The Usual Suspects PART THREE: Xyience is The Enron of MMA

Posted on | November 14, 2011 | No Comments

CRUCIAL CASE DOCUMENTS ARE ENCLOSED IN THIS ARTICLE

“The longer this thing goes on (in bankruptcy court), the more the attorneys are going to get paid,” Bullard said.

By: Rich Bergeron

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Earlier this year, on March first to be exact, Fertitta Enterprises Attorney Gregory Garman earned a court hearing on over 100 pages of material citing examples of supposed “threats” I made toward certain individuals connected to Xyience. I have to admit, at that time I was dealing with plenty of aggravation.  I was stuck in Las Vegas because I decided to attend one hearing in person for a change. I wanted to make a good impression on the judge, so I showed up in the flesh in early February to a hearing seeking to amend the most significant motion I have going in my adversary proceeding. That “Rule 9011 Sanctions Motion” has yet to be heard by any judge presiding over the case thus far.

Expecting a completely different judge who would be familiar with the case on that fateful February morning in Vegas I came all the way from Massachusetts for, I got Judge Lloyd King instead. He was a transplant from Hawaii. He told the courtroom so with his first words on the record in my case. Judge King also made another telling admission at that first hearing I attended in person since first being sued by Xyience in March of 2007 for $25 million. King said in open court that he did not even read many of my past pleadings, reporting that he was told they were “hard to follow.”

I stood there in February more determined than ever, facing my adversaries in person, standing in that Vegas court for the very first time, and this Judge confesses he doesn’t know a thing about my argument in the matter. It’s clear from the jump that he favors the highly-paid local legal beagle at the other podium. I could tell immediately the lawyers represented the system’s best weapons in this judge’s eyes. He made it clear that he was biased right from the start, seeing I was there and suddenly demanding I show up to every subsequent hearing.

Someone like me comes into the process without law school experience or a bar card, and judges like King assume I’m automatically wrong. There’s no time for actually reading my argument or actually paying attention to subsequent testimony at the next hearing that proves I didn’t threaten anyone.

Though I appealed Judge King’s biased rulings, Garman and his law firm managed to get both appeals returned to the local U.S. District Court in Las Vegas, ensuring local judges would decide the matters. The Fertittas pay lots of local tax dollars, and their law firm is well known in Vegas. One appeal case remains ongoing while the other was quickly dismissed. I took a step back from the proceedings since the last hearing on March first. I quietly waited for the full realization of my very first major victory in the case, a $5,000 settlement paid to me by the trustee a few days after my 34th birthday this past October:

Entry Of Settlement Order in Xyience Vs. Bergeron Adversary Case

I suddenly realized this judge would need to marinate on this case for a while and listen to a certified legal professional like Jon Backman level with him over the course of a few months… and maybe even years worth of pleadings. Then, everything I was reporting and asking to promote relief for in my pleadings would make much more sense to Judge King. I began looking at it in the light most favorable to this man who was used to dealing with attorneys on a daily basis. I was a checkers piece on a chess board as far as he was concerned, a ragged bum on the street trying to give him advice on financial success. I hadn’t earned my place at the table as far as he was concerned, and he took offense to my tactics that strayed from the normal course of action taken by traditional attorneys in such cases. The previous judge seemed to give me more credit. Though at first I sought to recuse Judge Nakagawa, over time he seemed to see my point. He really listened to me at multiple hearings prior to his sudden stepping down from the case. Judge King all but ignored me, and he acted in support of my opposition almost every step of the way thus far. I became convinced the only way to win was not to play under these circumstances.

I let the trustee do the pinch-hitting, and he’s got a higher batting average and slugging percentage than I could ever hope for thus far. He really turned the corner recently in the case when he successfully sought his own sanctions for discovery violations in the case. Judge King began to smell what Backman was stepping in, and he made comments at the hearing reflecting he’d begun to see through the Fertitta Enterprises “loan to own” scheme to bankrupt and take over Xyience. His subsequent ruling reflected his suspicions that Fertitta Front Man William J. Bullard treated the discovery process like a game of hide and seek.

The crucial question that must be asked in every corruption case in order to unravel the whole operation is: WHO BENEFITS? It’s easy to trace the corrupt and deceptive actions of all the principals at Xyience to the primary insider beneficiaries, dating as far back as the events described in THE USUAL SUSPECTS PART ONE. Xyience really is an Enron-esque situation considering how the company was purposely dismantled, but the players in this scheme made some moves to perfect the scenario. For Enron, bankruptcy busted everyone from top to bottom in the long run. From shareholders to executives, people caught up in Enron either suffered financially, criminally, or in the case of Ken Lay: physically. Xyience’s chief looters turned the bankruptcy process into a steady stream of bankable income produced from the stolen and reconfigured new entity. The Fertittas disguised their ownership of Xyience and still don’t make it at all obvious they own the sponsor of the UFC, one of their most successful companies to date.

The Fertittas also managed to use Xyience’s huge sponsorship contract (back when the Xenergy can was in the middle of the mat), which they paid out of their own family coffers, to create a bidding war that would benefit the UFC. The Fertittas loaned millions to Xyience, but instead of putting it toward products and the sales process, they used it to pay bills the company owed to other Fertitta-owned entities like the UFC and Zuffa Marketing. This devious process helped the UFC turn the corner and eventually arrive at the pinnacle it will experience tonight on Fox with the broadcast of the UFC’s vaunted Heavyweight Championship fight between Junior Dos Santos and Cain Velasquez.

