Regulators recommend Nazarian for one-year limited license

LAS VEGAS -- SBE Entertainment Group, LLC CEO Sam Nazarian, the visionary behind the SLS Las Vegas Hotel & Casino, nearly found himself on the outside looking in at the Strip resort Wednesday.

Nazarian, 39, was recommended for a one-year, limited license by the Nevada State Gaming Control Board following a more-than-3½-hour public hearing in Carson City that included testimony over drug use earlier this year and his dealings with an extortion suspect who cost him $3 million.

The Nevada State Gaming Commission will make a final ruling on the recommendation on Dec. 18.

Nazarian’s Los Angeles-based nightlife and hospitality company owns 10 percent of the hotel-casino, formerly known as the Sahara. San Francisco-based Stockbridge Real Estate owns 90 percent of the property and Terry Fancher, the company’s executive managing director, serves as SLS’s chief executive.

Nazarian has been credited as the driving force behind the $415 million renovation project that revitalized the 1,620-room hotel-casino on the Strip’s north end.

The ruling doesn’t change the property’s ownership or management structure.

The Control Board’s 2-to-1 vote for the limited license came with six conditions, including one barring Nazarian from involvement with the resort’s casino operation and one requiring him to submit to random drug testing.

The recommendation for the limited license came after regulators said they would not vote to give Nazarian a full gaming license that would let him dictate SLS Las Vegas’s operations. Board members also considered doing nothing with the application by referring the matter back to its staff.

“Mr. Nazarian is really the face of the property,” Control Board Chairman A.G. Burnett said. “Referring the matter back does nothing. I don’t want you to be a denied applicant.”

At the hearing’s outset, attorney Tony Cabot told the Control Board that Nazarian’s business dealings over the past two decades “were complex.” More than 24,000 pages of documents were electronically transmitted to investigators. Thousands of other documents were hand-delivered.

However, the bulk of the hearing revolved around the extortion suspect and Nazarian’s drug use.

At the hearing, Nazarian admitted he used cocaine during an April trip to Cabo San Lucas, Mexico, with several friends. He said it was a “one-time indiscretion” and that he hadn’t used drugs in several years. He admitted that he was evasive with gaming agents about the incident.

Control Board member Shawn Reid, who voted against the limited gaming license, said he was troubled that Nazarian’s drug use took place “in the middle of his license investigation.”

Board members said they were concerned how the businessman, whose empire includes some of Southern California’s most popular nightspots and a growing line of SLS hotels, dealt with Derrick Armstrong, a Los Angeles-based convicted felon.

Nazarian said he met Armstrong, an automobile detailer, in 1999. Over the years, Nazarian lent Armstrong money.

However, the relationship soured in 2005 and Nazarian cut ties with Armstrong. Over the next few years, Armstrong would surface, demanding money from Nazarian.

“He seemed to show up as my accomplishments grew,” Nazarian said.

Eventually, Nazarian asked SBE Entertainment executives to deal with Armstrong when he began threatening family members. Los Angeles-based attorney Joseph Taylor, who specializes in litigation and entertainment law, was hired to fight Armstrong’s requests. An injunction was filed against Armstrong and he legally can’t go near Nazarian.

“My city, it’s a city of barnacles and parasites, clingers and hangers-on,” Taylor told the Control Board on Wednesday when asked about Armstrong. “They are everywhere.”

SBE executive Randy Winograd told the Control Board he was charged with dealing with Armstrong. He made payment to him last year, hoping that would end the contact.

“This guy was making claims to embarrass Sam and the Nazarian family,” Winograd said. “I screwed up. I failed Sam badly.”

Nazarian took full responsibility for the dealings with Armstrong. Nazarian admitted paying to Israel-born mob figure Hai Waknine $83,000 and rap music mogul Marion “Suge” Knight $90,000 because of their connections to Armstrong.

“The buck stops with me,” Nazarian told the Control Board.

However, Reid said he worried that Nazarian could be “easily manipulated” and that he was trying to hide his dealings with Armstrong.

“You seemed more worried about PR than doing the right thing,” Reid said.

Burnett, who appeared to be the board member most disposed to saving Nazarian’s application, said he was disappointed that Nazarian didn’t go to law enforcement to deal with Armstrong.

“When you have a barnacle, you cut it off,” Burnett said.

Control Board member Terry Johnson supported the limited license, and also came up with several of the conditions, which included avoiding questionable associations.

“I was hoping for greater candor in your answers,” Johnson said. “I understand you’re a busy man and you have attorneys to handle all that. But I was a little taken aback by your answers. I can’t recommend an outright approval of the application at this time.”