The federal government took over the property in August 2007 after owner Rick Rizzolo failed to find a buyer. Rizzolo pleaded guilty to tax evasion charges in 2006 and his plea agreement called for him to serve a one-year prison sentence and sell the club, using the proceeds to pay Kirk Henry $10 million from the sale. Henry was left paralyzed after he was beaten by club employees after arguing about his drink tab in 2001.
The resale value of the club has dropped substantially since the Marshals Service allowed the liquor license to lapse June 30 after unsuccessfully looking for a buyer to run the topless club.
At that time, U.S. District Judge Philip Pro criticized the Marshals Service for not applying for a liquor license to take over the club in the absence of a buyer to retain the value of the property, to which the Marshals Service said it did not want to get into the topless club business.
Security Pacific Bank in California has filed court papers asking Pro to lift a stay prohibiting the bank from foreclosing on the government-seized strip club to satisfy a $5 million loan it made to former owner Rizzolo, claiming that the value of the club has declined from roughly $30 million to $4.6 million.
The government has disputed that appraisal, saying the property is worth $7 million without a liquor license and $11 million with a license. And, the government said, that does not include any potential business income.
The Marshals Service has been trying to sell the club so that Rizzolo can pay off some $29 million in debts associated with the property. Besides the $10 million to Henry, Rizzolo owes the government millions of dollars in fines and back taxes.
The Marshal Service has hired a private law firm that specializes in land use issues to help persuade the city to grant a liquor license to run the club.
There have been government-run adult businesses before: In the 1990s, the government briefly operated the Mustang Ranch brothel after it was seized by the IRS and also ran the Bicycle Club, a Southern California card club seized in a drug trafficking case.
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