Even by Las Vegas standards, there was always something oversized about the Stratosphere casino, hotel and entertainment center.
It was built high into the desert sky with seemingly death-defying amusement park rides at the very top of the more than 1,000-foot structure. And when the business failed, the collapse was enormous, and investors sued to recover their losses.
Now, a class action settlement that collected $18 million nine years ago from the Stratosphere and its Minnesota partner, Lakes Entertainment, is the subject of a federal racketeering lawsuit that alleges the initial case was rigged. It accuses the plaintiffs' lawyers of colluding with one of their expert witnesses and concealing that fact from the defense.
The lawsuit, filed by Lakes Entertainment in U.S. District Court in Minneapolis, names as defendants a New York law firm, three of its former attorneys and a consultant who specialized in determining damages to investors from falling stock prices.
The law firm, Milberg, is the successor to the powerful Milberg Weiss law firm, which imploded two years ago when several of its principal lawyers were found guilty of paying kickbacks to individuals who agreed to serve as plaintiffs in class action securities lawsuits.
The Lakes Entertainment lawsuit asserts that the Milberg Weiss firm used a variation of that kickback scheme by hiring an expert witness, John Torkelsen of Princeton, N.J., on a contingency basis, meaning Torkelsen would get more money from a larger settlement. However, Torkelsen and the Milberg Weiss attorneys told the judge in the Stratosphere case that Torkelsen was being paid an hourly rate of $390.
Milberg Weiss had filed a class action lawsuit in 1996 against the Stratosphere, its founder, Lyle Berman, and Grand Casinos -- the predecessor to Lakes Entertainment -- after construction cost overruns pushed the Stratosphere into bankruptcy and sent its stock tumbling.
Using Torkelsen's calculations, the Milberg firm sought $165 million from the Stratosphere and Grand Casinos.
According to the Lakes Entertainment lawsuit, Grand Casinos and the Stratosphere agreed to settle the class action lawsuit for $18 million out of concern that a judgment that "approached the expert's damage opinion" would force them out of business.
The settlement was completed in December 2000.
But according to the lawsuit, Lakes Entertainment decided to revisit the case after Torkelsen pleaded guilty last year to a federal perjury charge in California, admitting he had lied to numerous judges about his fee arrangement in various securities cases, including the Stratosphere case.
"Had the facts been known to Lakes, namely that the Torkelsen expert report and opinion was impaired and inadmissible because of his contingent fee arrangement and that the alleged damages to Stratosphere shareholders were either nonexistent or nominal, Grand Casinos would never have entered into the settlement and paid $18 million," the lawsuits says.
The lawsuit says disbarred Milberg Weiss lawyer William Lerach and two other lawyers were part of the alleged Torkelsen fraud. Lerach got two years in prison in a separate plaintiffs-for-hire kickback scheme in Los Angeles last year.
Lakes Entertainment accuses the defendants of fraud, conspiracy, negligent supervision and racketeering violations.
The company wants to recover its $18 million settlement payment from 2000, plus triple damages under provisions of the federal Racketeer Influenced Corrupt Organizations Act, known as RICO.
David Phelps • 612-673-7269
