Station sues merger figure, alleges stolen trade secrets

New York investor David Lesser thinks Santa Fe Gaming Corp. is using another Las Vegas locals casino operator -- Station Casinos Inc. -- to drag his name through the muck.

Station has filed a lawsuit accusing Lesser of misappropriating Station trade secrets in an attempt to gain control of Santa Fe and other companies that compete with Station.

Lesser had access to proprietary Station market intelligence when he acted as Station's primary contact at Crescent Real Estate Equities Co. during the first half of 1998, when Station and the Fort Worth real estate income trust were planning to merge, alleges the suit.

That merger later fell through, but Lesser and his Hudson Bay Partners LP used secret Station analyses of the Las Vegas locals gaming market to buy Santa Fe securities in an attempt to take the company over, alleges the suit. And Lesser is likely to use the information in the future to try to buy other Station competitors, alleges the U.S. District Court suit.

"Defendants intend to use Station's confidential information to assist them in other acquisitions in the Las Vegas locals market, thereby competing directly with Station," states the suit.

But Lesser calls the suit absurd, and speculates it is the result of prodding by Santa Fe.

"I believe the litigation ... was done at the prodding of and is another diversionary tactic by Santa Fe," said Lesser. "This is simply the latest episode in Santa Fe's campaign to smear me and Hudson Bay and to deflect from the reality of its continuing failure to meet its obligations."

Santa Fe Gaming owns the Santa Fe hotel-casino in northwest Las Vegas, the Pioneer hotel-casino in Laughlin, and development property in Henderson and on the Las Vegas Strip. Station is the largest locals casino operator in Las Vegas.

Beginning in late 1997, Lesser began buying Santa Fe debt and preferred shares. After Santa Fe subsidiary Pioneer Finance Corp. missed payments on bonds in December 1998, Lesser tried to force Santa Fe Gaming into bankruptcy. Pioneer Finance and the Pioneer hotel-casino later filed for voluntary bankruptcy, but a U.S. Bankruptcy Court judge ruled that Santa Fe Gaming was not also required to enter bankruptcy.

Last week, Lesser used his position as owner of 33 percent of Santa Fe's preferred stock to place two outside directors on the company's board.

Santa Fe has also sued Lesser, alleging he is trying to take the company over.

Lesser has denied that his goal is to control Santa Fe. He simply wants a return on his investment, says Lesser.

Station's suit says Lesser was senior vice president of business development at Crescent from April, 1995, until May, 1996. He then left to found Hudson Bay, a company in which Crescent holds an indirect stake. Since leaving Crescent, Lesser has continued to "closely" consult with and advise Crescent, alleges the suit.

Lesser was Crescent's primary representative during its negotiations to buy Station in late 1997, and continued to be Station's primary contact at Crescent after the $1.5 billion merger of the two companies was announced in January, 1998, states the suit.

As Station's primary contact at Crescent, Lesser made recommendations to Crescent's management concerning Station's plans to expand its Texas and Sunset Station properties, and helped structure attempts by the two companies to acquire Santa Fe Gaming and the Arizona Charlie's hotel-casino, states the suit.

"Lesser formulated the structure of the proposed acquisition of Santa Fe," states the suit. "Crescent made the offer based on Lesser's recommendation."

In July 1998, Crescent offered to buy Santa Fe Gaming for $230 million. That offer was rejected a week later. Through the spring and summer of 1998, Station and Crescent attempted to buy Arizona Charlie's out of bankruptcy.

Crescent eventually withdrew its support for the Arizona Charlie's acquisition, leaving that property to be acquired by Carl Icahn. Crescent and Station terminated their merger in August 1998.

The suit says Lesser was a party to confidential information provided by Station, including proprietary analyses of the locals gaming market, a "highly sensitive" analysis of Santa Fe's operations that included a plan to improve cash flow, and information about Arizona Charlie's operations.

Lesser was covered by confidentiality agreements signed during the Station-Crescent merger negotiations and the Crescent-Santa Fe negotiations that prohibit him from using proprietary Station information for any purpose other than to evaluate the mergers until Dec. 22, 2000, alleges the suit.

"Following the collapse of the Station-Crescent merger, or possibly before, defendants determined to (one) misappropriate Station's confidential information in violation of the Station confidentiality agreement and (two) to make investments in the Las Vegas locals market for themselves (and perhaps for Crescent), using Station's own confidential information against Station," states the suit.

Station wants an injunction requiring Lesser to return all confidential Station materials and prohibiting him from "making any type of investment in any entity, or purchasing any interest in any assets, which serves the Las Vegas locals market," until Dec. 22, 2000.

Lesser denies using proprietary information gained during the Station-Crescent negotiations to buy Santa Fe securities. He notes that he began buying Santa Fe securities before the merger was announced.

He noted that Santa Fe has defaulted on its bonds, missed dividend payments on preferred shares, seen its common stock de-listed from the American Stock Exchange and placed two of its subsidiaries in bankruptcy.

"Of course I am confident that the truth will emerge soon and that these complaints will be demonstrated to be entirely baseless," said Lesser.

In support of his contention that Santa Fe prompted Station to file its lawsuit, Lesser pointed to an incident in March in which a Santa Fe spokesman told a Sun reporter that Santa Fe was filing lawsuits against Lesser and Station.

While a lawsuit was filed against Lesser, the Station suit was never filed. Santa Fe spokesman Ray Brown later said the company had considered a variety of legal remedies to its dispute with Lesser, and ultimately decided that suing Lesser alone was its best option.

Lesser sees the incident as clear evidence Santa Fe pressured Station to sue him.

"I just view this whole lawsuit as baseless," said Lesser.

"Lesser's statements are completely untrue," said Santa Fe spokesman Andrew Klebanow. "The Station lawsuit speaks for itself. It is obvious that Lesser is grasping for a defense."

Station officials declined comment.

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