Friday, Oct. 25, 1996 | 11:59 a.m.
Bob Stupak's once-towering fortunes seem to have taken a precipitous fall.
The Stratosphere Corp. founder, who once held 18.3 million shares of the company's stock, today has sole control of less than 60,000 shares.
Over the past two years, he has apparently grossed less than $14 million before taxes from sales of the stock. And disgruntled shareholders are suing to get their hands on whatever assets he may have left.
That's a far cry from the glory days, when Stupak's Stratosphere holdings were valued at more than $120 million and he and the 1,149-foot-tall tower that dominates the valley's skyline were the toast of Las Vegas.
The spate of shareholder lawsuits and the concerns of state gaming regulators over Stupak's ability to pay about $17 million in debts to Stratosphere Corp. are the latest in a series of misfortunes that have befallen Stupak since his near-fatal motorcycle accident a few years ago.
Few who know the tough former street kid from Pittsburgh are ready to count him out yet, though. He's suffered setbacks before and made comebacks aplenty, and his gritty determination to prove critics wrong has friends convinced he'll be heard from again.
For now, though, Stupak is keeping a low profile, apparently on the advice of attorneys representing him in the myriad lawsuits filed after Stratosphere's stock plummeted from a high of $14 a share earlier this year to as low as $1.25.
The lawsuits contend Stupak, the former Stratosphere chairman, and other company officials misled the public by withholding information about the new Las Vegas resort's financial problems.
The lawsuits claim the defendants "participated in a scheme to defraud Stratosphere shareholders" by making "false and misleading statements" about a marketing strategy that was, in reality, "illusory."
The price drop is also creating a headache for Nevada gaming regulators and Stratosphere officials trying to ensure Stupak abides by an agreement to fund an escrow account set up to reimburse purchasers of unused vacation packages he sold to help finance construction of the resort's observation tower.
Ironically, sales of large blocks of Stupak's Stratosphere stock may have contributed to the price decline. Yet Stupak insists that even he wasn't aware of some sales made in his name.
Unraveling the tangled web surrounding the free fall of Stratosphere's stock price is likely to keep lawyers and regulators busy for years. But Stupak's filings with the federal Securities and Exchange Commission give some hints about where things stand now.
As of Sept. 25, Stupak had sole voting power over just 58,700 shares of Stratosphere common. The 5,257,000 shares he had in the State Gaming Control Board-mandated escrow account fall far short of covering about $17 million in Stratosphere debts still outstanding. And the Control Board is trying to figure out what to do about it.
"We've had some dialogue with him to remind him of his obligations," said Gaming Control Board Chairman Bill Bible. "He's indicated publicly that he recognizes them. Bob's the kind of guy who is an old-school Las Vegan, a guy who believes very strongly that one's word is one's bond."
Dennis Neilander, chief of the Control Board's corporate securities division, is wrestling with the task of determining exactly how to balance the escrow account's books, even though the agreement is between Stupak and Stratosphere, and not the state agency.
Aside from the plummeting stock price, Neilander said, the issue is further complicated by the fact that there are "80 different packages out there, all very different and some not payable for years. And you have to take into account the future value of money."
Neilander also says he's confident of Stupak's intent to fulfill the obligation, adding that "he had it funded at 250 to 300 percent of liability until the stock price started falling in June."
Stratosphere Corp. General Counsel Andy Blumen notes that Stupak's escrow account still contains stock valued at more than $10 million. Stratosphere is continuing to honor the prepaid vacation packages and billing Stupak monthly for those that are used.
But it's Stupak's ability to pay future obligations if the stock price doesn't climb above current levels that's now in question.
Under the escrow agreement, he must put up either enough cash to cover the obligation or stock valued at 150 percent of it. With the price hovering around $2.50 a share and the debt at $17 million or so, he'd have to put about 10.2 million shares in escrow -- about double the current number. And he no longer has that many.
The alternative is hard money. And while he's got real estate and other assets, Stupak may be strapped for ready cash.
According to SEC filings, the $50.8 million Stupak reportedly got for selling his old Vegas World assets to Stratosphere was essentially a paper transaction because the company "made cumulative advances and other loans to Mr. Stupak of approximately $50.8 million" -- loans Stupak had to repay with proceeds from the sale.
The lawsuits allege he made more than $8.2 million selling stock since the year began. Stupak's filings with the Securities and Exchange Commission claim some of the sales were made by brokerage firms and banks to cover margin calls or loan repayments and that he didn't know about them until after the fact. His SEC filings also differ from the lawsuits in the number of shares actually sold.
According to his filings, Stupak once owned 18.3 million Stratosphere shares. He sold Grand Casinos about 9.5 million Stratosphere shares in February 1994 for 44 cents a share, or less than $4.2 million. The sale of 519,300 shares to an unnamed third party around the same time reduced his holdings to 8.3 million shares.
Assuming a similar price of 44 cents a share, the private transaction brought the total sales proceeds to a little more than $4.4 million.
Stupak later borrowed $2.5 million from downtown Las Vegas casino owner Mel Exber and put in $415,000 of his own cash to exercise an option to buy 500,000 shares at $5.83 a share, boosting his total to 8.8 million shares but trimming his gross earnings from stock sales to $1.5 million.
It was about that time that Stupak's Stratosphere holdings were valued -- on paper, at least -- at more than $120 million. It was also about that time he began falling out with other Stratosphere executives and started stock sales in earnest.
Between Dec. 19, 1995, and June 24, 1996, Stupak sold 871,000 shares for about $8.2 million, or an average price of $9.41 a share, according to his SEC reports and the lawsuits. That boosted gross earnings to $9.7 million and cut his holdings to about 7.9 million shares.
In May and June 1996, he sold 800,000 shares for an average price of $3.20 a share, or about $2.6 million. That reduced his total to 7.1 million shares and raised his gross sales to $12.3 million.
On July 22, 1996, Stupak's filings say, Paine Webber Inc. sold 641,000 shares for $3.39 a share, or about $2.2 million, "without instruction from Mr. Stupak" to satisfy a call on margin loans.
Four days later, Stupak sold 300,000 shares for $2.63 a share, or $592,000, to reduce a Nevada State Bank debt to $1.2 million. He also pledged 404,000 shares to the bank as collateral, and pledged another 20,000 to Signal USA as security for margin account debits.
Since the Paine Webber and Nevada State Bank sales were to cover debts or margin calls, they haven't been included in the gross proceeds.
In August, Stupak sold a total of 765,000 shares at an average price of $2.13 per share for just over $1.6 million, raising his gross sales to $13.9 million.
In September, he sold another 454,000 shares at an average price of $1.56 for a total of $708,000. That raised Stupak's total gross on stock sales to about $14.6 million.
However, of the total 1,219,000 shares sold on Stupak's behalf in August and September, about 395,000 were applied against the Nevada State Bank obligation, the filings indicate.
Though the amounts weren't disclosed, the average per-share price of all stock sold during those two months was $1.92. Using that figure, Stupak's gross proceeds from Stratosphere sales would have been trimmed to about $13.9 million before taxes and other expenses.
Although he still nominally owns the 5,257,000 Stratosphere shares still in escrow, Stupak has no effective control over their disposition. Stratosphere officials continue to sell shares each month to defray costs of the pre-sold vacation packages.
At an average price of $2.50 a share, the remaining 58,700 Stratosphere shares Stupak retained control over as of his last SEC filing were valued at $146,750.
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