Clayton, N.C. — The operators of a Clayton strip club were facing fines and a 10-day suspension of the club's license due to lewd conduct by dancers before fire destroyed the club this weekend, state officials said.

Alcohol Law Enforcement agents conducted an undercover investigation at the Crazy Horse strip club between January and April 2007 after complaints to the agency.

Violations included two incidents in which employees participated in sexually explicit conduct, said Jeff Lassiter, with the Raleigh ALE office. Several employees also consumed alcohol while working.

Crazy Horse workers gave patrons memberships in the private club on the spot, ignoring the required three-day waiting period, Lassiter said.

ALE turned the violations over to the state Alcoholic Beverage Control Commission, which regulates businesses at which alcohol is served.

Owners of the strip club have disputed the violations, and the club's lawyer was negotiating a settlement with the ABC.

The ABC will not pursue the violations unless the club is rebuilt, which the owner told WRAL on Sunday that he plans to do, using insurance money.

A passer-by called in the fire around 6:30 a.m., and witnesses said flames were shooting 50 feet into the air. It took two hours for crews from six fire departments in Wake and Johnston counties to get the fire under control.

Fire investigators from the Wake County Fire Marshal's Office continued to sift through the ashes Monday to determine the cause of the fire.

The Crazy Horse, established in 1998, was part of the Aberdeen-based Pure Gold Club franchise, which operates six clubs. Crazy Horse was open from 6 p.m. to 2 a.m., seven days a week.

The club was known as Dockside Dolls in 1999, when a man confronted by club security guards shot and killed another customer.

The 1-acre property is owned by a Clayton couple, according to Wake County tax records.