Las Vegas Sun

March 24, 2019

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Trustee files complaint in Xyience energy drink bankruptcy case

Sun Coverage

Fraudulent transfer and breach of fiduciary duty claims have been leveled against companies and individuals associated with the Xyience Inc. energy drink bankruptcy case, charging they left the Las Vegas company with no assets and tens of millions of dollars of unpaid debts.

A complaint was filed Tuesday in U.S. Bankruptcy Court in Las Vegas by David Herzog, the case's liquidating trustee, against Zyen LLC, an affiliate of Fertitta Enterprises Inc.; Fertitta Enterprises, William Bullard, Adam Frank, Kirk Sanford and Omer Sattar -- all of Las Vegas.

The complaint was among 44 adversary complaints filed by the trustee this month against numerous parties that did business with Xyience.

The complaints generally seek to recover funds for creditors the trustee says were improperly diverted from Xyience.

Some, for instance, claim certain creditors received "preference payments" prior to the January 2008 bankruptcy while Xyience was insolvent -- and the creditors would have received less if they had been paid under a Chapter 7 liquidation.

Xyience, pronounced "zy-ince," continues to operate and, according to the complaint, is now under the ownership of Zyen outside of its former owner's bankruptcy case.

Gregory Garman of the law firm Gordon Silver, which represents Zyen and Fertitta Enterprises, said Thursday that the trustee's complaint was without merit.

"The allegations are just wildly off base," Garman said, disputing assertions that Fertitta Enterprises and its affiliates had improperly gained control of the company. He said Fertitta was simply a lender prior to Xyience filing for bankruptcy and, with court supervision, after the bankruptcy.

Garman said the trustee is misinformed about what happened to Xyience and that allegations similar to those filed Tuesday had previously been rejected by the court.

The complaint said that during various periods at issue, Frank was Xyience's chairman and chief executive, Sattar was its president and Sanford was a board member.

The complaint said it "arises from the premeditated decision of Fertitta Enterprises, including one of its officers and lead operators (Bullard), to take over ownership of the debtor while stripping the debtor’s secured and unsecured creditors of the considerable value that they possessed through their claims against the debtor and its assets."

"Under the pretext of providing secured financing to the debtor, Fertitta, and then its controlled affiliate Zyen, assumed control over the debtor’s assets, its management, its bankruptcy case, its asset purchaser and ultimately, its entire business and operation," the complaint alleges.

The president of Fertitta Enterprises is former Station Casinos Inc. executive Lorenzo Fertitta.

Lorenzo Fertitta and his brother Frank Fertitta III own the Ultimate Fighting Championship business, which has been sponsored by Xyience.

Tuesday's complaint charges that around June 2007, with Xyience facing financial troubles and having difficulty meeting payment obligations to UFC parent Zuffa Marketing, Zuffa accepted large amounts of stock in addition to and in lieu of payments from Xyience.

Later, as part of Fertitta Enterprises' alleged "lend to own" strategy, the debtor received loans of $13.5 million from affiliates of Fertitta Enterprises and personally from Frank and Sanford, the complaint charges.

"When it became evident that the debtor’s financial structure — that is, its secured and other unsecured creditors, and the substantial number of outstanding stockholders — would render an ordinary takeover through stock acquisition too expensive, Zuffa and its owners decided instead to capture the company through a series of secured loans, forced defaults and then a foreclosure of the assets," the complaint alleges.

"In or about June and July 2007, through promises of personal financial gain and of an ownership interest in a new entity that would own the debtor’s assets and business, Bullard and his colleagues at Fertitta persuaded Frank and Sanford to work with Fertitta Enterprises and Bullard to enable Fertitta Enterprises to take over the company," the complaint charged.

The suit seeks to recover funds the trustee says the defendants improperly received from Xyience and says that "in view of Zyen’s inequitable conduct," the Xyience bankruptcy estate should be consolidated with Zyen, with Zyen possessing either an unsecured claim against, or an equity interest in, the consolidated entity.

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