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September 2, 2014

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Palms steps up allegations against nightclub operator

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King of clubs: Michael Morton, co-founder of the N9NE Group, is shown at Nove Italiano restaurant, one of his seven venues at the Palms.

George Maloof

George Maloof

New and more extensive allegations of wrongdoing are being asserted by the Palms hotel-casino in Las Vegas against restaurant and nightclub operator Michael Morton.

Morton heads the N9NE Group, which runs popular restaurants and nightclubs at the Palms.

He's engaged in acrimonious litigation with Palms owner George Maloof Jr. over Morton's management of their joint venture that owns the clubs and restaurants -- and over charges by Maloof that Morton has diverted company resources to develop a wine bar restaurant at Wynn Las Vegas called La Cave.

Morton has denied these charges and his attorneys have complained that Maloof and disgruntled N9NE Group investors are trying to force him out of their lucrative venture and hijack the Wynn restaurant business.

The latest salvo in the litigation came this past week when Las Vegas attorney Donald Campbell, representing the Palms, filed a court affidavit spelling out the conclusions of his investigation of Morton.

Campbell, of the firm Campbell & Williams, said in the affidavit that as a former federal prosecutor specializing in white collar crime and organized crime, he was hired by Maloof in June 2009 to investigate Morton after Maloof received information "to the effect that Michael Morton was engaged in serial acts of misconduct including both theft and embezzlement."

"My findings included that there was probable cause to believe that Mr. Morton had committed both civil and criminal violations of law, including fraud, embezzlement, income tax evasion, subscribing to the filing of false income tax returns and possible violations of federal election laws," Campbell's affidavit said.

Campbell declined Friday to elaborate on these findings, saying that out of respect for the judicial process he preferred to reserve further comment for the court.

Mark Ferrario, an attorney for Morton with the firm Greenberg Traurig, said the evidence he's seen so far doesn't substantiate those allegations against Morton or suspicions about Morton.

In earlier court filings responding to complaints about Morton leveled by Maloof and the disgruntled investors, attorneys for Morton and the joint venture company, N-M Ventures, denied allegations that included Morton had extravagant dinner parties at his home and stocked his personal wine cellar at N-M's expense and that he used company personnel to develop La Cave.

The problem now for Morton and his attorneys is they don't know what information Campbell obtained last year from auditing firm PricewaterhouseCoopers as part of what Campbell calls a "forensic review" of N-M Ventures and what Ferrario calls an "audit."

Morton and N-M Ventures are asking Clark County District Court Judge Elizabeth Gonzalez to force Campbell to turn over the PricewaterhouseCoopers information -- a request resisted by Campbell who calls the information "protected work product" done in anticipation of litigation.

Without knowing the contents of the PricewaterhouseCoopers report, N-M Ventures attorney J. Stephen Peek of the firm Holland & Hart LLP said during a Nov. 19 hearing: "I hear an awful lot coming from that side about embezzlement and purloining ... I still don't know what this case is about."

The stakes are huge for all sides, he said, because even if Maloof and the investors succeed in pushing Morton out of N-M Ventures, the restaurant and nightclub company would likely be destroyed as Morton would take with him the company's intellectual property such as trade names, Peek said.

"The trade dress and the trade names go with him. So they want to destroy the companies, by throwing him out," Peek said.

Appealing again for access to the PricewaterhouseCoopers information, Peek wrote in a Nov. 19 court filing: "What must not be lost upon this court is that N-M Ventures is being denied access to an audit of its own books and records."

He said the information was collected not in anticipation of litigation, but because the state Gaming Control Board on April 9, 2009, had issued a directive to all nonrestricted casino licensees to review their practices and procedures -- including accounting/auditing procedures -- related to nightclub operations because of concerns about illegal activity going on in the clubs within the licensed gaming businesses.

These problems included excessive drunkenness, drug sales and abuse, violence, prostitution, over sexual acts in public, the presence of minors, the mishandling of incapacitated customers, date rape, extortion/misquoting of service charges, restricting access by law enforcement and failure to coordinate with casino security.

"As the entity which operates the venues which are subject to being scrutinized pursuant to the directive, N-M Ventures has a substantial interest in being supplied the audit so that it can determine if there are any measures that may need to be taken to enhance or augment any of their controls," Peek wrote. "N-M Ventures certainly should be entitled to obtain access to the audit reports and conclusions of the PricewaterhouseCoopers audit so it can defend itself against claims of mismanagement."

Campbell, however, said in court papers that his forensic review was independent of what was done at the Palms and N-M Ventures related to the Gaming Control Board directive.

"There is a monumental difference between addressing the general accounting procedures and practices of N-M Ventures and engaging in a forensic investigation of the financial state of the company," Campbell wrote in a filing.

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  1. drunkenness No...sounds familiar, anyone we know???

    maybe the gaming control people should shut down the whole establishment while this whole thing is sorted out???

  2. Just my opinion, but this is no financial audit, and it has nothing to do with the Gaming Control Board's directive to these operations to look at their accounting/internal controls, etc (I sure would love to look at the PriceWaterhouse Coopers engagement letter). It should be referred to as a forensic examination. These terms have particular meanings, different procedures and reports are involved, as well as different ethical standards are applied. For example in an audit the CPA is required to be independent, not so in the the case of a forensic examination. In an audit the accountant is primarily looking for errors and improper application of accounting rules, not fraud. Hence, you often find wording in auditor's opinions accompanying a company's financial reports such as "Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material mistatements due to error or fraud may not be prevented or detected on a timely basis." I am betting that PriceWaterhouse Coopers was given specific items to look at because usually in these engagements an area of suspicion is isolated and everything in that area is looked at.

  3. What, Delta you don't like the messed up or unkempt look?, that was in............about two years ago. LOL. I'm told it was all about fun and attitude!