The hospitality and nightclub empire founded by Sam Nazarian said it would move ahead with its global expansion plans without its leader after Nazarian admitted paying millions in extortion money to a convicted felon, using cocaine and fathering a child out of wedlock.
Sam Bakhshandehpour, the president of SBE Entertainment for the last two years, has taken over as chief executive while Nazarian takes time to overcome what he described as an addiction to alcohol.
The revelations about Nazarian's personal problems came to light during vetting by the Nevada gaming control board to determine whether he qualified for a gaming license.
The Nevada Gaming Commission approved Nazarian for a license for the SLS Las Vegas but only after he admitted to the payments and the drug use and pleaded with the board members to give him a second chance.
"I've learned my lesson," he told the board during a hearing in Las Vegas Thursday. "I've sought help."
Nazarian, 39, told investigators he would be working with noted local drug and alcohol addiction specialist Dr. Michael S. Levy and his outpatient detox facility, the Center for Addiction Medicine.
The entrepreneur had already said he would step down as chief executive of the SLS Las Vegas while remaining a minority shareholder. The hotel and casino are now under the oversight of its majority stakeholder, San Francisco-based Stockbridge Capital.
The SLS opened in August in the shell of the former Sahara Hotel and Casino and faces an uphill battle to thrive in the gritty north end of the Las Vegas Strip. But gaming experts say the latest controversy probably won't be a factor in the future of the hotel.
"I don't think it's necessarily a bad thing," David Schwartz, director of the center for gaming research at the University of Las Vegas, said of the tumult. "Where people decide to eat or stay on the Strip doesn't have to do with what the commission does."
Meanwhile, Nazarian's company released a statement saying it supported his decision to take time away from the company.
"SBE remains confident that its existing board and senior management will continue to lead and operate the organization with no break in continuity," the company said.
SBE has plans to open eight SLS hotels by the end of 2016, including trendy projects in New York, the Bahamas and Beijing. Under a recently announced reinvestment plan, three senior partners from Connecticut-based Cain Hoy will join SBE's board of directors.
During the hearing Thursday and in previous testimony, Nazarian said he paid about $3 million to former car customizer and convicted felon Derrick "Smokey" Armstrong plus smaller payments to a convicted racketeer and Death Row Records founder Marion "Suge" Knight. Nazarian characterized the payments as extortion.
Knight, through a business associate, confirmed receiving funds from Nazarian, denied any extortion was involved.
In interviews, Armstrong also denied the allegations, saying he was paid for bringing legitimate business deals to Nazarian.
Armstrong had planned to tell Nevada investigators about those business deals. But when he approached the state building in North Las Vegas to testify before the commission Thursday, he said, he was met by as many as 15 law enforcement agents.
The twice-convicted felon was arrested on suspicion of writing bad checks, according to commission agents. In an interview Friday, Armstrong said the charges were dropped after he paid an outstanding debt owed at a Las Vegas casino.
Had he not been arrested, he said, "I would have told the truth. I would have denied those allegations. I would have said my piece."