The bankruptcy litigation left it to lawyers to obscure the whole scheme, drag out the litigation until the shareholders were drowned in legal fees, and progress nearly four years into the proceedings without being held in any way accountable for their transgressions.

Some 385 former Xyience shareholders continue to suffer the consequences. Many are suffering more than ever with their finances as the economy shows more and more signs of weakness and the Vegas housing market maintains the honor of being the worst hit area of the country as far as foreclosures go. Multiple local Xyience shareholders lost their homes, their life savings, their retirement funds, and/or the college funds they set up for their children. The Fertittas got richer and fatter off their fraud while the victims endured years of wondering whether they would ever see any justice at all in the long, drawn out case that seemed to solve nothing. If anything, the creditors of the company will be the only ones to benefit from the work of the Trustee’s office. Even then, they will receive only a percentage of their losses, more than four years after they sustained the financial hit. Four years after the Fertittas paid themselves surreptitiously to put the company under. They drowned Xyience in self-serving debt to destroy it while they retained the chief lien position in the business. They got in the front door of the company pretending the handout was a hand up for shareholders, but the first chance they had they put themselves in sole control of the operation, burning countless investors and creditors who couldn’t afford to take the hit.

Not long after bankrupting Xyience, the Fertittas put their Station Casinos chain under bankruptcy protection and later bought a controlling percentage of the majority of the reorganized “locals casino” operation on the other end. Xyience suddenly looked like a trial run for that even larger controlled collapse. The Fertitta pattern of abuse continues to this day, evidenced by <link>Judge King’s recent ruling agreeing that sanctions should be applied due to various violations of the discovery process relating to the Xyience trustee’s adversary claims against the controlling parties.

On Friday November 4th, 2011 the Xyience Liquidating Trustee filed a motion for summary judgment against Fertitta Enterprises, Inc. and Zyen LLC. The Trustee will reportedly be seeking recovery of over $100 million for the Xyience bankruptcy estate in the ultimate case, which could go to trial as early as next April. The statement of facts supporting the motion lays out all the pertinent details to justify the request for relief.

The Trustee seeks summary judgment on Count X of the amended complaint, the preference claim against Fertitta Enterprises, Inc., and on Count XIII of the amended complaint, the fraudulent transfer claim against Zyen, LLC.
In the summary judgment motion and statement of facts, the Trustee alleges in detail how William Bullard, secretary and treasurer of Fertitta Enterprises and General Manager of Zyen, LLC (a subsidiary of Fertitta Enterprises), controlled and perpetrated a conspiracy with Adam Frank and Kirk Sanford (the former co-CEOs and respectively the chairman and a director of Xyience) to defraud Xyience creditors and stockholders, and how Bullard controlled Xyience for the benefit of Fertitta Enterprises, Inc. and Zyen, LLC.

Back in June 2007, Frank and Sanford took over management of Xyience. They valued the company at over $180 million, but they purposely refused to raise any capital for Xyience other than the loan from the Fertittas that facilitated their takeover. These two players were well aware that the company would be seriously damaged by this strategy and that alternative financing was available. Sanford and Frank both personally told me in November of 2007, some two months before the company announced bankruptcy, that they were going to give up and let it die. Sanford even dubbed the approach “scorched earth.”

Frank and Sanford, with Bullard’s substantial input, misrepresented the primary purpose of the Zyen loan facility and left out pertinent information in the September 2007 Funding Consent Letter sent to stockholders. Bullard also frequently misrepresented the purpose of the Zyen loan to shareholders and board members in order to further this illicit scheme. The Funding Consent Letter, against the advice of counsel, was sent to a small fraction of Xyience stockholders and did not contain information necessary for them to make an informed opinion. Frank and Sanford took the additional deceptive step of precluding stockholders from having any official shareholders’ meeting that could potentially block the Fertitta takeover.

Bullard, acting on behalf of the Fertittas, ultimately pressured Primary Stockholders Russell Pike, Jennifer Pike, William Pike Jr. and Michael Clark (who owned 25% of the outstanding stock of Xyience at the time) to give up their voting rights. This step allowed them complete “radio silence” and created an environment where nothing stood between the company and a state of insolvency that would give the Fertittas 100 percent control.

Bullard additionally informed Former CEO William Underhill, after the Zyen funding closed, that he would not allow a board meeting to take place until Underhill resigned. The first payment to the Fertittas on the October 4, 2007 Zyen loan note was purposely not made on November 1, 2007, which allowed Zyen to foreclose on Xyience, perfecting the scheme. This happened even though there was over $1 million in Xyience bank accounts to provide for such a payment. This was what Sanford meant when he talked about “scorched earth.” The scheme was already fully in motion by the time that meeting in Times Square he and Frank had with me kicked off. They already knew what their “end game” would be. The insiders reaped all the benefits.

A hearing is set for December 9, 2011 at 9:30AM at the U.S. Bankruptcy Court, 300 Las Vegas Blvd, South, Las Vegas, Nevada.

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