Suffolk Owners Blindsided by Caesars

October 30, 2013
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As Suffolk Downs official Charles Baker III sat in a meeting with the Mass Gaming Commission (MGC) on Oct. 2, the news about Caesars’s troubles fell on him and the whole Suffolk ownership like a pallet of bricks from out of the blue sky – at least according to Suffolk’s witnesses at an MGC adjudicatory hearing on Tuesday morning.

The two hour meeting revealed a detailed timeline about Suffolk’s initial vetting, its two-year partnership and its eventual break-up with the gaming giant – a company that is now also under investigation by a Grand Jury in Nevada about anti-money laundering policies.

“Suffolk was blindsided,” said track attorney Bruce Falby, one of many on the Suffolk team to utter the term at Tuesday’s hearing.

It was also a hearing that Suffolk had, apparently, not known would be so thorough. Last week, Suffolk officials indicated they would have a regular public hearing, rather than a more intensive “adjudicatory” hearing. As it turned out, and also to the track’s surprise, it was an adjudicatory hearing.

Suffolk Was In the Dark

From the beginning of Tuesday’s hearing, Suffolk’s team of witnesses – which included former state Attorney General Tom Reilly – indicated that they were victims in the matter. They said from the outset – as they detailed the timeline of events to MGC – that they had trusted Caesars and had been blindsided by them.

What blindsided them was the licensing agreement deal Caesars had engaged in last March with Gansevoort Hotel – a company that regulators believe has ties to some segment of Russian organized crime. MGC Commissioners said on Tuesday they had told Caesars about their concerns with the Gansevoort deal last April.

Suffolk, at first, said they were not told at all about the concerns.

“This troubled me greatly,” said Reilly, who was hired by Suffolk on Oct. 2. “There was no time that Caesars or investigators raised this concern about Gansevoort to Suffolk. Caesars knew full well there was a serious matter here. Caesars did respond in writing to [investigators], but nothing to Suffolk. Nothing at all. Suffolk was totally in the dark on the matter until…Oct. 2. There’s no advantage to being surprised by this, but that’s what happened. Suffolk was blindsided by this, but they acted quickly.”

However, the darkness in question perhaps had just a little nightlight of information prior to the barnburning Oct. 2 meeting. Later, under questioning by the MGC investigators, Suffolk admitted they knew a little about Gansevoort before Oct. 2.

When Commissioners asked specifics, Baker indicated that he had heard some things about the Gansevoort situation last summer.

“Yes, I had been apprised (of ongoing issues), but obviously not in a complete way,” Baker told the Commission. “At some point before this we were told there was some issue with Gansevoort, but not in detail. I don’t recall when, but not anywhere near the May or April timeframe.”

Another matter brought up in the timeline was when Suffolk officially severed ties with Caesars – which came on Tuesday, Oct. 15, some four days prior to the groundbreaking public announcement late in the night on Friday, Oct. 18. That Oct. 18 announcement coincided with a report shared with Suffolk by MGC investigators that revealed the unsuitable finding for Caesars. However, by that time, the relationship was already over.

“On Oct. 15 they made that decision and they made it decisively,” said Reilly. “The MGC filed a notice and gave Caesars a notice of unsuitability. That occurred on Oct. 15. There was a decision by the principle owners then to end that relationship (with Caesars).”

There was no explanation why the public was not informed until several days later of that major change.

Who Knew What, and When Did They Know It?

Meanwhile, who knew what – and when they knew it – has become a major issue in local governments in the last week. In reports circulating throughout the Boston media, it was reported that Boston Mayor Tom Menino had known about the problems facing Suffolk Downs and Caesars weeks before the public – and yet continued to advocate for the Suffolk plan as if nothing had changed.

The Boston Herald led the way on that report, and it led to questions about what Revere Mayor Dan Rizzo knew.

Rizzo, on Monday, didn’t exactly say when or what he knew about Caesars exit, but seemed to be skeptical of the Herald report about Menino having advanced information.

“I had heard rumors,” he said. “However, as has been my past practices, I never react to them. Nothing but a slippery slope if I, or anyone else, reacts to every rumor you hear about.”

