Most claims against several party stores that sold millions of dollars worth of Michigan lottery tickets to a former Metro Detroit commercial real estate executive accused of orchestrating a Ponzi scheme to fuel his Daily 3 and Daily 4 gambling habit have been dismissed in Oakland County Circuit Court.
Judge James Alexander said in a written opinion that six of the seven claims against five business entities operating the stores are thrown out, but one remains: an alleged violation of the Uniform Voidable Transactions Act. Those dismissed were aiding and abetting fraud; aiding an abetting a breach of fiduciary duty; aiding and abetting statutory stealing; civil conspiracy; unjust enrichment; and negligence
The case centers around the apparent gambling habits of Viktor Gjonaj, the former head of the now-defunct Imperium Group LLC real estate company, who is alleged to have bilked no fewer than nine investors of at least $15.25 million by promising them they were investing in commercial real estate with him when in fact their money was used to fund his Daily 3 and Daily 4 play that at one point cost $1 million a week.
The plaintiffs in the case are investors Jerome Masakowski and Kris Krstovski, who were awarded a $6.13 million judgment last year in a separate but related lawsuit against Gjonaj, a 43-year-old Shelby Township resident.
Seven other investors since August 2019 have sued him in separate cases in Oakland County Circuit Court.
In Masakowski's and Krstovski's lawsuit against the party stores, the two men allege that the store owners "knew or should have known" about the alleged scheme because of the sheer amount of money he, through at least one associate, was spending on the lottery.
It also claims that the party stores gave Gjonaj, who has been unheard from since August 2019 and has not been criminally charged, "gifts of jewelry, automobiles (and) vacations" and had Michigan Lottery "ticket machines in their stores dedicated solely to" him, the complaint filed this spring says.
Alexander, in his opinion from Sept. 1, said that the Masakowski and Krstovski couldn't prove that the party stores knew of Gjonaj's alleged fraud and that they couldn't prove the stores caused the two men to be defrauded.
"Rather, the allegations toward defendants concern what Gjonaj did with plaintiffs' funds after he stole them," Alexander wrote.
A status conference is scheduled for Oct. 6, according to court records.
The defendants in the party store lawsuit filed in April this year who sought summary disposition are Sitaram Krupa Inc. (the parent company of Smokers Express at 52847 Hayes Road in Shelby Township); Harhar Mahadev Inc. (parent company of Smokers Express at 47079 Van Dyke Ave. in Shelby Township); Steven and May Inc. (parent comapny of Picolo's Liquor & Deli at 13459 23 Mile Road in Shelby Township); S.B. One Inc. (parent company of B & B Liquor and Fine Wine at 16712 26 Mile Road in Macomb Township); and Mario's Corner Market Inc. at 49011 Romeo Plank Road in Macomb Township.
Ethan Holtz, partner for Southfield-based Jaffe Raitt Heuer & Weiss PC, which is representing Masakowski and Krstovski, said his clients will continue to pursue their Uniform Voidable Transactions Act claim.
"Essentially Judge Alexander said we have a legally viable claim against these defendants and we intend to pursue that claim," he said.
Picolo's is the alleged epicenter of Gjonaj's gambling spree.
No other Macomb County lottery retailer comes close to replicating the prolific nature of Picolo's Daily 3 and Daily 4 operation, which has sold over $30 million worth of tickets for the two games since FY 2014, according to state records.
In fact, Daily 4 ticket sales at Picolo's accounted for $1 out of every $12 spent in Macomb County on the game during that time frame. It had $26.3 million in sales, with $336.2 million countywide.
Gjonaj won no less than $28 million on the Daily 3 and Daily 4 game, including a 47-day stretch in which he won $21.5 million, although exactly how much he won is not known. How much the Shelby Township resident actually played is also not known
Records obtained through the Freedom of Information Act show that between fiscal 2014 to present, the Matty family that owns Picolo's netted $2.38 million in commissions from the sale of Daily 3 and Daily 4 tickets, and their winnings, alone.
Attorneys for the five stores celebrated Alexander's opinion.
Don Peterson, partner for Royal Oak-based law firm George Law, which is representing Picolo's in the case, said Monday that his client is "obviously very pleased" and they intend to file another summary disposition motion seeking to toss out the one remaining count.
"We are going to say Gjonaj) didn't transfer money to us to avoid paying debts to (Masakowski and Krstovski), but instead because he was a gambling addict. He didn't give us the money (for the lottery tickets) in an effort to hinder, delay or defraud the plaintiffs; he did it because he was addicted to gambling," Peterson said. "We are a party store open for business, and we sold him lottery tickets. He happened to steal the money to buy the lottery tickets, but we didn't know he was stealing."
