Civil war between the owners of Casino M8trix
Owners of Silicon Valley's Casino M8trix are at each others' throats - Silicon
The civil war between the owners of Casino M8trix has spilled into public court.
On May 17, M8trix's controlling entity, Garden City Inc., filed a lawsuit against embattled co-owner Eric Swallow for damages in excess of $4.5 million. The complaint centers around allegations that Swallow breached his fiduciary duty to the company, including by funneling millions of dollars to himself from Team View Player Services LLC, a company Garden City contracted with to provide gaming services.
The suit was authorized by Garden City President Peter Lunardi and his wife Jeanine, who together own 50 percent of the card room and fill two of the company's three directors' seats. Swallow, the other director, owns the other half of the card room's shares.
Swallow is being represented in the lawsuit by Los Angeles law firm Vakili & Leus LLP. In an email, attorney Sa'id Vakili wrote that the suit "is entirely without merit" and that "we will be vigorously defending Mr. Swallow’s position ... and we believe that the claims brought against him will be unsuccessful." Swallow has 30 days to file a response.
Non-Indian card rooms in California are not allowed to have an interest in the outcomes of bets wagered by players. In practical terms, this means that in order to offer Vegas-style table games like blackjack, card rooms must contract with companies like Team View Services to act as the "house," with the card room making money off fees charged each hand.
Team View Services employees sit at the table like any other player, except they have enough money to cover everyone's bets and they almost always play as the house, giving them a mathematical edge over the other players (just like Vegas casinos have an edge).
The state's Bureau of Gambling Control claims that from 2010 to 2012 Team View Player Services, owned by Timothy Gustin, transferred $4.8 million made from its M8trix operations to Team View Player Associates LLC, also owned by Gustin. According to the Bureau, Team View Associates sent $3.6 million to Secure Stone LLC, owned by Swallow's wife Deborah.
The suit alleges the payments were "kickbacks demanded by Mr. Swallow" and that this violated Swallow's fiduciary duty to Garden City, which specified that he was "precluded from obtaining personal profits from his activities as an officer/director and is required to account to (Garden City) if he does so."
Complicating matters is the fact that the lawsuit was filed less than two weeks before the California Gambling Control Commission's May 26 decision to fine Swallow $13.7 million and strip him of his ownership license for providing misleading information to state regulators about his financial ties to companies hired by Garden City, among other causes.
That decision goes into effect June 27, though Swallow's lawyer for the decision, Allen Ruby, has said he intends to appeal the decision.
Vakili wrote that the commission's decision "contains findings that completely undermine the claims being asserted by Casino M8trix and the Lunardis."
The decision stated that the bureau failed to prove their claim that payments from Team View to Secure Stone violated state gambling regulations, and made no claim that the payments were "kickbacks demanded" by Swallow. But the decision also did not question the existence of the payments themselves, nor did it comment on Swallow's fiduciary duties to Garden City.
Furthermore, the commission stated that Swallow did mischaracterize his financial relationship with Secure Stone to regulators, though it had nothing to say about whether the Lunardis were misled.
It's important to note that the commission's decision stems from a 2014 bureau accusation that targeted not only Swallow, but also the Lunardis and the entity Garden City.
In June 2015, the Lunardis were allowed to keep their ownership licenses after agreeing to a $1.8 million settlement with the bureau, with Peter being personally responsible for paying $250,000 of that amount.
As part of the settlement, the Lunardis admitted to a number of misdeeds and violations. One of those was having personally benefited from the card room's "direct or indirect interest in funds wagered, lost, or won by Team View Player Services," the very same violation the commission said the bureau failed to prove against Swallow.
Oddly, at least from a logical if not legal perspective, the settlement included the entity Garden City "admitting" that Swallow had provided false or misleading information to the City of San Jose, even though only the Lunardis signed the settlement.
Adding in another settlement-decision mismatch, the commission found that the bureau failed to prove this specific accusation against Swallow as well.
The lawsuit also seeks to recover legal expenses spent by Garden City to defend the card room and the Lunardis and Swallow. The suit, which lists the legal fees at more than $1 million, claims Swallow's alleged "actions and inactions" are responsible for the bureau accusation that led to the legal costs in the first place.
The first case management conference is scheduled for September 13.
~http://www.bizjournals.com/sanjose/news/2016/06/10/more-drama-at-casin o-m8trix-co-owner-sued-by.html ~
Artist/Author: Bryce Druzin, Silicon Valley Business Journal October 6, 2016 | |
