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Grand jury investigation of McDonald keeps Rizzolo in hot seat

If Rick Rizzolo dreamed of living happily ever after, he was only kidding himself. He must know that by now.

He was recently served with a subpoena compelling his testimony before a federal grand jury in a brewing Internal Revenue Service tax case against his friend, former Las Vegas City Councilman and ex-Metro police officer Michael McDonald. Unless defense attorney Tony Sgro can figure a way to get that subpoena quashed, I'm hearing Rizzolo will receive limited immunity from prosecution and be ordered to answer questions about his long relationship with McDonald.

It's no secret McDonald worked as a case consultant for Sgro from 2001 to 2003 and received $5,000 a month for his opinion and ability to bring clients to the law firm. In those days, McDonald was considered the city's most powerful councilman.

When McDonald's name surfaced in the G-sting public corruption probe, his value as a consultant and rainmaker flat-lined. He was bounced from office after being accused of ethics violations.

Sources interviewed by an IRS agent working the case tell me they were asked whether McDonald's arrangement with Sgro was standard practice within the legal community. McDonald was paid by check for his work at the law firm.

The sources also were asked whether Rizzolo might have funneled cash to McDonald independently or through an intermediary. It is an intriguing line of questioning, but this is a tax case.

McDonald has consistently maintained he always paid his taxes. He'd have to be a monumental moron to do otherwise, considering what some members of the federal and local law enforcement thought of him. (His attorney, Richard Wright, did not return a phone call seeking comment for this story.)

If McDonald paid his taxes, then the question may be whether he filled out his return properly. Could he have padded his write-offs? (That noise you hear is the sound of thousands of white-collar workers cursing and rewriting their tax returns.)

Could McDonald have done Rizzolo a favor by, for instance, harboring or selling off his assets?

It would be easy to assume the feds are asking whether Sgro was Rizzolo's errand boy, but Sgro has shown a keen awareness of the scrutiny he and his clients are under. It is doubtful he'd make that mistake.

Here's another scenario floating around the legal community: Could the high-rolling Rizzolo have influenced people by slipping them some of his casino winnings? Cash could just as easily have been handed out far from a surveillance camera.

It's the kind of speculation Rizzolo continues to generate after all these years.

In 2005, Rizzolo signed off on a global settlement and accepted a felony tax conviction in exchange for ending a withering criminal investigation. He was sentenced to a year and a day in prison, ordered to stay out of the topless business, and agreed to pay millions in fines and assessments.

As part of the plea deal, Rizzolo also agreed to pay Kirk and Amy Henry $10 million from the proceeds of the club's sale. Kirk Henry, a Kansas tourist, was disabled in 2001 after having his neck broken outside the club. To date, the Crazy Horse Too hasn't sold. The Henrys have received just $1 million.

Rizzolo's deal was an attempt to put a costly investigation behind him. He was handed the opportunity to write a Hollywood ending on his wiseguy life, but the current IRS investigation threatens to ruin that.

If he's dragged before the grand jury and immunized, he has precious little wiggle room.

If Rizzolo declines to answer questions, he can be jailed for contempt.

If he answers in a manner the Department of Justice attorneys believe is misleading, he can be charged with obstruction. That charge would violate his parole and send him back to prison.

Those DOJ attorneys didn't come all the way from Washington, D.C., to play footsie. I'm guessing they're looking for a scalp.

For two decades, Rizzolo was the bon vivant of the local topless racket, making millions and carving out a high roller's lifestyle. Nevada politicians and judges rushed to accept his generous contributions and fraternal hugs.

That must seem like a long time ago.

The subpoena and all the trouble it portends make Rizzolo's Hollywood ending a real long shot.

John L. Smith's column appears Sunday, Tuesday, Wednesday and Friday. E-mail him at Smith@reviewjournal.com or call (702) 383-0295. He also blogs at lvrj.com/blogs/smith.

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