Former Pure nightclub owner faces sentencing in tax scheme

The fate of Steve Davidovici, the longtime nightclub operator at the center of a lucrative tip-concealing scheme on the Strip, rests with a federal judge this week.

But just who the man facing sentencing on Wednesday is has generated hot debate between defense lawyers and prosecutors.

Is he the charitable, hard-working nightclub visionary with impeccable integrity and community-minded spirit, as his lawyers argue? Or is he the selfish, vindictive schemer who doesn't understand the error of his ways, as Justice Department lawyers portray him?

Davidovici, 48, the former co-owner of Pure nightclub at Caesars Palace, pleaded guilty in March to filing a false 2006 tax return. He acknowledged that he failed to report $403,732 in income in 2005 and 2006 and owed the Internal Revenue Service $141,306 in taxes.

His plea was the result of a four-year IRS investigation into the tip scheme, which enabled Pure executives, VIP hosts and doormen to evade hundreds of thousands of dollars in taxes.

The investigation led to tougher regulatory control over the way the cash-rich nightclubs do business within the casino industry. Three hosts and one doorman also have pleaded guilty in the scheme.

Defense lawyers David Chesnoff of Las Vegas and Steven Toscher of Beverly Hills, Calif., described Davidovici in court papers as a generous nightclub legend who has strong community ties and an unmatched work ethic. They argued that Davidovici is remorseful for his role in the scheme, which was completely out of character.

The lawyers asked U.S. District Judge Kent Dawson to keep Davidovici out of prison and put him on electronically monitored home confinement.

"If ever a defendant has earned a second chance, it is this man," the lawyers wrote. "The crime for which he is to be punished is utterly aberrant to his character, which the record will show is built upon integrity, honesty, decency, family commitment, hard work and generosity."

But Justice Department attorneys Christopher Maietta and Joseph Rillotta responded that what Davidovici really wants is a "free pass on a multi-year tax fraud."

Davidovici, they wrote, "paid himself what amounted to a series of tax-free cash bonuses, and he did not tell the IRS about this because he did not think the IRS would ever find out."

Maietta and Rillotta asked Dawson to put the nightclub icon behind bars for 18 months and have him pay the IRS $141,306 in restitution.

Davidovici's "lies to the IRS" in the tip scheme were not aberrations of his character, the prosecutors argued.

"With similar nonchalance, Mr. Davidovici lied and concealed facts from his auditors and investors, he misled licensing authorities and most recently he made deceptive submissions to the court," they wrote.

"Moreover, defendant not only concealed his own income from the IRS, he encouraged and enabled his subordinates to do the same, and he benefited financially from this broader under-the-table payment scam."

The conspiracy, according to prosecutors, worked this way: Every night, VIP hosts and doormen would pool their tips, and at the end of the week everyone, including Davidovici and club executives, would get a share of the tips.

In their court papers, Chesnoff and Toscher described Davidovici as an "American success story."

They said he rose through the ranks from cleaning ashtrays in hotels to running his own nightclubs and becoming a benefactor to "countless people who needed a helping hand."

The lawyers identified more than three dozen charitable organizations that Davidovici has helped over the years.

And they quoted excerpts from several of the more than 50 friends and business associates, including well-known lawyers and casino executives, who praised his positive attributes in letters of support to the court.

Chesnoff and Toscher also dropped the names of several celebrities that Davidovici has befriended: Paris Hilton, Nicky Minaj, Eva Longoria, Kim Kardashian and Holly Madison.

Davidovici is moving to divest himself of his nightclub interests so that he can focus on his new venture, the Sugar Factory, an upscale confectionery now at four Strip casinos, the lawyers wrote.

If Davidovici is incarcerated, the lawyers argued, he would be forced to downsize his thriving new business and lay off about 200 of his 1,000 employees.

Davidovici also would be denied proper medical attention behind bars to treat a serious eye condition he has developed that could leave him legally blind, Chesnoff and Toscher said.

As a sign of his remorse, Davidovici is ready to send the IRS a check for $141,306 after his sentencing, they said.

But the Justice Department attorneys said Davidovici owes a greater debt to society, which, like anyone else convicted of cheating the IRS, should be met with a loss of freedom.

"Mr. Davidovici seems to suggest that his wealth, status and personal connections should afford him a more lenient sentence that would befall a less privileged defendant," Maietta and Rillotta wrote.

"In the nightclub business, there are velvet ropes to separate the friends of casino presidents and Hollywood agents from the general public, and to ensure that the former receive preferential treatment. In the federal criminal justice system, there are no velvet ropes."

The prosecutors said they don't believe Davidovici has fully reformed himself, and they accused him of retaliating against potential witnesses in the investigation.

"Mr. Davidovici intimidated whistleblowers, boasting gleefully how he would make it impossible for them to work on the Las Vegas Strip again, even stealing data from their personnel files in order to execute his vendettas against them," they said.

At one point, the Justice Department attorneys explained, he hired a private investigator to trail the witnesses. Surveillance photos of the witnesses were seized from Davidovici's office during an IRS raid in 2008.

To accommodate Davidovici's concerns about his eyes, prosecutors said they offered to delay Wednesday's sentencing until October so that he could get the medical attention his lawyers contend he needs. But the lawyers declined the offer.

"The government finds it curious that the defendant deems his medical condition serious enough to warrant a dramatic downward variance in his sentence, but not a continuance of his sentencing hearing," the Justice Department attorneys wrote.

Davidovici has "exhibited a casual disregard for the laws that govern his workplace" and "indulged the troublesome notion that he operates above the rules that govern others," the prosecutors said.

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