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Tuesday, Jan. 12, 2010 | 7:30 p.m.
Attorneys for two members of Las Vegas’ Fertitta family moved Tuesday to block a threatened creditors’ lawsuit in the Station Casinos Inc. bankruptcy case.
Attorneys for Station Chairman and Chief Executive Frank Fertitta III and his brother, Station shareholder Lorenzo Fertitta, filed court papers opposing a request by Station’s Official Committee of Unsecured Creditors that the committee be allowed to prosecute fraudulent transfer and other claims.
The committee is asking Bankruptcy Judge Gregg Zive in Reno for permission to pursue those claims against the Fertittas and their partner in the 2007 leveraged buyout of Station, Los Angeles investment company Colony Capital LLC. A Jan. 25 hearing is set on the request.
The unsecured creditors committee, which represents creditors including bondholders owed $2.3 billion, last month said 2007’s $8.8 billion buyout saddled the company with excessive debt, dooming the company to failure while enriching the Fertittas, insiders and merger bankers with hundreds of millions of dollars in payments for stock and buyout fees.
The creditors, with their claims of fraudulent transfers and breach of fiduciary duty, hope to recover the funds at issue from the Fertittas, Colony Capital and banks involved in the buyout.
But attorneys for the Fertittas, in Tuesday’s court filing, asserted it was ridiculous to claim the Fertitta family would retain an ownership stake of
$870 million in Station if the Fertittas believed the buyout would render Station insolvent and wipe out the value of their investment.
“Rather than cashing out all of their shares, the Fertittas retained the vast majority of their financial stake in Station,” the attorneys wrote. “It defies common sense to suggest that the Fertittas would orchestrate the LBO in order to defraud the bondholders when they and their family stood to lose nearly a billion dollars before the bondholders lost a cent.”
“And why would they risk their reputations by continuing to serve as executives of Station following the LBO?” attorneys for the brothers wrote, adding the LBO details were aired publicly in Securities and Exchange Commission filings and hearings before the Nevada Gaming Commission.
The Fertitta attorneys added that while the bondholders have downplayed the $2.7 billion cash investment of Colony Capital in the deal, the Colony investment showed Colony “clearly believed that Station had significant growth prospects or it would never had committed billions of dollars of its own funds into the company.”
Station has insisted the economy, and not the terms of the buyout deal, led to last year’s bankruptcy of the Las Vegas locals gaming leader.
In their filing Tuesday, attorneys for the Fertittas repeated that point, saying that in 2007 the Fertittas had noticed a slowdown in economic growth but expected that situation to be temporary.
“Like so many others at the time, they sincerely (and reasonably) expected that the economy would improve the following year, not foreseeing that the modest slowdown in 2007 augured the financial calamity that befell the country in late 2008 — a catastrophe that marked the true turning point in Station’s fortunes and its descent into bankruptcy,” the court filing said.
"But attorneys for the Fertittas, in Tuesday's court filing, asserted it was ridiculous to claim the Fertitta family would retain an ownership stake of $870 million in Station if the Fertittas believed the buyout would render Station insolvent and wipe out the value of their investment."
That statement actually makes sense.
It will be interesting to see what the judge does.
Obviously, if he won't let the unsecured creditors pursue the claims, they will appeal and all of this will drag on for several years.
Wanna know what the Fertittas are like? Watch the movie Goodfellas in particular the scene which describes how a business going under gets a partnered with the you know what. The place gets all of it's credit and solvency maximized, then you know what happens...
"Rather than cashing out all of their shares, the Fertittas retained the vast majority of their financial stake in Station," the attorneys wrote. "It defies common sense to suggest that the Fertittas would orchestrate the LBO in order to defraud the bondholders when they and their family stood to lose nearly a billion dollars before the bondholders lost a cent."
Now that is classic lawyer speak. Think about it, folks. Wouldn't the Fertittas be able to manipulate their controlling interest to pull off further scams like the buyout? Wouldn't they be in a better position to benefit their own bottom lines even more than the buyout by retaining control of the company even after cashing out so much? Think about it: expansion projects, huge credit facilities, land grabs, and regular political donations under the company name to prevent anyone from nosing around their business.
It might seem hard to believe, but the Fertittas and their cronies have become masters at making themselves appear to be victims when they are really the culprits. Can you make money with a flop? Most people can't, but if you orchestrate a company to fail so you can get paid in the end, you get to spend all the company's money on your own needs, dump the debt, and then start spending again.
