Questionable offer made for Regent resort

In 1999 Fred and Kari Cruz of Las Vegas were promoted as the financial saviors of Las Vegas Entertainment Network, investors whose gold reserves and $495 million capital infusion would help that company take over slot route operator Jackpot Enterprises Inc. of Las Vegas.

That unsolicited takeover bid led to probes by the FBI and the Securities and Exchange Commission, as it became apparent that the company's purported stash of gold was little more than smoke, mirrors and dirt.

When the dust settled, Fred Cruz agreed to a permanent injunction banning him from future violations of securities law and a $55,000 fine. His company, Countryland Wellness Resorts, was accused by the SEC of "employ(ing) devices, schemes and artifices to defraud," and was stripped of its public registration in January.

Less than a year after that bizarre story came to an apparent end, the Cruzes are back -- claiming to be prepared to bail the Regent Las Vegas hotel-casino out of bankruptcy. And they appear to be doing it through the same company that was sanctioned by the SEC, though under a different name.

The bailout offer came in the form of an unsolicited bid sent to the Regent's investment banker by Donald Studer, an attorney from West Monroe, La. The bid by CWC (Continental Wellness Casinos) Trust. The bid, filed with the U.S. Bankruptcy Court on Thursday by Studer, offers $190 million for the bankrupt Summerlin property, or $40 million more than is being offered by Peccole Nevada Corp.

The letter states that $160 million will be provided in cash provided by a loan from Grand American Bank Trust, and includes a letter from Grand American signed by CWC Chief Executive Kari Cruz -- Fred Cruz's wife -- and Grand American Vice President Fernando Juan. Fred Cruz's name did not appear on the document; Kari Cruz wasn't named in the SEC action last year.

The problem is, no one can find any cash in U.S. banks linked to Grand American, attorneys involved in the Regent's bankruptcy case say.

"The documents they submitted aren't the kind you would expect from a serious buyer," said Candace Carlyon, a Las Vegas attorney representing the Regent's secured creditors. "They don't have funds in this country. My understanding is that someone from the debtor's side has tried to verify funds, and hasn't been able to do so.

"What I understand is that this (CWC Trust) is an entity which has had substantial problems in the past ... that has not demonstrated any capability to fund or close (deals). It would take a lot of convincing for me to believe in this offer, as much as I'd like to see a cash sale for $160 million."

Grand American's letterhead provides no U.S. address, listing instead offices in Taiwan and the United Arab Emirates.

The Cruzes and Studer could not be reached for comment.

"We have serious concerns about this proposal," said Lanis O'Steen, chief restructuring officer for the Regent. "We'll study all bids in terms of their credibility. If we don't think anybody is credible, it won't be considered. We have to know someone can be licensed (with the Nevada Gaming Commission), otherwise, you don't have a transaction."

Under the name of Countryland Wellness Resorts -- the name of CWC Trust until 1998 -- the company once claimed $2.7 billion in assets, consisting entirely of currency received from the sale of California gold and silver reserves to the "Dominion of Melchizedek." These "Dominion Dollars" were convertible on a one-for-one basis into U.S. dollars, the company claimed.

In previous reports, the company had also claimed it held more than $27 million in gold in warehouses in the Los Angeles area, that it had secured prestigious Wall Street firm Donaldson Lufkin & Jenrette to underwrite a stock offering and had secured contracts to operate "wellness resorts" at Paris Las Vegas and Bally's Las Vegas. DLJ and Park Place Entertainment Corp. denied these claims.

The SEC later found that the company didn't have proof its mining claims were worth in excess of $1 billion, that there was no such entity as the "Dominion of Melchizedek" and that the stored "gold" was in fact dirt with roughly $40 in gold per ton.

That didn't sit well with the SEC, even though the commission couldn't produce evidence that any outside investors had actually been harmed by the claims. In a September 2000 lawsuit, the SEC charged Cruz, the company's auditor and the company's lawyer with fraud, failure to keep accurate financial reports with the SEC, failure to keep accurate books, knowingly falsifying books and records, failure to maintain internal accounting controls and making false statements to an auditor.

All three defendants settled these claims with the SEC and agreed to injunctions barring them from future violations of securities laws, though only Cruz paid a fine; the other two defendants escaped a monetary penalty after proving they weren't able to pay. In January, the company's registration was revoked by the SEC.

The attorney charged in the case was Studer, who was accused by the SEC of "knowing or (being) reckless in not knowing" that Countryland's auditor had not authorized the use of its audit reports in Countryland's SEC filings. In his November settlement with the SEC Studer agreed to be suspended from practicing before the SEC.

