Feds drop effort to sell closed Crazy Horse Too strip club

The government Thursday abruptly abandoned its effort to sell the Crazy Horse Too after failing for more than three years to find a buyer for the strip club to pay off the multimillion-dollar debts of its convicted former owner, Rick Rizzolo.

At the request of federal prosecutors, U.S. District Judge Philip Pro ordered Canico Capital Group, the investment firm that owns the first deed of trust on the property, to hold a public foreclosure sale.

"The government realizes that it can't sell the property for the amount of liens that exist," attorney Michael Mushkin, who represents Canico Capital, said after a brief hearing.

U.S. Attorney Daniel Bogden declined to comment on the decision to let the shut-down club go to foreclosure.

But during the hearing Assistant U.S. Attorney Daniel Hollingsworth acknowledged that the Crazy Horse Too's value had declined dramatically since the government first sought to sell it more than three years ago.

Once valued by the government as high as $35 million, the Crazy Horse Too, which anchors a small business mall on Industrial Road near Sahara Avenue, is now estimated to be worth $2 million to $3 million.

The club's value fell because of the downturn in the economy and the decision by the U.S. Marshals Service to let its liquor and adult entertainment licenses lapse. Under current zoning laws, that lapse prevents a future adult nightclub on the property.

Rizzolo's lawyer, Dominic Gentile, has accused the government of "totally" mismanaging the Crazy Horse Too's sale.

"This is the worst case of bad faith that I've experience in almost 40 years as a lawyer," Gentile said Thursday after hearing that the government was bailing out. "The only reason it's worth what it is today is because of the government's deliberate, malignant conduct. This is really, truly outrageous."

Gentile added, "It won't surprise me if they did it on purpose."

Mushkin said Canico Capital expected the foreclosure sale would take place by April 1.

Company officials are hoping that someone will bid a reasonable amount for the property, but if that doesn't happen, Canico will take it over and try to find a buyer on its own, Mushkin said.

Late last year, Pro gave the Marshals Service a May 3 deadline to sell the club, which was once a hangout for celebrities, politicians and mobsters, "by any lawful means, including public auction."

Rizzolo had struck an agreement with the government to use proceeds from the sale to pay off the millions of dollars Rizzolo owes the government in back taxes and fines, as well as a $10 million legal settlement to Kirk Henry, a Kansas City-area man who was paralyzed during a fight over his bar tab at the club in 2001.

But that goal was never accomplished.

Pro's ruling Thursday gives lawyers for Henry and his wife, Amy, the green light to go after Rizzolo personally for money he owes the couple. The Henrys are suing Rizzolo for fraud in federal court, alleging he created a sham divorce with his wife, Lisa, to avoid paying them.

He currently owes the Henrys $9 million plus interest, their lawyers said.

Rizzolo, long suspected of having ties to organized crime, pleaded guilty to a felony tax charge in June 2006 as part of his deal with the government to end a decade-long FBI racketeering investigation at the Crazy Horse Too.

He served roughly 10 months of a one-year prison term, but now faces a March 29 hearing before Pro on whether he should be put back behind bars for violating the terms of his April 2008 release.

Under his 2006 plea agreement, Rizzolo had a year to sell the strip club to pay off his debts. When he couldn't sell it, the Marshals Service took control of the property, but also failed to unload it in the declining real estate market.

Contact Jeff German at jgerman@reviewjournal.com or 702-380-8135.