LAS VEGAS » A California ice cream mogul who was convicted of four felonies for failure to pay $384,000 in casino IOUs is challenging a Nevada state law that lets Las Vegas Strip resorts turn to county prosecutors to collect unpaid gambling debts.

The Nevada Supreme Court heard oral arguments this week in Reno on a rare constitutional challenge of a 1995 state law that serves as a model for other U.S. states with casino businesses.

Nevada treats written IOUs, known as casino markers, like fraudulent bad checks. It also lets prosecutors tack on a 10 percent processing and prosecution fee with any settlement. In Las Vegas, that amounted to about $2.78 million in the 2012-13 fiscal year.

"The thrust of the case is whether when a casino gives people 30, 60 or 90 days to repay, it’s really a loan or a check," said Bernie Zadrowski, the chief deputy Clark County district attorney who prosecuted thousands of cases during a seven-year stint heading the bad check unit. He argued the case Tuesday before the seven Supreme Court justices.

"Does the casino have some kind of duty to determine whether the defendant has enough money in their bank account when they write a marker?" Zadrowski said in an interview. "That goes to whether it’s a check or a loan."

Disputes over loans are handled in civil courts, Zadrowski noted. Bad checks can be prosecuted criminally.

Clark County prosecutors handled about 6,300 bad check cases last year, said Christopher Lalli, assistant Clark County district attorney. Many stemmed from purchases at mom-and-pop stores and big retailers like Wal-Mart, Kmart and Family Dollar. Most defendants settle their case before trial, and waive their ability to appeal.

A few cases involve high-rollers like Harel Zahavi, the Israel-born ice cream businessman who now lives in Rancho Cucamonga, Calif., and no longer gambles, said his attorney, His attorney, Matthew Lay.

"They took and took and took from him, and he ends up convicted of four felonies," Lay said. "That’s life-altering."

Zahavi is one of very few who bet their fate on the findings of a Las Vegas jury.

The largest case since the state Legislature added "credit extended by any licensed gaming establishment" to state bad check law in 1995 involved the 2009 indictment of Terrance "Terry" Watanabe.

Watanabe, the wealthy former owner of the Omaha, Neb.-based Oriental Trading Co., was indicted on allegations he failed to pay $14.75 million in casino debts. He countered with a civil lawsuit against Harrah’s Entertainment Inc., before both sides reached a confidential settlement in July 2010.

Other headline-grabbing casino bad check cases include a $2.5 million bad check dispute between "Girls Gone Wild" founder Joe Francis and casinos owned by Las Vegas casino magnate Steve Wynn, and the conviction in 2011 of former NBA All-Star Antoine Walker. Walker pleaded guilty before trial, was sentenced to five years’ probation and ordered to pay about $770,000 in restitution.

Zahavi lost his trial in 2010, and was convicted of four felony charges of drawing and passing a check without sufficient funds with intent to defraud. He was spared prison time, but was sentenced to five years of probation, banned from casinos and ordered to pay $379,000 in restitution.

Now, Zahavi wants the state high court to overturn his conviction.

He argues that casino markers are short-term business loans, not personal checks, because casinos routinely hold them for several months before redeeming them.

Lay told justices during arguments Tuesday at Reno High School that Zahavi had no intent to defraud the casinos.

Casino executives had all the advantages, Lay said in an interview, including credit checks and access to information about Zahavi’s finances. They also knew about Zahavi’s his increasingly wobbly ability to pay after he lost his ice cream business in a distribution dispute in 2004, he said.

Zahavi, a longtime loyal casino customer who played baccarat, struggled to pay $700,000 in casino debts in 2008. Just weeks later, the Venetian and Palazzo, the Hard Rock and Caesars Palace extended him the hundreds of thousands of dollars’ worth of credit that led to the criminal charges and his conviction, according to court documents.

The Supreme Court didn’t make an immediate ruling. A decision is expected to take several months.