RCI Hospitality Holdings Inc. is a publicly traded Texas corporation with shares traded on the NASDAQ exchange. Through its subsidiaries, RCI owns and operates more than 60 strip clubs and restaurants throughout the U.S. including
three located in New York.
As an issuer, RCI is subject to the FCPA including the books and records and internal controls provisions.
The books and records provisions generally require issuers to “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.”
The internal controls provisions generally require issuers to “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that” among other things transactions are properly authorized and accounted for and that access to assets is permitted only in accordance with management’s general or specific authorization.
Earlier this week RCI, various subsidiaries, and various executives were criminally charged in New York on various state charges alleging conspiracy, bribery and criminal tax fraud among other crimes.
The indictment may also draw the interest of the SEC (and perhaps the DOJ) as it alleges conduct which would seem to implicate the FCPA’s books and records and internal controls provisions as well.
In summary fashion, the indictment alleges:
“Beginning from at least on or about September 6, 2010, through on or about January 14, 2024, the defendants and others operated and devised a scheme in which RCI, RCIMS, Rick’s Cabaret, Vivid Cabaret, and Hoops Cabaret (collectively the “RCI Companies”) and their officers, employees, and agents conspired and schemed with [an auditor and supervisor of sales tax audits with the NY State Department of Taxation and Finance] each other, and others to provide illegal bribes to [auditor] while [auditor] conducted and supervised tax audits of Rick’s Cabaret, Vivid Cabaret, and Hoops Cabaret (collectively the “RCI New York Strip Clubs”). The object of the conspiracy was to induce [auditor] to aid the RCI Companies’ prior and continuing commission of criminal tax fraud in which the RCI New York Strip Clubs failed to collect from their customers and pay to the State of New York the full amount of sales tax that should have been collected and paid on sales at strip clubs located in New York County.
At all relevant times, the RCI New York Strip Clubs sold “Dance Dollars” to their customers. Dance Dollars are and were redeemable at the RCI New York Strip Clubs for entertainment and amusement and for use of the facilities, including private dances. The RCI New York Strip Clubs also charged their customers a service charge of 20 to 25 percent in addition to the face value of the Dance Dollars. As such, both the sale of Dance Dollars and the service charge imposed by RCI qualified as an “admission charge” to a “place of amusement” and were subject to a combined sales tax rate of 8.875 percent for the City and State of New York and the Metropolitan Commuter Transportation District surcharge. The conspirators willfully failed to and caused the RCI New York Strip Clubs to fail to collect from their customers and pay to the State of New York sales tax on such sales despite being aware that the collection and payment of such taxes were legally required.
To conceal and perpetuate their ongoing sales tax fraud, the conspirators agreed with each other and with others to provide bribes to [auditor] and for [auditor] to receive such bribes. The object of the conspiracy was to induce [auditor] to not assess and penalize the RCI New York Strip Clubs for their failure to collect and pay sales tax during pending and future audits conducted by DTF. In furtherance of the conspiracy, the defendants agreed with each other and others to provide [auditor] with complimentary admission to and private dances at the RCI New York Strip Clubs and Tootsies Cabaret in Miami, Florida, which is also owned and operated by RCI. From 2012 through 2023, the RCI Companies and their officers, employees, and agents provided [auditor] with at least 13 different complementary multi-day trips to its strip clubs in and around Miami, Florida, including Tootsie’s Cabaret. Winata [a controller and accountant at the company] traveled from Texas and from New York to meet [auditor] in Florida for such trips. During these trips, Winata accompanied [auditor] to RCI-owned strip clubs and provided with complimentary hotel stays, restaurant meals, and up to several thousand dollars’ worth of private dances per day at RCI-owned strip clubs. Additionally, on at least 10 occasions from 2010 through 2021, Winata traveled to New York County from Houston, Texas to provide [auditor] with illegal bribes in the form of complimentary restaurant meals and admission to and private dances at the RCI New York Strip Clubs. Langan, Anakar, and Chhay [other RCI executives] authorized and directed Winata to travel to New York County and Florida for the purpose of bribing [auditor]. Anakar, Langan, and Kevlin provided and authorized and directed employees and managers of RCI-owned strip clubs in New York County and Florida to provide Winata with cash and Dance Dollars to give to [auditor]. As part of the conspiracy, the conspirators agreed with each other and others to falsify the business records of the RCI New York Strip Clubs and RCI-owned and operated strip clubs in Florida to record the bribe payments to as “promo,” “promotion,” “promotional,” “misc.,” or “miscellaneous” expenses.
In exchange for the illegal benefits provided to him, [auditor] agreed to and did aid and further the ongoing commission of criminal tax fraud in which the conspirators and the RCI New York Strip Clubs failed to collect from their customers and pay to the State of New York over $8 million in sales taxes that should have been collected and paid on the sales of Dance Dollars during the course of the conspiracy. As part of the conspiracy, the conspirators agreed with each other and others that during sales tax audits that [auditor] conducted and supervised for DTF of the RCI New York Strip Clubs, he would assess substantially less in unpaid sales taxes, interest, and penalties than were due. The conspirators also agreed with each other and others that [auditor] would improperly take official action to prevent and impede DTF from conducting additional routine sales tax audits of Rick’s Cabaret, RCI’s most profitable strip club in New York County.”
