HOUSTON — RCI Hospitality Holdings Inc., one of the nation’s largest strip club operators, is fighting off a shareholder lawsuit that alleges the chain’s executives used company funds as their own piggybank.
On Tuesday, the lead shareholder in the proposed class action told a federal judge that RCI Hospitality can’t be successful in a motion to dismiss because company executives knew they were required to disclose related-party transactions.
Attorneys for Ari Hoffman, the lead shareholder in the lawsuit, said that the corporation’s leaders failed to disclose the transactions because they wanted to hide that they hired and did business with immediate relatives and used the company jet for personal travel.
Hoffman’s counsel was responding to RCI Hospitality’s motion to dismiss filed in April, which noted the complainant failed to state a claim on all civil counts.
RCI Hospitality operates more than 40 adult entertainment clubs in New York, Miami, Charlotte, Dallas, Chicago, Pittsburgh, Houston, Minneapolis, St. Louis and other markets under brand names such as Rick's Cabaret, XTC, Club Onyx, Vivid Cabaret, Jaguars, Tootsie's Cabaret and Scarlett's Cabaret. It also operates sports bars and restaurants under the brand name Bombshells Restaurant & Bar.
The investor suit, filed in May 2019, alleged RCI Hospitality hid from investors a large loan it made to CEO Eric Langan, among other transactions. The company also didn't disclose $633,539 in transactions with a furniture fabrication company, first owned by Langan's father, and then by Langan's brother between 2016 and 2018.
Investors also said that the company also failed to disclose the $1.29 million in salary between 2016 and 2018 paid to RCI Hospitality's director of operations, Ed Anakar, brother of Nour-Dean Anakar, a director and member of RCI's audit committee.
Investors further alleged that RCI Hospitality also didn't disclose that while Langan has financial interests in at least five Tannos Land Holdings companies, the company hired Tannos Construction to build its new headquarters and at least five nightclubs and restaurants between 2016 and 2018.
They also allege in the suit that Langan and other company execs used RCI Hospitality's corporate jet for personal travel.
Seeking to have the case dismissed, RCI Hospitality responded in court papers claiming that related-party transaction statements are unimportant to investors, because they can't change "revenues, profits, assets, liabilities, cash position, business operations or prospects."
But the investors suing the adult entertainment company said that contention is wrong because transactions show whether there's conflicts of interest and that they are essential in evaluating a corporation's balance sheet.
"Defendants knew that they were using RCI corporate funds as their own personal cookie jar while skirting their disclosure obligations to investors," plaintiff attorneys wrote.
"Defendants did not want investors to know that they loaded up family and friends with lucrative contracts, while gallivanting around in the corporate jet with other close business associates, who were also awarded rich RCI contracts."
Attorneys for RCI Hospitality and Hoffman didn't immediately respond to AVN requests for comment on Thursday.
RCI Hospitality common stock was trading at $13.55 a share, down $1.03, on the Nasdaq on Thursday.
