An employee at Mike's Diner Bar, a Midtown institution that got a new lease on life after being on the verge of shutting down last year, is being investigated for allegedly embezzling thousands of dollars from the restaurant.

Palo Alto police opened their investigation into the embezzlement and grand theft allegations earlier this month, according to the department's incident log. Police Lt. David Lee confirmed the incident at Mike's is now under active investigation.

Mike Wallau, owner of Mike's, told this publication that he recently learned that a long-time employee had allegedly embezzled thousands by manipulating customers' checks by deleting certain food and beverage items and relabeling them as gratuity. He noted that no customers were affected by this because the bill remained the same.

"Before they would settle the check, (the employee) would take off food items," he said. "It was pretty blatant, really."

Wallau said he went over the restaurant's paperwork to detect the discrepancy and then promptly called the police. He believes that the check manipulation has been happening over a long period of time and that the sum is in the thousands. He declined to name the employee.

The embezzlement allegations come just months after Mike's was on the brink of shutting down in in August. The property owner, Scher Holdings LLC, was in the process of evicting the restaurant from its location at 2860 Middlefield Road because the $22,000 monthly rent was reportedly a day late.

The restaurant had already received an eviction notice from the Santa Clara County Sheriff's Department and was set to close by Sept. 11 before Wallau negotiated an eleventh-hour agreement with the property owner to retain his business, a reprieve that was celebrated by Palo Alto's elected leaders, Midtown residents and other customers of the recently renovated restaurant.

Wallau said the alleged embezzlement further adds to the financial pressures that the business has been feeling.

"It's definitely made it harder to hang on, particularly with the high rent and the back rent and all the expenses," Wallau said. "If it's not one thing, it's another."