Tuesday, Dec. 21, 2010 | 1:55 a.m.
A company that lost six casino properties in Northern Nevada to foreclosure sued bank officials and the Federal Deposit Insurance Corp. on Monday, charging the bankers rigged the sale of a casino loan to favor the buyer.
Four Holder Hospitality Group entities filed suit Monday in U.S. District Court for Nevada against the FDIC, receiver of the failed First National Bank of Nevada; and banking executives Phillip Potamitis and Ashan Perera.
The suit says Potamitis and Perera were officials at First National Bank of Nevada and remained with Mutual of Omaha Bank in Las Vegas after Mutual of Omaha took over First National Bank of Nevada's deposits in July 2008.
The Holder entities, several of which filed for bankruptcy protection in June 2009, say the casinos at issue in the suit are Parker's Model T in Winnemucca, the El Capitan in Hawthorne, the Silver Club in Sparks, the Commercial Casino in Elko, the Stockmen's Casino in Elko and the Scoreboard Sports Lounge and Casino in Spring Creek.
The casinos backed a $33 million loan issued by First National Bank of Nevada to the Holder entities in July 2007.
The suit says that before the failure of First National Bank of Nevada, Potamitis had developed a relationship with Wendy's of Colorado Springs Inc. in Colorado.
That company is headed by Richard Holland, a casino operator in Cripple Creek, Colo., who is known for owning more than 80 Wendy's and Golden Corral restaurants in the Midwest and West.
Holland is now the licensed owner of five of the properties at issue in the lawsuit. The sixth, the Silver Club, closed in January 2009.
Monday's lawsuit charges Potamitis and Perera, while still with First National Bank of Nevada, "began to facilitate'' a takeover of the Holder properties by Holland's company.
The suit says the bankers were aware of the downturn in the gaming industry and were familiar with the Holder companies' credit agreement.
"They knew that, although the loan payments were modestly behind, the value of the assets securing the loan greatly exceeded the debt. That combination presented a lucrative opportunity for someone to take over these businesses by acquiring and foreclosing on the loan,'' the suit charges.
Later, it alleges "Potamitis and Perera's goal was to use their influence over FDIC's management of plaintiff's credit agreement to assist Wendy's of Colorado Spring's takeover of plaintiffs' gaming facilities at a fraction of their true value.''
The suit says that in August 2008, in an effort to pay down the debt, the Holder entities had negotiated a sale of the Silver Club and the Model T at a "reasonable price'' and would use the proceeds to pay $13.7 million to the FDIC against the loan.
This plan was rejected by Potamitis, the suit alleged, and in September 2008 the FDIC rejected another gaming operator's attempt to purchase the loan for more than $15 million, the suit said.
Five months later the FDIC sold the loan backed by $33 million in assets to Wendy's of Colorado Springs for about $8.3 million, the suit charges. The principal balance at that time was $32.75 million, court records show.
"Wendy's of Colorado Springs' purchase of the loan allowed them to foreclose and thereby acquire ownership of all six properties securing the loan. They thereby achieved an enormous windfall at the expense of the FDIC and the plaintiffs,'' the lawsuit charged.
The Holder suit also alleged Potamitis and Perera did other things for their "friends'' at Wendy's of Colorado Springs, such as delaying the auction of the Holder loan so Wendy's of Colorado Springs could resolve its own problems with a loan it had outstanding at the FDIC-controlled First National Bank of Nevada.
Potamitis and Perera also helped Wendy's of Colorado Springs by arranging to sell this Wendy's of Colorado Springs loan to Mutual of Omaha Bank at a $2.5 million discount, the suit alleges.
"Because they had received, with the assistance of defendants Potamitis and Perera, what was in essence a $2.5 million gift, they had the financial ability to buy plaintiffs' loan,'' the suit says of Wendy's of Colorado Springs.
The suit also charged that, using Potamitis and Perera as primary sources of information, the FDIC incorrectly projected that the EBITDA for the Holder properties in 2008 would be $2.38 million — which greatly underestimated the actual results for the properties. EBITDA is a profitability measure meaning earnings before interest, taxes, depreciation and amortization.
The suit, filed by attorneys with the Florida law firm of Beggs & Lane RLLP, charges breach of the implied covenant of good faith and fair dealing against the FDIC and intentional interference with contractual relations against Potamitis and Perera and seeks damages of more than $60 million.
Messages for comment on the suit were left with the FDIC and Mutual of Omaha Bank.
Bankruptcy court records show that, from the point of view of Holland, the casinos at issue were worth about the $33 million claimed in the lawsuit — well below the $39.555 million principal balance by August 2009.
Attorneys for a Holland company asked Bankruptcy Judge Gregg Zive in August 2009 to allow them to foreclose on the casinos, saying the casinos were not in compliance with a loan covenant requiring them to earn EBITDA of at least $7 million on a trailing 12-month basis.
Trailing 12-month EBIDTA of $7.7 million in the third quarter of 2007 had plunged to $4 million by the second quarter of 2008, a bankruptcy court filing shows.
After Holland's attorneys argued the Holder entities had substantial negative equity in the casinos and there was no possibility of effectively reorganizing the enterprise within a reasonable time, Zive approved the foreclosure in October 2009.
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