In what some local observers called a surprise move, while others claimed they could see it coming from 100 miles away, the Internal Revenue Service raided the offices of Pure Management Group on February 20, 2008.
Federal agents showed up at company headquarters, along with the LAX (Luxor/MGM Mirage) and PURE (Caesars Palace/Harrah’s) nightclubs, and even the private residence of one of the managing partners of PURE. PURE Management Group (PMG) at that time operated more than 10 restaurants and clubs at casinos on the Strip; PURE itself could accommodate up to 1,500 people and was the number-one revenue-producing nightclub in the U.S. PMG’s revenues had skyrocketed in five years, from $25 million in 2003 to more than $120 million in 2007.
The raid on PURE was believed to be the first IRS invasion of a casino since the 1980s, when the feds were investigating mob involvement in Las Vegas.
According to the seven-page search warrant presented at PURE HQ and obtained by the Las Vegas Sun, IRS Criminal Investigation Department (CID) agents "were seeking evidence of a currency distribution scheme, a coat check scheme, and a fraudulent deduction scheme -- all of which may have stretched up the company’s management chain." The warrant cited "three possible criminal violations -- tax evasion, filing false individual tax returns, and conspiracy to defraud the government of taxes."
At PURE, PMG headquarters, and the PMG principal’s home, CID investigators seized upwards of 20 boxes of financial and personnel records, daily planners and personal organizers, tip envelopes, and other evidence, including computers.
Investigators also interviewed employees in tip positions at PURE and LAX; the Sun’s sources said that "as many as a dozen PURE employees were read their criminal rights before being interviewed by agents."
One Sun source explained that CID investigators pursue cases that have "a pattern of criminal behavior at the top of a company, rather than for the purpose of auditing individual taxpayers." For a business to be raided, the IRS has to suspect that certain documentation might disappear if agents don’t seize it in a surprise raid.
Which brings us to the business practices in question.
In those early days of the exploding nightclub scene, that was where the Las Vegas cash culture reached its unrestrained extreme.
On a busy Saturday night, the lines outside the most popular clubs stretched for a quarter-mile (and still do). In a move called "line fishing" or "line sliding," one of the doormen trolled the back of the line for a sucker who was willing to pay extra -- $100, $200, up to $500 -- to move to the front of the line. What the doorman didn't say was that the $500 covered only a line pass. The customer still had to slip another $50-$100 to the front doorman just to get inside the club.
In a Sun story about an older couple who took their 21-year-old daughter and a group of friends to LAX, the couple had made reservations, which got the group to the front of the line, but the doorman there told them that $100 would "get his attention." Once paid, the doorman pointed to a podium inside the door, where a hostess took another $50 to confirm the reservation, then handed the group off to the maitre d’, who took another $100 to "lead the group a few feet farther into the club, where they were told to wait." Then an usher took another $100 to escort them to their two tables in a corner of LAX -- a mere $350 to get seated.
The couple was told by the reservationist that the cover charge would be a two-bottle minimum for $375 per, but when the bill for the bottles of vodka and gin arrived, they cost $500 apiece. Then there was a $50 tip to the waitress. Then there was a $100 tip to the group’s "burly security guy," who took the money and never returned. Then the manager showed up, claiming that because the demand for tables was so fierce, they’d have to pay another $1,000 for two more bottles of booze. When they refused, the manager sat another group at one of the couple’s tables.
Then there was the total of $120 in tips to the restroom attendants, so the girls didn’t have to wait in the long lines.
In another story, when a guy attending a wedding party at rumjungle at Mandalay Bay left the club to go to the bathroom, thereby avoiding the long lines inside, the doormen demanded money for reentry. When he refused, they broke his leg.
According to the Sun, much of the cash collected at the door, in amounts of "tens of thousands of dollars," was split with other club employees and managers. Norm Clarke, the gossip columnist for the Las Vegas Review-Journal, reported that doormen at the most popular clubs could earn $400,000-$500,000 a year. How far up the chain of command the cash split (known in the trade as "breaking the bank") climbed was one of the questions CID investigators attempted to determine. Rumors circulated at the time that the club managers were seen handing over slugs of cash to casino managers.
Subsequently, more investigations were launched into the Las Vegas nightclub scene, resulting in fines of $500,000, $650,000, and $1 million imposed by the Gaming Control Board on Planet Hollywood, the Hard Rock, and the Palms, respectively, following undercover revelations of a list of offenses including excessive drunkeness (in 2010, a guest inebriated on grain alcohol drowned in the Rehab pool), the handling of incapacitated individuals (which, at Planet Ho, amounted to club security ejecting them unceremoniously directly onto the main casino floor or the outside taxi line), public sex acts, date rape, prostitution, "inappropriate" service charges, drug abuse and distribution, violence, admittance of minors, and failure to cooperate with law enforcement.
In the wake of all this highly unwelcome publicity, the state Gaming Control Board issued a very stern warning to casinos ahead of the 2012 pool-party season, stipulating that properties risked losing their gaming licenses if they were found to be in violation, whether or not they owned or were leasing any venue found to be the scene of illegal activities.
That situation, couple with the IRS invasion, rectified to a large extent the way the clubs operated. Though cash is still king throughout the process of getting in and getting drunk, presumably, tip-position employees are covering their asses with the IRS.
LasVegasMagazine.com reported, for example, that when "one major nightclub operator" installed video cameras outside its front doors to keep an eye on the doormen and bouncers, some workers immediately quit.
Three VIP hosts and the head doorman at PURE pled guilt to tax invasion and were handed sentences ranging from probation to a year in prison. The co-owner of PURE was sentenced to three years probation and eight months of electronically monitored home confinement.
Pure Management Group was incorporated into Angel Management Group, which acquired the company and its nine venues in 2010. In 2014 Angel Management Group was acquired by Hakkasan Management Group, which added seven Las Vegas venues to the Abu Dhabi-based nightlife and dining company's portfolio.