Gaming activities at the 500 Club in Clovis were suspended Wednesday, with the California Attorney General’s Office stating that the card room’s owners failed to have enough money to cover chips in use.
The action follows an accusation in June that the card room failed to disclose loans from those who should have had card room licenses and been listed as ownership partners.
The Department of Justice’s Bureau of Gambling Control on Wednesday raided the business at Willow and Shaw avenues.
“We served an emergency closure order today,” Chris Moyer, deputy communications director for the state Attorney General in Sacramento, said Wednesday. “We cannot comment further at this time.”
In its order, the state said the card room will be closed until further notice.
The club lacked sufficient funds to cover “chips-in-use,” the order stated. “The investigation also disclosed that the 500 Club lacked sufficient records to document its chips-in-use liability.”
As of last week, the state said the chips-in-use liability “substantially exceeded the balances of the Clovis 500 Club’s chip liability and general accounts.” On Monday, state Department of Justice officials conducted a second on-site evaluation and again determined that the 500 Club “lacked sufficient funds to cover chips-in-use.”
The 500 Club ‘lacked sufficient funds to cover chips-in-use.’
Emergency Closure Order by the state Department of Justice
The state Department of Justice’s Gambling Control Bureau said it also sought, on multiple occasions, records about the card room’s bank accounts, “but the Clovis 500 Club repeatedly failed to provide the requested documents.”
Several pages of conditions must be met before the club can reopen.
Club owners must provide “a report detailing the source of all funds” related to gambling activities. It also would have to hire an independent manager with state approval and that manager would oversee all financial and staffing operations and provide the state with sources of funds as well as profit-loss statements.
That manager must certify independence from the ownership of the Clovis 500 Club, the state’s order said.
The state requires disclosure of those involved in the ownership of a card room and that they have state licenses to ensure that the partners do not have criminal backgrounds.
In a response issued Wednesday, Dusten Perry, the 500 Club’s general manager, said the Bureau of Gambling Control has an “inaccurate interpretation of their own regulations with respect to the casino’s chip bond. The casino’s lawyer was on site during the temporary closure and is currently working with the bureau to quickly reopen the club.”
Despite reports to the contrary, he said the 500 Club’s license wasn’t revoked.
Hope for a quick reopening
Card room lawyers are working to address the issues.
“Our attorneys are hopeful that we will be open in 48 to 72 hours,” Perry said.
The card room has enough cash to cover the chips, he said, whether it’s from cash in the casino, the card room’s vault or bank accounts. He said the 500 Club also has an $800,000 bond it could tap.
“We have more than enough cash to cover the chips without looking at our bonds,” Perry said.
He said the state Department of Justice will finish its audit and find that “we have more than adequate cash.”
The state, he said, doesn’t like the potential use of bonds but has not issued an order to the state’s card room industry outlawing use of them. It’s been a problem for other card rooms, too, he said.
“Dozens of card rooms up and down the state operate with the bonds as a backup,” Perry said.
We have more than enough cash to cover the chips without looking at our bonds.
Dusten Perry, 500 Club general manager
Jim Betts, a Fresno lawyer representing the 500 Club, said the card room will have all its paperwork prepared for the state by Friday to provide assurances on the chips liability account.
“We are challenging the order, but our strong preference is to fully cooperate and get the state what it needs and then move forward,” Betts said.
While he said the card room’s owners are prepared to reopen within 48 to 72 hours, it will be up to the state to make that determination, which could take weeks, even months.
“There are paperwork issues we need to clean up right now,” he said. “Everything is in order and the money is there.”
In the meantime, Betts said, 260 employees are out of work because of the closure. The 500 Club restaurant in downtown Clovis remains open.
Closing the 500 Club also means at least a short-term loss of revenue for the city of Clovis. Last year, the city got $420,000 from the card room’s operations. In 2015, the arrangement brought in $460,000, according to city documents.
But the card room already had run afoul of the state. An accusation filed in June by the state was a follow-up to one issued in 2015.
In 2015, the card room was able to retain its license while the investigation continued. The license expires Sept. 30.
At issue was an agreement reached in 2011 with Fresno lawyer John Cardot, who once represented the 500 Club. That agreement with Louis Sarantos gave Cardot a 50 percent stake if he provided a $1.5 million loan to Sarantos to build tenant improvements when the 500 Club was expanded and relocated from downtown Clovis to Shaw and Willow avenues.
The new card room opened in June 2012 with 18 tables, tripling in size from the old Clovis Avenue and Fifth Street location. The old site remains open as a restaurant. There also is a restaurant in the 13,000-square-foot Shaw and Willow avenues site.
$420,000Revenue generated for the city of Clovis by the 500 Club in 2016
The latest accusation, filed June 29, states that Sarantos failed to disclose Cardot as a financial interest holder and the terms of indebtedness. Sarantos also didn’t disclose names of six other financial interest holders and his level of indebtedness to them, the second amended accusation says.
From November 2011 to July 2015, according to the accusation, Sarantos “concealed and failed to disclose” to state officials the existence of his agreement with Cardot. Both are violations of the state Business and Professions Code, the accusation says.
The 500 Club owners “failed to disclose to the (state) the existence of the joint venture agreement, the participation of the investors, the purchase options granted by Cardot to the investors, and the business plan, all in violation of (their) duty as licensee to do so,” the state’s second accusation said.
Between 2008 and 2011, the card room also obtained $444,000 in loans that were not disclosed to the state before Nov. 18, 2015, nor were the names of those who financed those loans, the second accusation said.
The state’s second accusation said the first loan was used to fund operations of the 500 Club.
Perry said the state’s accusation is unrelated to the closure action Wednesday.