Jakub P. Medrala of Medrala, PLLC, and Telia U. Williams of Telia Law File a Shareholder Derivative Lawsuit Against the Top Brass of the World Famous Stoney’s Rockin’ Country
Complaint alleges that brass of the previous Stoney’s Rockin’ Country engaged in breaches of fiduciary duties, wasted corporate assets, engaged in racketeering using mail and wire, issued false and fraudulent financial statements, grossly mismanaged Stoney’s, and abused its control, all of which harmed Stoney’s business, members and shareholders.
LAS VEGAS, NEVADA—On December 15, 2015, Battalion Chief Grandchildren’s Fund, through its trustee Angelina Gallindo; Raven Entertainment, LLC; and Seer Cartel, LLC; filed a derivative complaint against Harold Gray, a.k.a. “Stoney,” a majority member, manager, and director of Stoney’s Rockin’ Country Nightclub & Grill (SRC) and Stoney’s Evansville, and majority shareholder, director, and President of Stoney’s Entertainment, Inc., and Christopher Lowden, a member, director, and manager of SRC and Stoney’s Evansville, and later a shareholder, director, and officer of Stoney’s Entertainment, Inc.
In their complaint, Plaintiffs cite ten claims for relief, including racketeering, breach of fiduciary duty, fraud, unjust enrichment, accounting, and securities fraud. The complaint alleges that in October 2006, Mr. Gray organized SRC to introduce Stoney’s Rockin’ Country. In order to finance Stoney’s, Mr. Gray caused SRC to offer to the public 50 units of membership interest at the price of $50,000 per unit. According to the complaint, Plaintiff Ms. Gallindo purchased 1 membership unit in reliance on Mr. Gray’s representations that the money raised through the offering would be used solely to finance Stoney’s business operations. Mr. Gray and SRC sold the remaining 49 membership units to other investors, including one Mr. Lawson, who acquired 3 membership units of Class A membership. Plaintiff Raven Entertainment subsequently acquired the Class A membership units from Mr. Lawson. The complaint alleges that between 2008 and 2012, after raising over $2.5 million from investors, Mr. Gray and Mr. Lowden wrongfully used the majority of the investment to finance their extravagant lifestyles, including purchases of cars, flights, vacations, and various businesses, even though money raised from these offerings was supposed to be used solely to finance Stoney’s per the agreement between Gray, Lowden, and the investors. Additionally, the complaint alleges that Mr. Gray and Mr. Lowden unlawfully issued membership interests without consideration to various individuals to pay off their own personal debts or to benefit their friends and families at the expense of investors.
According to the complaint, to cover their fraudulent activities, Mr. Gray and Mr. Lowden issued to SRC’s investors false financial statements, which stated that SRC investors received distributions when in fact they did not receive such distributions. The complaint alleges that after receiving $2.5 million from investments in SRC, Mr. Gray and Mr. Lowden unlawfully accounted for distributions to some investors as a “return of capital,” when in fact Gray and Lowden approximated a pyramid-like scheme where they reduced the investors’ capital by the amount of each distribution.
Between 2009 and 2012, according to the complaint, Mr. Gray and Mr. Lowden misappropriated thousands of dollars that were collected by SRC as cover charges at Stoney’s that were never accounted for, nor reported to, the Internal Revenue Service, which resulted in SRC becoming insolvent. The complaint alleges that, as a result, SRC, Mr. Gray, and Mr. Lowden created Stoney’s Entertainment, Inc., and deceitfully induced SRC investors, including Raven Entertainment, into swapping their SRC shares for a membership interest in Stoney’s Entertainment, Inc., claiming that investors would lose the value of their investment due to Stoney’s planned closing in October 2012. This equity swap was done allegedly to exploit investors in violation of both federal and state laws requiring registration of shares offered for public sale. Plaintiff Gallindo refused to swap her shares from SRC to Stoney’s Entertainment, Inc., and consequently lost her investment in SRC due to Stoney’s closing and SRC failing to renew its business license. The complaint alleges that Gallindo never received a closing K-1 or any other statement concerning the distribution or application of her $50,000 investment.
After the equity swap from SRC to Stoney’s Entertainment, Inc., the complaint alleges that Mr. Gray and Mr. Lowden continued to misappropriate cash, issue false distributions to their investors, and issue unauthorized cash advances to themselves, their friends, and their families. As a result of Mr. Gray and Mr. Lowden’s fraudulent activities, according to the complaint, Stoney’s Entertainment, Inc., became completely insolvent, and Stoney’s closed in 2013. Before Stoney’s closed, however, Gray and Lowden clandestinely paid off selected investors, mostly their friends and family members. Thereafter, Mr. Gray and Mr. Lowden allegedly sold Stoney’s Entertainment, Inc., and distributed the proceeds between themselves. The complaint alleges that neither SRC’s nor Stoney’s Entertainment, Inc.’s investors ever received their final K-1’s or any other statements showing how the remaining assets were distributed. Moreover, Mr. Gray and Mr. Lowden organized Stoney’s Evansville to introduce a nightclub and bar business in Evansville, Indiana, and allegedly engaged in the same wrongful practices in which they engaged in Las Vegas while managing SRC and Stoney’s Entertainment, Inc., that is, they misappropriated cash, issued false distributions to their investors, and issued unauthorized cash advances to themselves, their friends, and their families.
The captioned Battalion Chief Grandchildren’s Fund, et al. v. Christopher Lowden, et al., was filed in the United District Court, District of Nevada, Case No.: 2:15-cv-02299-GMN-NJK. Jakub P. Medrala from Donath & Medrala, PLLC and Telia U. Williams from Telia Law are counsel for plaintiffs. Jonathan W. Fountain, Michael J. McCue, and Dale Kotchka-Alanes, all from Lewis Roca Rothgerber Christie, LLP, represent defendants. The defendants deny the allegations and portray the lawsuit as merely “a case of unhappy investors who knew […] the risks of investing their money, but are now unhappy with their lack of profits.”
If you also were a victim of an investment fraud please contact Jakub P. Medrala, Esq. at 702 475 8884, or Telia Wiliams, Esq. at (702) 835 6866. Our team of experienced and knowledgeable attorneys will help you recover just compensation for the damage you have suffered.