Atlantic City recently settled its lawsuit trying to claw back $3 million it inappropriately gave to a dubious business to make commercial and residential improvement loans. The business, ZeMurray Street Capital LLC, instead bought a stake in a Tennessee corporation with the city’s money, its lawsuit said.
The city’s lack of due diligence about where it was throwing its money and inability to even follow required procedures makes the case an example of why a state takeover of the city was necessary.
And even though the federal court settlement specifies that ZeMurray pay Atlantic City $3 million, the city is far from recouping its foolishly lost money.
The trouble began in 2013 when the administration of then-Mayor Lorenzo Langford made a deal with ZeMurray and its owner, W. Wesley Drummon, to give it the money to make loans to city residents and businesses, and theoretically repay the city with interest.
Atlantic City Council rubber stamped the deal without discussion on the recommendation of Langford, even though many members said they didn’t know the financial details or much of anything about ZeMurray and Drummon.
ZeMurray turned out to have a suspicious Atlantic City connection. The Associated Press found that Gary Lax — whose brother Eddie was an aide to Langford and later a clerk for Mayor Don Guardian — was a ZeMurray shareholder. He became chairman of the Tennessee corporation that got Atlantic City’s money, while a third brother, Michael Lax, became its executive director. The city eventually added them to its lawsuit and Eddie Lax (who still works for the city) said he didn’t know his brothers were involved with the Tennessee company.
After the deal was signed, it came out that the money had been improperly appropriated from the Mirage Agreement Fund, established by a 1996 agreement with Mirage Resorts to spur development in the Marina District prior to the construction of Borgata Hotel Casino.
Spending by the fund required the approval of a committee whose three members include Borgata. Its vice president and general counsel, Joe Corbo, said it never voted to approve the $3 million for the lending program. Borgata never got answers from the city to its questions about ZeMurray and the program, he said.
The settlement of Atlantic City’s lawsuit for the full $3 million would still leave the city out whatever it has spent on the lawsuit the past five years.
But the city may not see all or even any of the $3 million.
At the start of last month, prior to the settlement, ZeMurray owner Drummon filed for Chapter 7 bankruptcy. That’s liquidation, which would dismiss all debts after distributing to debt holders whatever is left of assets — if any.
Fitting that the last chapter of this sordid tale of a nearly bankrupt city improperly throwing precious millions to apparently connected people will be a bankruptcy court determination of whether Atlantic City salvages any of its misspent money.