Juan, the vice president who signed the loan letter to the Regent on behalf of Grand American, was listed as Countryland's chief financial officer as of July 31, 2000. And Grand American itself, according to Countryland financial documents, held 60 percent of the common stock of Countryland.

Though the SEC found no investors were harmed by the faulty reports, it's unclear if anyone lost money because of LVEN's aborted takeover bid for Jackpot Enterprises Inc. of Las Vegas -- a bid that was to have been funded by Fred and Kari Cruz. The story of that takeover bears striking resemblances to the bid CWC Trust is now putting forward for the Regent.

In 1999 LVEN -- which was trying to sell the old El Rancho hotel-casino on behalf of another company at the time -- claimed it had received a $495 million capital infusion from the Cruzes in exchange for 15 million shares of stock. It said it would use this cash to fund a takeover bid for Jackpot, which was at the time one of the state's largest slot route operators. The cash was to be supplied by an entity called U.S. Guarantee Corp. of Scottsdale, Ariz., which claimed $1.8 billion in assets, largely in gold.

The LVEN bid went nowhere, but its announcement caused LVEN stock to double in a day. The stock then promptly crashed, possibly leaving investors who bought LVEN stock during the run-up with huge losses and suspicions that insiders had dumped LVEN stock into the inflated market. The Nasdaq and SEC intervened and froze trading in the stock.

A Las Vegas Sun investigation found Fred Cruz had been under investigation by the SEC at the time the LVEN announcement was made, and that Cruz had several convictions for financial crimes. LVEN later cancelled Cruz's shares, but the stock never resumed trading again. The Sun later discovered the FBI was conducting a criminal investigation of LVEN and U.S. Guarantee, and soon after, FBI agents raided the Scottsdale offices of U.S. Guarantee.

LVEN confirmed last August it was under SEC investigation over the incident. It was the last financial statement the company ever filed.

The desire to prevent such unsolicited bids from delaying the sale of the Regent is weighing heavily on the minds of attorneys for the resort. Time is of the essence, as the Regent is now operating with negative cash flow, and is being kept open only by a $20 million loan provided by creditors in February.

"We don't want someone that we don't know showing up with a (higher) bid and delaying the process," Regent attorney Frank Merola said Tuesday.

For that reason, the Regent has drawn up some high hurdles that potential competitors to Peccole Nevada's bid must cross. According to a proposed sales plan filed May 22, potential overbidders must: provide a $5 million cash deposit; top Peccole's bid by at least $2.5 million; provide a proposed bid at least one week before the sale hearing; provide "adequate assurance of future performance" and "good faith" and be capable, willing and qualified to live up to the terms of a sales agreement. The plan gives the Regent the ability, at its own discretion, to disqualify bidders that don't meet these standards.

This sales plan was to have been presented to Judge Robert Jones for approval Monday, but the hearing was delayed until July 3 to give Regent attorneys more time to hammer out details with creditors' attorneys. This delay will push the Regent's final sale hearing from July 10 to mid-August.

Though the Regent said the sales procedure plan is in the best interest of creditors, not everyone agrees. A committee of mechanics lien holders and J.A. Jones Construction Co. have both protested the deal. In a recent decision, a state judge ruled that holders of $30 million in mechanics liens can't be paid until the secured creditors are paid the $115 million they claim they are owed. As the cash value of Peccole Nevada's offer is just $85 million, this makes it very unlikely there would be funds available to satisfy the lien claims.

The lienholders' committee didn't protest the terms of the proposed sale agreement directly. But they did protest the Regent's request that no alternative reorganization plans be filed with the court until late July.

That request, the committee claimed, is being used "to prevent a quick liquidation plan which would eliminate the (Regent's) ability to retain the casino for management and require the assumption of the PDS (Financial Corp.) lease guaranteed by insiders."

The Peccole Nevada bid states that Seven Circle Resorts of America, the Regent's manager, is being considered as the post-bankruptcy casino manager if Peccole takes over. Peccole has also agreed to guarantee PDS's leases for slot machines and equipment at the Regent in full.

J.A. Jones, the manager of the Regent construction project, was accused by the Regent in a lawsuit of helping cause the Regent's bankruptcy by failing to complete the project on time. The Regent is demanding $200 million in damages; J.A. Jones has responded by filing a $29 million lien against the Regent for what it claims are unpaid bills.

Not surprisingly, J.A. Jones blasted the Regent's proposed sale plan, saying it "certainly does not consent to this agreement," as it provides little or no recovery for lienholders.

The tough standards set by the Regent, Jones claimed, would create a "chilling effect" on a competitive bidding process.

"It should not be left to the defendant to recommend which parties' bids should be accepted," the Jones objection said.

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