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January 30, 2015

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Caesars Palace: Millionaire’s $500,000 gambling debt before bankruptcy was fraud

Caesars Palace is suing the millionaire who owns the famed Beverly House estate in Beverly Hills, Calif., charging he fraudulently ran up $500,000 in unpaid gambling debts before filing for bankruptcy.

An attorney for Caesars Palace last week filed an adversary complaint in the Los Angeles bankruptcy case of businessman Leonard M. Ross.

Ross is known for owning the Beverly House, formerly known as the Hearst-Davies estate that was named for publisher William Randolph Hearst and actress Marion Davies.

The estate was put up for sale for $95 million, according to a Sept. 20 announcement regarding "unusual circumstances" that led to Ross filing for Chapter 11 bankruptcy reorganization on Sept. 15.

The estate hosted John and Jacqueline Kennedy on their honeymoon and was featured in the movies "The Bodyguard" and "The Godfather" -- the latter in a scene in which a movie producer awoke to find the bloody head of his prize horse in his bed.

Ross, known for owning companies including Rossco Holdings Inc., listed assets of nearly $133 million against liabilities of nearly $82 million in his bankruptcy filing.

Among the creditors listed in the filing are MGM Resorts International's Bellagio hotel-casino on the Las Vegas Strip, owed $350,000 for "cashed check and hotel/gaming;" and Caesars Entertainment Corp.'s Caesars Palace, owed an unknown amount for a "personal advance."

Caesars Palace, however, specified in its complaint last week that on Aug. 1 and Aug 2, Ross signed eight gambling markers totaling $500,000.

The markers -- check-like negotiable instruments signed by Ross against one of his bank accounts -- were presented to Pacific Mercantile Bank for payment dated Sept. 24, after the bankruptcy filing, but were returned and marked "closed account," Caesars' filings say.

"Defendant intended to, and did, deceive plaintiff by inducing plaintiff to extend credit to him for the purpose of gambling," Caesars Palace charges in its complaint, which asks the bankruptcy court not to discharge, or extinguish the debt.

"On the precise days and times that defendant signed and tendered the eight credit instruments/negotiable instruments at issue to plaintiff, he was devoid of any intention to honor the credit instruments unless his gaming activities were financially successful," Caesars charged in its complaint.

"Prior to the date and time plaintiff presented the credit instruments/negotiable instruments for payment, defendant wrongfully closed his financial account; hence defendant knew the credit instruments/negotiable instruments were worthless and would be dishonored.

"Defendant failed to notify plaintiff that the credit instruments/negotiable instruments were worthless and would be dishonored when plaintiff presented them for payment. Defendant’s conduct in failing to disclose that he had wrongfully closed his financial account assured that the eight credit instruments/negotiable instruments at issue would be dishonored, constitute defendant’s intentional and deliberate fraud against plaintiff, or otherwise obtaining credit by false pretenses and material representation," Caesars charged.

The casino added in its complaint: "The credit instruments/negotiable instruments and other documents at issue herein directly related to defendant’s financial condition at the time he signed and tendered them to plaintiff. Defendant knew that the aforementioned writings which he signed were materially false, as defendant represented that the credit instruments/negotiable instruments would be honored when plaintiff presented them for payment."

In the statement announcing the Beverly House was being offered for sale, Ross indicated his bankruptcy was tied to disputes with two banks.

A message for comment on the Caesars complaint was left with his bankruptcy attorney.

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  1. That may be true, but it's not like the casino actually lost anything. It was their mistake for giving him credit, now they want someone else to pay for it.

  2. Run up a debt, get a good lawyer and you've got it made. Nothing new.

  3. I often wonder when strolling thru the casinos and seeing people play blackjack for $500/hand...if the money is actually their money. You see it time after time, people running up bills and then declaring bankruptcy.

    Another shyster at work here gaming the system.

    Bring back debtor prisons. It will stop this nonsense in a heartbeat.

  4. Why are the taxpayers paying for this company'stupidity? We do not have the budget for it. NO more markers, they are not checks, they are IOUs to casinos. Rogers should say that he will no longer enforce any more "markers."

    I hope the jurors of this town put an end to the marker crap. Not guilty, pay them one 1/2 penny, the lowest coin in the realm.

  5. As we have seen in other cases, this is actually a crime in Nevada. They can haul this guy in and charge him like that Terrance K. Watanabe character.

  6. are you kidding me. Part of what's wrong with the economy today is people thinking that they can walk away from debt. Strategic defaults keep the real estate market depressed. If you sign your name, you are OBLIGATED to pay.

  7. he lost all the money at their tables = so they got it closed..

  8. In order to claim Bankruptcy, shouldn't your liabilities be greater than your assets? Thats like telling somebody I have $1,000 but I am unable to pay you the $500 I owe you!! Doesn't make sense to me....

