THE USUAL SUSPECTS: Global Cash Access Holdings, Kirk Sanford, Kathryn Lever, Karim Maskatiya, Omer Sattar, Fertitta Enterprises All Collude in Xyience Bankruptcy Efforts

Posted on | April 13, 2008 | 3 Comments

BY: Rich Bergeron

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Even after a sale of the company’s assets free and clear of liens, new evidence is emerging tying together all the parties that made the ongoing bankruptcy of Xyience possible in a fraudulent scheme reeking of potential RICO Act violations. Revelations released in two separate derivative complaints brought against Global Cash Access (GCA) Holdings illustrate what the company’s own internal investigation failed to report about shady activity that led to a ¾ depreciation of the company’s overall stock value in November of last year.

The plunge in company stock closely followed the departure of GCA employees Kirk Sanford and Kathryn Lever to pursue opportunities made available at Xyience under Fertitta Enterprises funding. Karim Maskatiya, who is the founder of GCA, also reportedly invested about $5 million in Xyience. Fertitta Enterprises, GCA, and Xyience are not only related by financial ties, they also share a similar pattern and history of fraudulent behavior. However, a closer look at that history related to GCA’s actions puts their transgressions in a whole new category since there is no record that Xyience or Fertitta Enterprises have yet been sued for previous RICO Act violations.

The extensive record of past litigation against GCA lists one 1999 California case that does not include any electronic records of filings but does display the glaring charges brought under U.S. Code 18:1961’s Racketeering (RICO) Act against GCA’s Kirk Sanford and Karim Maskatiya. Click here for Findlaw’s definition of what the RICO charge entails. Attempts to appeal the judgment in the racketeering case failed. Records show no further activity on the claim exists after 2003.

Another case with interesting and telling allegations came before The Superior Court of California in Sonoma County about a year ago. Allegations by a GCA employee alleged sexual and gender bias in treatment of employees along with even more egregious charges. Mary Lynn Scillacci (a former GCA employee who worked at an on-site cash access booth on the gaming floor at the River Rock Casino in Geyserville, California) filed suit against GCA for Wrongful Termination, Defamation, Intentional Infliction of Emotional Distress, Violations of the California Labor Code, Interference with Economic Advantage, and Violation of Business and Professions Code Section 17200. Scillacci claimed to have lost her job after weathering the adverse conditions imposed by male management staff at the casino until GCA allegedly fired her for raising issues regarding a failure to audit records.

Scillacci’s whistle blowing betrayed a nonchalance of GCA officials regarding proper accounting of cash transactions at the casino booth. Her superiors attempted to blame Scillacci herself for the auditing oversight despite her claims that she had no responsibility to audit the booth in question. Rather than being rewarded for calling attention to the problem, Scillacci was suspended by the company until an internal investigation exonerated her according to her complaint. The suit further explains that Scillacci’s previous job performance was so extraordinary that her superior recommended her for the highest possible raise that resulted in two promotions in the period of one year. She subsequently became a senior customer service representative at the casino around the time of October of 2003.

The complaint starts by outlining some of GCA’s qualities and responsibilities as a company:

There is also a lengthy criminal case related to Global Cash Access regarding the alleged embezzlement and money laundering of Defendant Mark Steven Miller. By a sheer ironic twist, the same day of Xyience’s public “auction” date (April Fools Day), Miller agreed to forfeit some of his family’s property and pay $30,000 in penalties with a re-sentencing hearing scheduled for May 5, 2008. The case originated on February 1, 2002.

GCA’s extensive litigation history culminates with the recent filing of two nearly identical derivative shareholder complaints against a contingent of GCA insiders including Sanford and Maskatiya as well as a class action suit filed this past Friday. Again the problem details issues with accounting and auditing. When Kirk Sanford left GCA along with Kathryn Lever to join Xyience last November, the stock took a mid-November nosedive it never recovered from. Though there was another internal investigation and earnings reports were delayed as a result, none of the findings of that investigation resulted in any culpability or accountability on the part of any company employee.

The two derivative lawsuits (#1, #2) detail accounts of possible insider trading, fraudulent activity regarding under-reporting of damaging news, failure to provide millions of dollars in deserved commissions to clients, and breach of fiduciary duty charges.

The Las Vegas Review Journal reported on the class action case and pointed to issues with commission computing errors contributing to a “false and misleading” 2005 prospectus for a GCA public offering.