He continued, “As a practical matter, I’m not sure how much of a material difference it made if Menino knew or not. If the inference is that Boston is privy to privileged information, I would strongly disagree. I’m in constant communication with Richard Fields and Joe O’Donnell (of Suffolk) and am confident that the City of Revere is kept up to date the  same as the City of Boston. Maybe Menino had met with Caesars during that time frame. I can’t say for sure. The Gaming Commission holds public meetings and the process is open by design. That is indisputable.”

Suffolk has also been questioned as to why they held a jobs forum celebrating Caesars and its employees the day after learning of the MGC’s serious concerns with Caesars remaining on as the gaming operator.

“We had preliminary information, but did not have the benefit of a follow-up discussion or of confirming the Investigative Bureau’s concerns, nor did we have the Investigative Bureau’s final report, which we did not receive until Oct. 18th,” said Suffolk COO Chip Tuttle. “The career paths discussed at that forum, while for a different management partner, are as valid today as they were on Oct. 3, as are all of our commitments to the residents of Revere, including good jobs with local hiring preferences and millions of dollars for local road improvements and city capital projects.”

Moving Forward

Suffolk also detailed its plan to move forward and continue to pursue a license.

They assured the Commission an operator would be chosen before the Dec. 31 deadline, but they were not optimistic it would come before the Nov. 5 vote.

“The bottom line is the bottom line – Caesars is gone; they are not part of this and will not be part of this if Suffolk Downs is chosen to receive a license,” said Reilly.

Baker added that there was immediate interest as soon as Caesars was history.

“Suffolk can’t promise we will find an operator by the time the election comes around next Tuesday (Nov. 5),” said Baker. “We are confident we will find one well before the (Dec. 31st final application) deadline.”

One other issue around Caesars departure is the fact that they have not officially given up their 4.2 percent ownership interest in the partnership.

Suffolk said they believed Caesars would cooperate, and they’ve officially terminated the partnership, but they indicated they needed help and time to complete the transfer of ownership – which Suffolk previously said it would absorb.

Why Did You Choose Caesars?

Most of the remaining portions of Tuesday’s hearing featured Commissioners and MGC investigators questioning Suffolk about its compliance policies, lack of compliance policies and why they chose Caesars in the first place given outstanding issues that existed prior to the 2011 partnership.

Suffolk witnesses told the Gaming Commission that they evaluated Caesars in 2011 based largely on the company’s successful vetting and casino ventures in Ohio – which was the last state before Massachusetts to approve casino gaming.

Caesars was given a suitable rating by the Ohio Gaming Commission and currently operates two casinos there. That, along with an internal investigation, led to them to choose Caesars, they said.

That choice was vetted by the former Massachusetts Racing Commission – which was the predecessor of the MGC and no longer exists.

When asked if they hired outside investigators to look into Caesars, Suffolk indicated that it did not.

There was also a great deal of discussion about an outstanding lawsuit against Caesars  known as the Watanabe case – a case that is still ongoing and involves a customer losing more than $100 million while apparently opening abusing alcohol and drugs. Suffolk said it had read articles about the 2007 case and had talked with Caesars about it before cementing the partnership.

Commissioners seemed to want to know more about that vetting process.

“They told us there were now procedures in place to make sure this would never happen again in their company,” said Baker.

“Did you probe them on that?” asked Commissioner Steve Crosby.

“Yes,” said Baker.

“Did you get documentation on that?” asked Crosby.

“I don’t believe so,” said Baker.

Other matters addressed included what Suffolk will to do to create a new compliance plan. That was something they asked for help on from the MGC, and they repeatedly told Commissioners this had been a learning experience, and that they had trusted Caesars and probably gave them too long a leash.

“We always recommended to our Board that we needed some kind of separate mechanism to ensure compliance of the licensee and applicant,” said Baker. “Caesars said it had it’s own compliance [plan] and they had to follow it. They said they had to work things up the levels and chain of command in their company. We said ‘great,’ but when something gets to that level up the chain, you have to report it to Suffolk.”

Suffolk contends that didn’t happen, and they mistakenly trusted Caesars.

“Suffolk was blindsided and it took appropriate action,” said Falby in a closing statement. “We’ve learned also from this, especially with Caesars, that trust is an honorable virtue, but you can’t rely on it entirely and compliance procedures need to be in place and we plan to do that immediately.”

The MGC took the contents of the hearing under advisement, and indicated they would deliberate privately on the matter and issue a written decision as soon as possible. They seemed to indicate they would follow an internal timetable.

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