

The seven pages were supposed to be produced Monday, but Adelson’s lawyers filed court papers asking Markell to stay his order while they appeal it to a U.S. district judge.

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For the first time in years, the Nevada U.S. attorney’s office is on its way to filling all of its budgeted prosecutor positions.

“The order we have from Washington is to hire, and we’re working as fast as we can to do that,” U.S. Attorney Greg Brower says. “It’s a very encouraging sign.”

Congress, he says, seems to be paying more attention to funding for prosecutors since the political controversy over the abrupt firings of nine U.S. attorneys, including Brower’s predecessor, Daniel Bogden, under the administration of former Attorney General Alberto Gonzales.

Brower says he has 40 full-time attorneys in the office handling civil and criminal cases and hopes to fill another five to seven positions by the end of the year.

Once that task is completed, Brower may have to turn his attention to keeping his own job. He is an appointee of outgoing President George Bush, a Republican.

If Democratic Sen. Barack Obama wins in November, the chances of Brower holding onto the reins of the office diminish, unless he receives some bipartisan support in high places.