Compared to the similar litigation history of Fertitta Enterprises and their representatives, particularly with respect to the Station Casinos merger, the groundwork is there for a Civil RICO complaint against all involved parties in the Xyience bankruptcy. The GCA group and Fertitta Enterprises officials have all demonstrated an intricate pattern of fraudulent activity that they have for the most part been able to get away with thus far. Though civil penalties and legal fees might have slightly injured both groups of related individuals and their businesses in the past, criminal prosecution has never been pursued.

Our initial “Enron of MMA” report lays out exactly how the GCA contingent and Xyience cooperated and colluded with Fertitta Enterprises to bankrupt Xyience after setting up a huge UFC sponsorship deal. Since that report that predicted the bankruptcy long before it happened the nephew of GCA’s Founder Karim Maskatiya has taken the reigns of Xyience and made several declarations in bankruptcy court. Omer Sattar is now pretty much the only remaining GCA face representing the Xyience bankruptcy in the public eye. Kirk Sanford has since resigned from Xyience along with fellow Co-CEO Adam Frank. Maskatiya and Kathryn Lever have not offered any published comments on the subject.

Though Sanford and Frank were both said to be working for free in the Bankruptcy documents detailing their resignation, records show they were both actually paid hundreds of thousands of dollars as a direct result of the Fertitta funding of Xyience.

Frank, who was one of the longest standing Xyience board members when he resigned, signed a declaration that is the cornerstone of Xyience’s $25 million defamation case against me. A hearing to strike that affidavit as perjured testimony based on a contradictory recording of Frank I made last year (see below player) has been delayed multiple times by Xyience attorneys. Our Xyience page also includes copies of both the Frank affidavit and the recording of a brief, but incriminating conversation I had with Frank and Sanford prior to meeting both men during a UFC 78 junket paid for by Xyience:

Former Xyience investors claimed recently that Frank and Sanford resigned from Xyience in order to participate in their own separate bid for the company. Some sources pointed to both former Co-CEOs possibly becoming involved with Manchester Consolidated Corporation, which is the parent firm of “NEWCO,” the entity which will apparently take ownership of Xyience due to a recent approval of the sale of the company free and clear of liens.

Details of the sale process are still emerging, mostly through depositions regarding an attempt to delay the sale. Objections to the sale levied by legal representatives of the Bankruptcy case’s committee of unsecured creditors point to a possible conflict of interest in the deal. Manchester Consolidated is the only company known to have met with Xyience officials regarding a sale prior to the bankruptcy proceedings. Officers of Manchester which make up almost half of the entire company’s employees are also directly connected to Cott through their former high level employment there. Cott is the bottling plant that manufactured the stockpile of Xenergy purportedly worth $8 million that is at the heart of the bankruptcy proceedings.

Manchester representatives had at least three discussions with Xyience representatives, namely Frank and Sanford, prior to making their bid to buy the brand. Depositions in the bankruptcy also revealed that they met with Fertitta Enterprises GM Bill Bullard before the bankruptcy, too. A deposition of Sierra Consulting Group’s Ted Burr outlines other provisions of the company’s attempts to market the sale to other potential buyers. Though it seems there was a significant campaign to put the word out on the sale, Burr’s deposition does seem to indicate that more time might have been helpful in securing a better, less compromised, and more beneficial sale of the brand.

The recent revelations involving all the parties responsible for the bankruptcy betray the great potential for Civil RICO claims to be brought against the co-conspirators in defrauding and bankrupting Xyience to enrich themselves. The smoking gun of such a case would be the documents outlining the financing contract regarding Zuffa, LLC’s $350 million senior secured credit facility that three institutions provided the company last summer based on covenants that most likely falsely represented Xyience as a healthy and prosperous sponsorship partner. That financing note has taken a huge hit on trading block ever since, suffering from low ratings and declining value, which will eventually result in Zuffa having to pay much higher interest rates on the note than they initially anticipated.

On a side note, the sale of the company resulted in the local Las Vegas police being called to Xyience headquarters not long after the purchase became official. Police described the problem as a domestic disturbance, and no arrests were made. Also, a former investor reported seeing a giant dumpster in the parking lot of the building in recent days. Apparently the container was needed to dispose of a stockpile of expired inventory including old Xenergy product. The investor reported seeing some of the product leaking through the cracks in the dumpster.

As more details emerge in the bankruptcy case, and as my own case moves closer to hearings at the end of this month, I will keep putting together reports that outline the facts and back them up with documentation. The next blog on the subject will focus specifically on the bankruptcy case and what the approval of the company’s sale really means for the future of the brand.

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