How many years did Frank and Lorenzo pay themselves more than a million a year just to run the company into the ground? How much do you think they used the company credit card in all that time, the corporate accounts for travel, etc.? Then there is that horrendous rent scheme with their PROPCO arrangement. Deals like that only get done when you have people at the top who care more about their own wealth than the company's ultimate success.
I guarantee that $870 million controlling interest paid all kinds of dividends for the "family" and is not yet even in any real jeopardy. After all, if these weasels do get out of bankruptcy with the same controlling interest, they can turn the whole company around again like nothing ever happened. It might even be easier to do that if enough of their debt gets canceled or goes uncollected.
These Fertittas are no angels, and they're not dumb. There's no way they didn't see all this coming and plan specifically for things to go down this way. Their retaining an interest in the company while robbing it blind is nothing new in the business world. (SEE ENRON)
How on earth is thier 870 million in jeopardy if they regain control of the company. They will walk away with everything. It is obvious they screwed the bond holders by intentionally structuring the deal so they didnt have to pay off the bond holders when they leveraged the four properties to the hilt. Also all those insider scum bags walked away with hundreds of millions of dollars in cash. Dont be fooled.
Boxer47 Very well put. The crime had already been committed with the buy out and the Ferttitas pockets were lined. The lawyers are now creating smoke and mirrors and the bankruptcy judge has swallowed the bait along with his reward. The United States Justice Department now needs to look at all of the players and find them a room in Leavenworth Penitentiary with the judge included.
my 4th grandchild is due in august, by the time he or she is 65 this fiasco might be over. i agree with homer, put these scumbags in prison right next to someone who lost their last paycheck at stations. we don't need communinism in this country, we need democracy. and if you think we're all equal, i have some ferritta's shares for you
The Fertittas are welshing scumbags, like most of society today (anyone out there walked away from their fixed or adjustable mortgage lately because -- oops! -- your property ain't worth all that money you borrowed to buy it?).
But the Fertittas -- and everyone else who decided that promises aren't worth the paper they are written on -- forget that some folks have a long memory. On this deal, they screwed a few people they graduated with, some people who used to do business with their father, and these people do not forget things like this. The boys can make all the money on earth by ripping off bondholders, building UFC and what-not, but the piper will be paid, eventually. When you break your word, sometimes people find a way to break parts of yours that you do care about. I mean, that's how these guys operate, right? You beg off a marker and they break your legs, literally or legally? Well, I hear there's talk someone at Nevada Gaming Control is quietly looking into legal challenges to their licensing, as well as that of any follow-on company (like Isle of Capri) should the BK court kick control of Stations to a third party. Evidently the thinking is that state law can hold gaming companies and their owners accountable for egregious bond defaults via their gaming license requirements, and that this would back-door any effort by the federal bankruptcy court to blow off the subordinated debt, vendor contracts, whatever. It would at least make the Fertittas pay where it hurts. Hope their friendship with Reid the Elder holds, because these scumbag boys might need the juice sooner rather than later.
I'm sorry but most of the commentary is pretty stupid and ignorant. Hindsight is 20/20 and it is so easy to monday morning quarter back this. It really shows a lack of understanding of the gaming market and where it was at in 2007. Gaming market valuations were sky high then. Third quarter of 2007 was the first quarter in the past 25 consecutive quarters that the Company experienced a decrease, year over year, in revenue and cash flow. Folks that is 6 years of continued improved profitability. You think you have one bad quarter and what the sky is falling. Give me a break. Nobody thought that. The deal closed that November. If any of us knew that at the time that the economy was going to take a dump, we would have all sold our homes before the market cratered, sold our shares in any gaming company before they all plunged to record lows a year later, but nobody did that so stop. The Company was growing by leaps and bounds and all future projections based on all the indian deals, Durango Station, etc pointed to the fact that they could absorb the debt. There was no crime committed. The Company has 15% revenue growth each year for 6 years so why would you expect it to stop
And why is Frank a criminal. Although employees are important, his job as CEO is to maximize shareholder value because they are the ones with the finacial investment at stake, not the frickin cocktail waitress and that is what he did. And at time 60% of the Company was owned by shareholders without the last name of Fertitta and they voted for the transaction. And the Fertittas have lost $870 million because they did not cash out in the transaction and if they do emerge from BK the secured creditors will own most of the Company and the family would retain a small stake in it. That is how it works.
