Financial problems preceded former nightclub exec’s apparent suicide

Michael Morton

Michael Morton

George Maloof

George Maloof

A day after former Las Vegas nightclub and restaurant developer Scott DeGraff was found dead in an apparent suicide, court records painted a picture of a man who recently had been fighting hard to overcome deep financial problems.

DeGraff is known in Las Vegas for teaming with his childhood friend from Chicago, Michael Morton, to open the Drink nightclub in 1995. It operated successfully for many years on Harmon Avenue off the Strip during the years before nightclubs became popular attractions at casinos.

DeGraff, Morton and George Maloof then opened popular restaurants and nightclubs at the Palms, the off-Strip property Maloof owned, beginning in 2001.

Lawsuit records show Palms venues such as Rain nightclub and N9NE Steakhouse generated tens of millions of dollars in profit for the Palms and the N9NE Group company — headed by Morton and DeGraff — that developed them.

N9NE Group — so named because Morton and DeGraff had known each other since they were 9 years old — operated N9NE Group venues at the Palms until early this year, when it was bought out of those venues to settle litigation between Maloof and Morton.

DeGraff in about 2008 began working on business ventures in Aspen, Colo. Despite moving from Las Vegas, he maintained an ownership stake in the N9NE Group, which besides its Las Vegas operations had clubs and restaurants in Dallas and Chicago.

In Colorado, DeGraff ran into deep financial trouble because of a series of issues with restaurants and clubs he opened in Aspen, according to the Aspen Times.

Among his biggest financial problems appeared to be a $3.9 million lawsuit judgment from 2010 — now $4.2 million with interest — won by a group of New York investors operating as D & R’s Aspen Retirement Plan LLC.

D & R is a group of New York investors who say they had loaned DeGraff $3 million and that he didn’t pay it back.

DeGraff’s position was that the money was an equity investment in ventures he was developing with the investors including “Fun Worldwide,” which would create and run hotel, restaurant, nightclub and other hospitality venues.

In fighting the investors in court, DeGraff said he had been the creative force behind successful N9NE Group restaurants and clubs.

This year, in the meantime, lawsuit records revealed DeGraff was set to receive a payment over time of $7.5 million related to the buyout of his share of the N9NE Group’s nightclubs and restaurants at the Palms.

The DeGraff buyout was related to the settlement of the Maloof/Morton lawsuit in which Morton charged Maloof was interfering with Morton’s plan to open a restaurant at Wynn Las Vegas and was trying to push Morton out of their lucrative venture at the Palms.

Maloof in that litigation had charged Morton was using their joint-venture resources to develop the Wynn venue, among other things.

When creditor group D & R moved to garnish the first $1 million of his $7.5 million in N9NE Group buyout money, DeGraff filed for bankruptcy protection in Colorado on Sept. 30 in an apparent bid to block the garnishment.

The bankruptcy filing listed $21,500 in assets against $19.2 million in liabilities. The largest liability is $11.173 million for loans against two homes in Aspen.

The filing indicated many of DeGraff’s assets are held in the name of his wife, Liza, who was not a party in the bankruptcy.

The filing says that last year, DeGraff received $1.985 million in income from 9 Group LLC and 9 Group Management, parent companies of the N9NE Group. Through Oct. 21 of this year, the N9NE Group had paid him another $1.58 million, though $1 million of that had been garnished by D & R and impounded by a Las Vegas court.

DeGraff’s filing wasn’t a Chapter 7 liquidation bankruptcy. Rather, it was filed under Chapter 11 of the bankruptcy code, which is normally used by businesses that plan to reorganize their debts, make some payments to creditors and continue to operate.

After DeGraff’s bankruptcy was filed, DeGraff continued to fight for his money from the N9NE Group buyout when his attorney filed a lawsuit-like adversary complaint in Colorado’s bankruptcy court in a challenge to the garnishment and impoundment by the Las Vegas court of the $1 million.

The complaint was filed against D & R and Clark County District Court in Las Vegas, where a judge had approved the $1 million be garnished and impounded.

“The ($1 million) fund is the property of the debtor’s estate,” that complaint says. “The Bankruptcy Court can direct that property of the estate be released from the registry of a court for use by the debtor.”

As of Friday neither the court nor D & R had responded to the complaint. DeGraff’s bankruptcy attorney couldn’t immediately be reached for comment.

Las Vegas attorney Ross Goodman, who had separately represented DeGraff in a state court fight in Las Vegas against the D & R garnishment, remembered DeGraff on Friday.

“I represented Scott for many years and knew him as a creative and highly energetic businessperson for whom the sky was the limit. It brings me great sadness to learn of the circumstances leading to his passing, and my heart goes out to his wife and children,” Goodman said.