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Nona Morelli's CEO Seized in Gaming Probe : Investigation: Fred G. Luke is free on $50,000 bail on charge he failed to disclose lawsuit in application for casino license. Prosecutors also say he misrepresented value of bonds.

March 03, 1995|From Bloomberg Business News

IRVINE — Fred G. Luke, chairman and chief executive of Nona Morelli's II Inc., was arrested this week in Denver and charged with two felony counts of making false statements to Colorado casino regulators.

Luke, 48, was seized while in Denver to appear in a civil case involving Irvine-based Nona Morelli's and its former owner, Frank Morelli Sr.

The Colorado Division of Gaming charged Luke with failing to disclose a lawsuit in his October, 1993, application for a casino license. Prosecutors also allege that in a July, 1993, telephone conversation with state regulators, Luke misrepresented the value of securities he used to acquire control of Nona Morelli's, a maker of gourmet pasta.

"We'll vigorously dispute the charges," said Morris Gore, Luke's attorney.

Luke, arrested Monday, was released Wednesday after bail was reduced to $50,000 from $250,000.

Gore said the lawsuit Luke failed to report was insignificant, that no court ruling was made in the case, and that Luke settled it for a nominal sum. "It wasn't an intentional omission," he said.

Gore also said the Division of Gaming alleges that Luke told an investigator in July, 1993, that the securities--German bonds dating from before World War II--were worth $10 million, when they were actually worthless because Nona Morelli's isn't reporting them as assets on its balance sheets.

Luke and attorneys consulted by the company think the bonds are worth more than $10 million, Gore said. "We have an opinion from an attorney . . . that says they are valid obligations of the German government," he said.

Nona Morelli's accountants refused, however, to report any value for the bonds in company financial statements because the German government might not be willing to honor the securities at full value, Gore said.

The West German government repaid the principal on its pre-World War II bonds beginning in 1953 and ending in 1980, and it declared that it would not pay interest until the two Germanys were reunited. In January, Germany agreed to give bondholders new securities, allowing them to recover back interest accrued through 1990, when unification occurred, in payments extending through 2010.

Gaming Division officials and attorneys were not available Thursday to comment. Nona Morelli's withdrew its application for a Colorado casino license in November.

Luke joined Nona Morelli's in early 1993. He subsequently tried to expand into the casino business, announcing projects in Colorado, Mississippi and Tunisia. None of those have begun operations.

The company also owns a majority stake in NuOasis Gaming Inc., an operator of five Louisiana bingo halls.

In its fiscal quarter ended Sept. 30, Nona Morelli's reported a loss of $535,290, or 7 cents a share, on revenue of $968,698.

Luke said early last year that an investment in the shares of Nona Morelli's "should not be made by the fainthearted."

In Thursday's Nasdaq trading, the company's stock was up 9 cents a share to close at 43 cents. The price had been as high as $4.63 a share in early 1994.

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