And stop with the poor bondholder talk. Who were the idiots investing in $2.3 billion in unsecured debt. That's stupid and very risky. Had they sold secured debt at the time, they wouldn't be in this situation. They would own the Company.
Oh - and by the way, I assume everyone who claims personal BK to be absolved of their debts is a criminal as well. Probably had a mortgage, car payment, and maybe some credit card. They probably bought a house they thought they could afford and their income was going up each year so they should be able to make the payments and then boom, they lose their job and their personal revenue declines and they can't pay the bills anymore so they file BK. The credit card lender, kinda like the bondholder, is gonna get screwed because there are no assets to go after becuase it is unsecured debt. Same principals apply. Damn those people for filing BK. Those people are such scumbags, I'm telling you. We should throw them all in jail.
The key thing everyone should be focusing on is the judge, Greg Zive.
In making rulings (like refusing to appoint an Examiner) is he acting in the same way a bankruptcy judge, in another state like NY, Delaware or California, would rule?
Even Lehman Brothers is run, as a Chapter 11 debtor, by a court appointed Chief Restructuring Officer, Bryan Marsal, despite all of juice of Lehman's bankruptcy lawyers in New York.
Perhaps Judge Zive should do some Nevada history reading, specifically about Harry Claiborne. From Wikipedia:
Harry Eugene Claiborne (July 5, 1917 -- January 19, 2004) was a United States district court judge who was impeached for tax evasion. He was only the fifth person in U.S. history to be removed from office through impeachment by the U.S. Congress, and the first since Halsted Ritter in 1936.
Harry Eugene Claiborne was born in McRae, Arkansas and graduated from Cumberland School of Law at Cumberland University in 1941. He was admitted to both the Arkansas and Nevada bars, and spent two years as a deputy prosecutor before becoming a well-known defense attorney in Las Vegas.
Claiborne ran unsuccessfully for the U.S. Senate in 1964, losing in the Democratic primary. He was appointed to be a federal judge for the United States District Court for the District of Nevada by President Jimmy Carter in 1978, on the recommendation of his former opponent, Senator Howard Cannon.
Claiborne was indicted by a federal grand jury for bribery, fraud, and tax evasion in December 1983. In April 1984, however, the jury deadlocked and a mistrial was declared. He was tried again in July on only the evasion charges and was found guilty the next month, making him the first federal judge ever convicted of crimes while on the bench. Claiborne was sentenced to two years in prison in October, and was in prison from May 1986 to October 1987. Many lawyers and judges in the Nevada legal community regarded it as a case of selective prosecution. According to District Judge Michael Cherry in 2004, "He was very, very fair to criminal defendants to his detriment. I think that is why the government was so interested in prosecuting him and knocking him off the bench."[1]
Harry E. Claiborne was impeached by the United States House of Representatives on July 22, 1986, on two charges of tax evasion and one charge of bringing disrepute to the federal judiciary. He was convicted by the U.S. Senate on October 9, 1986, removing him from office.
Claiborne was allowed to begin practicing law again in Nevada in 1987, in a decision by the Nevada Supreme Court that implicitly questioned the federal prosecution.
On January 19, 2004, he shot himself to death in Las Vegas, Nevada, apparently due to his health battles with cancer and Alzheimer's disease.
Zive says it in one of the motions. Why use the cash of the estate for an examiner when the secured lenders' lawyers and financial advisor have spent months and incurred millions in fees reviewing the estate. It's a waste of money. The reality of this is the secured lenders own this company. The unsecured lenders have nothing.
Sounds like some people should have invested in WAMU... oh, um, Countrywide... Oh snap... Bank of Amer... oh... Hmmm... what was there to do in 2007 that was safe?!?
Burritobandit:
The buffet sucks cause they don't have all you can eat 1lb burrittos?, hun?
They stuck around after the LBO because they are greedy and to arrogant to think they would ever be in this position. WHY DON'T YOU PAY YOUR BILLS INSTEAD OF TRYING TO WALK AWAY FROM THEM. I WILL NEVER SPEND ANOTH DIME IN A STATION CASION AS LONG AS THEY ARE AROUND.