An email sent to a personal account for Gjonaj on Monday was returned undelivered.
Peterson continued: "Part of me feels bad for the plaintiffs because if everything they are saying is true, they got screwed out of a lot of money, but at the same time, my sympathy for them evaporated because they made my clients go through all this brain damage to get the complaint dismissed."
It wasn't only Picolo's that sold Gjonaj large numbers of tickets.
"The judge's opinion, which dismissed six of seven counts of the complaint, speaks volumes," Mark Vranna, director of the Personal Injury & Negligence Division for Eastpointe-based law firm Mihelich & Kavanaugh PLC, said in an email. He is representing the two Smokers Express stores. "If the plaintiffs were actually victims of fraud, as the alleged in the 2019 case, my clients certainly sympathize with them. However, their remedy lies against Mr. Gjonaj, against whom they have secured a judgment in excess of $5 million, and not retail stores selling lottery tickets at face value."
R.J. Cronkhite, partner for Troy-based law firm Dinsmore & Shohl LLP, which is representing Mario's Corner Market, said his client is "completely vindicated."
"We are 98 percent through with the entire case, and by my reading of the opinion, my client has already been completely vindicated," Cronkhite said. "The sole question left is whether (Masakowski and Krstovski) are able to prove that Viktor was defrauding them by buying lotto tickets. The result of that is very important. If so, that means they are voiding all of these (lottery ticket) sales. Are they are going to unwind millions of dollars of sales because Viktor did something bad?"
The April legal complaint says that the party stores, in violation of Michigan Lottery rules, allowed Gjonaj to play the Daily 3 and Daily 4 games without purchasing the tickets in person.
Instead, the complaint alleges, he had an associate, Gregory Vitto, order the tickets with specific numbers over the phone at Gjonaj's direction and pay for them later with large wire transfers, sometimes from Gjonaj's personal bank account and sometimes from another business bank account for Strategic Statistics LLC, which is also named as a defendant in the complaint.
The party stores in total made millions off of Gjonaj's gambling. Retailers collect a 2 percent commission on winnings and a 6 percent commission on total value of ticket sales.
The state has said it tried to slow Gjonaj's gambling by instituting a $5,000 daily limit per lottery terminal in February 2018 after he won $10 million, and giving him responsible gambling literature.
Vitto, who was dismissed as a defendant from the Masakowski and Krstovski case, testified in September 2019 that for a period of about six months, Gjonaj was playing the lottery at the rate of about $1 million per week.
The lawsuit says the defendants each at least received hundreds of thousands of dollars from Gjonaj through wire transfers during his gambling spree:
• Sitaram Krupa received about $2.9 million between Jan. 6, 2018 and June 18, 2019 from Gjonaj's personal bank account, according to the complaint.
• S.B. One received nearly $1.28 million in two months last year.
• Garfield Investments Inc., parent company of One Step Party Shoppe at 16530 21 Mile Road in Macomb Township, received over $593,000 in three months last year.
• Harhar Mahadev received over $664,000 in a few months.
• 23 & Card Liquor Shop LLC, parent company of Buscemi's of Macomb at 21790 23 Mile Road in Macomb Township, received nearly $106,000.
• Congdon Inc., parent company of Wooden Keg at 1940 W. Hemphill Road in Flint, received at least about $87,000.
The lawsuit says the entire operation flew in the face of lottery rules, which prohibit retailers from extending credit for lottery tickets and require that they maintain current and accurate records, even though the businesses were not doing so.
The lawsuit also claims that the stores were helping Gjonaj violate limits on the number of tickets that can be sold to a particular individual, and that they had extra lottery machines installed in their stores specifically to accommodate Gjonaj's play.
After rising through the ranks of the local commercial real estate industry as a broker specializing in Macomb County and retail, Gjonaj formed Imperium Group in October 2017, four months after he won a $2.5 million prize playing the Daily 3 and Daily 4.
Less than a month after incorporating Imperium, he won another $4 million.
His winning streak continued into early 2018, with a $10 million payday on Jan. 29, a $9.625 million payday on Feb. 27, and another $2 million March 17 that year.
But by the summer 2019, this luck changed, eventually leading to the implosion and mass resignation of his real estate company's staff after he stopped showing up to work.
Although Gjonaj continued to win large cash prizes, Vitto said in his September testimony that they were not nearly the amounts that he had previously won and that the money began to dry up as his lottery spending outpaced his winnings — and what he could allegedly get from people who thought they were investing in buildings and land, instead of paper tickets sold at thousands of retailers around the state.
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