  9. I agree Denver, the guy has 51 Million more in assets, then in liabilities. I understand through bankruptcy law, some of that money is untouchable, but come on. He can't make a deal with Ceasers? How much will he spend in attorney fees to fight it?

  10. Ceasars is handling this appropriately and criminal charges can not be ruled out either from the facts presented in this article. Also, this is a reorganization under Chapter 11, not a liquidation unde Chapter 7. As a unsecured debt it could be subject to discharge in whole or part under an approved reorganization plan or in a liquidation. However, US Bankruptcy Code section 523(a)(2)(A) will deny a discharge of a debt resulting from fraud, conversion, embezzlement, larceny, breach of fiduciary duty and willful and malicious injury to persons or property. It is incumbent upon the creditor to bring an adversary proceeding which Ceasars is doing. Sounds to me like they will prevail and the debtor will not be able to discharge this debt.

  11. To many people in this country, both rich and poor create debt then try to walk away from it and leave others hanging.

    This type of nonsense needs to come to a halt.

    Time for people to responsible for their own actions.

    Easy to see this is becoming the American way.

    Look how many posters here hope that the casino gets screwed. The same casinos that pay the taxes and way of life in this state. Not the brightest group I guess. ;-)

  12. Assets of $132k, Liabilities of $82k? That doesn't sound like he's bankrupt. Sounds like he still has $50 million more than me. I say sell everything he has, pay ALL debts and give him what's left over. Or maybe he could sell his own assets to pay his own bills (Like I have been doing).
    Does ANYONE take responsibility for their own spending habits anymore? When times get tough (like now) I cut expenses and if necessary, sell some things. I'm holding on by a thread, but I am paying my obligations.
    Meanwhile, the system is allowing these slobs to skate.
    Caesars deserves every penny on this one. And that dude needs to learn how to gamble. He seems to have the losing part down pat, but part of losing is bailing out long before the half million mark.

  13. I meant $182M, $82M in the above post.

  14. It seems like a lot of people commenting on this matter have little understanding of Chapter 11 of the US Bankruptcy Code. First, one need not be insolvent or even unable to pay debts when due to file a voluntary Chapter 11. It is a reorganization not a liquidation under Chapter 7, which most members of the public are more familiar with. Most Chapter 7's are filed because of crushing medical bills sufferred by the uninsured. Chapter 11 often allows creditors to receive more than they would otherwise receive in a liquidation because the debtor can reorganize their affairs and if necessary sell off assets in a more orderly non fire sale manner. Furthermore it allows the business to continue operating thereby preventing people from losing their jobs, etc. I reiterate my last comment, from the facts in the article it appears by closing the account prior to executing the marker, Ceasar's was defrauded. If it can prove this in court which shouldn't be to difficult, if that is in fact the case, the Bankruptcy Court will not allow the $500,000 to be discharged simple as that. The Bankruptcy Laws of this country serve a valid purpose, to do away with Bankruptcy protection would be absurd.

  15. At the time the marker was provided the bank account may have been open. I don't understand why the casino waited until after the bankruptcy filing to go to the bank to get their money. If a person is extended that much credit, why wouldn't the casino present the request to the bank the next business day? If the account was open for a reasonable time after the marker was written, and if the account, at the time the marker was provided, did have sufficient funds to cover the marker, then the casino may be seen as just another unsecured creditor. I simply don't understand the casino's delay in presenting the marker to the bank. Wouldn't you expect the casino to act promptly when the amount was so large?

  16. Scandalrag, I understand that gambling debts are unenforceable in California, but this marker was executed in Nevada and I would bet $500,000 (provided that I could get a marker) that the instrument this individual signed stated that it was enforeceable under Nevada law. I would expect the US Bankruptcy judge to apply Nevada law to determine the existence of the debt in question. Also, what if this guy gets successfully prosecuted for writing a bad check and is ordered to pay restitution. Fines and restitution are not dischageable in bankruptcy. As to why Caesars waited so long, I don't think they forgot about it. I am not an expert in casino operations, but this guy was what is known as a "whale" in casino jargon. You don't want to convey to such an individual that you don't trust him by sending a representative to his bank to cash his marker before the wheels of his private jet touch down on the tarmac at some So Cal airport. Especially if he has lost a ton of money to you previously and been good on prior markers.

  17. Scandalrag, Also suggest you take a look at In re Richard Bradley Miller, a Ninth Circuit Appellate Bankruptcy case, BAP CC-02-1298PKMa, in its discussion of the application of Nevada law concerning the existence, validity and enforeability of a debt evidenced by a marker executed by a resident of California in Nevada at a Nevada casino, in this case Mandalay Bay.

  18. that should be, enforceability (spelling).