BELL — City Council members discovered to their surprise Monday that they have agreed to sell city-controlled shares in the California Bell Club casino to a buyer who is not required to make any financial disclosures until after the sale is final.
Although the council has met a representative of the buyer, it knows nothing else about who is behind the deal.
The council entered into an agreement in May to sell its 12.625% ownership to a group of investors represented by Arnold S. Malter. The group would buy the shares for $883,750 or $70,000 a "point" (1% share), with financial disclosure to be made by Malter at the close of escrow.
The agreement also makes the sale contingent on Malter's gaining control of the casino from the club's present management group, and commits Bell to support that effort.
At the council meeting Monday, Councilman George Mirabal expressed dismay when told by City Atty. Robert Flandrick that the sales agreement does not require Malter to provide the city with a financial statement until escrow closes. When it signed the agreement, Mirabal said, the council intended to have full financial disclosure before the shares changed hands.
In an interview, Mayor Jay Price said that despite the wording of the agreement, the city will not sell before getting full financial disclosure.
Malter was "told up front that we required a statement," Price said. "We're not selling blindly. That would be the height of irresponsibility. It's not a complicated matter at all. They were clearly told we had to have a statement" before the city agreed to sell.
Flandrick told the council that he has requested financial statements from Malter a number of times but that Malter "does not seem particularly responsive" and has not supplied any background information. In an interview after the meeting, Flandrick said that he has "not the foggiest idea" who Malter's backers are but said he would find a legal way to kill the deal if Malter's disclosure is unsatisfactory.
At the meeting Monday, the council instructed Flandrick to try once more to obtain a financial statement from Malter and to learn who his backers are before the council meets on Monday.
Flandrick also told council members that Malter, who has conducted his bid for control of the club under the name LCI Corp., will apparently be using another name to run the casino should he gain control. LCI Corp. is the name of an established Southeast area business, which has said that it is unrelated to either Malter or the casino. Malter never actually incorporated as LCI Corp., apparently choosing an existing corporate name by coincidence, then using the name in his negotiations with the city.
In an interview, Malter's attorney, Frank W. Nemecek, said he did not know the identity of Malter's backers. He said Malter is acting on behalf of a group of investors, some of them from South Korea.
Malter, who is a lawyer in Los Angeles, could not be reached for comment.
The city's shares are considered crucial to Malter's obtaining a 51% majority vote. Bell got control of 12% of the shares--one of the largest voting blocks--when the federal government appointed the city trustee for shares confiscated from former club partners who were convicted of racketeering two years ago. The Bell Club is the city's single largest taxpayer, supplying almost 10% of Bell's tax revenue. The club now grosses about $800,000 a month. Tax revenue to Bell, whose budget was $9 million last year, usually exceeds $1 million a year.
Malter's supporters among the club's limited partners have been involved in a battle with the club's managing partners for control of the casino since March. At the time, a meeting of the limited partners voted the present manager, Samuel Torosian, out and Malter supporters in.
A spokesman for Torosian, attorney Howard Manning Jr., said he will speak to the City Council when the issue of the city's proxy is raised again.
"I'm not too sure it's appropriate that Bell exercise its vote" in management matters, he said. "I'm not sure that is within the scope of the trustee agreement."
Torosian's group has gone to court to fend off the takeover attempts and has been successful so far. The management group disputed the legality of the March vote and obtained a temporary restraining order to prevent Landmark Holding, a limited partner that reputedly supports Malter, from ousting Torosian. Torosian's group recently won another suit brought by a second limited partner that also sought to enforce the controversial March vote.
Two other suits are pending, both involving Landmark and Torosian. In the first, Landmark is charging Torosian and other members of the management team with misconduct under the federal racketeering law. In the second, Torosian's group is seeking a permanent injunction to prevent Landmark from interfering with the management of the club.
During the discussion Monday of the proxy, Price, who has consistently urged the council to take whatever action is necessary to resolve the issue of control of the club, urged the council to give Malter the city's proxy. "If this (chance) goes down the tube, God knows what will become of that club," he said.