May 9, 2002

FORMER OPERATOR OF EXOTIC DANCE CLUB
CONVICTED OF FEDERAL TAX FRAUD CHARGES

 A Cabo San Lucas man who formerly operated an Orange County “strip club” has been convicted of two counts of filing false tax returns for failing to report income the club earned from admissions and bar receipts.
 Mark Bailey, 52, who formerly resided in Laguna Niguel, was found guilty yesterday afternoon by a federal court jury in Santa Ana that heard five days of evidence.
 Bailey was the vice president of Jagg, Inc., which operates the Lake Forest exotic dance club Captain Creams. The evidence at trial showed that Bailey “skimmed” $700,000 in cash from the club in 1992 and 1994. This cash was not reported on Jagg's 1992 and 1994 corporate tax returns, which Bailey signed.
 Bailey used $389,000 of the skimmed cash in 1992 to buy a second exotic dance club in Century City, "Bailey's 20/20," which was located in the former Playboy Club. Bailey had claimed that Magic Johnson, Jerry Buss and others had supplied some of the money used to buy the club.
 In 1994, Bailey was attempting to start another exotic dance club in Corona. In order to conceal the source of the money that was to be used to acquire the leasehold for the club, Bailey gave $310,000 in cash to his former lawyer to place in a safe deposit box. The lawyer then used the cash to pay the lessor and others in cash or in cashier's checks purchased with cash.
 Bailey, the third defendant to be convicted in this investigation, is scheduled to be sentenced on November 4.
 Connye Morgan, the owner of Jagg, Inc., pleaded guilty to filing a false 1991 tax return, is scheduled to be sentenced on November 4. Alan Curtis, who was the attorney for Bailey and Jagg, pleaded guilty to conspiring with Bailey to structuring currency transactions, is set for sentencing on June 24.
 All three defendants will be sentenced by United States District Judge Alicemarie H. Stotler, who presided over Bailey’s trial.
 This case is the product of an investigation by IRS-Criminal Investigation. Michael S. Kochmanski, Special Agent in Charge of the Los Angeles Field Office of IRS-Criminal Investigation, stated: "A cash business may attempt to conceal its income from the IRS, but as this case shows, it's not worth it. Bailey has been convicted of tax fraud and his attorney, who helped him in the scheme, now has a criminal record. We hope that the many businesses that report their income accurately and pay their taxes in a timely manner take notice that IRS-CI will investigate those who do not report all their income."

 Release No. 02-076

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