NYRA Fined $3 Million; Two Officials, Four Tellers Indicted

The New York Racing Association, under investigation for more than three years, was indicted Thursday on fraud and conspiracy charges.

Despite that, NYRA will be able to retain its franchise to run three premier Thoroughbred tracks in New York under a "deferred prosecution'' deal in which it will escape a trial in return for reforming its operations, according to the deal agreed to by federal prosecutors and the NYRA board of trustees.

The agreement also includes payment of a $3 million fine by NYRA, plus covering the costs of the government's probe, amounts the head of the NYRA horsemen's group said would end up hitting his group's purse account. If the terms of the deal are followed by NYRA, prosecutors said they agreed to move to dismiss the charges in 18 months.

Besides the indictment of NYRA, the U.S. Attorney's office in Brooklyn also unsealed indictments against two former directors of the parimutuel department as well as four former tellers on conspiracy and tax fraud charges. Prosecutors found corruption in the teller's department dating back to at least 1980.

A host of former top NYRA officials, who racing insiders in previous months speculated were subject of the federal probe, were not named in the action.

In return for avoiding prosecution and, if convicted, losing its racing franchise, NYRA has agreed, beyond the $3 million fine, to overhaul its senior management in a half-dozen departments, a move NYRA officials said began during the probe. It must also make its financial statements available to the public and cooperate with a court-appointed independent monitor to ensure the deal is being followed. In addition, NYRA agrees that if it can't get its video lottery terminal program at Aqueduct running in 2004, it will "make all reasonable and legally permissible efforts'' to allow another company to move in and take over the VLT operation.

NYRA managers, prosecutors said, ignored widespread corruption among the ranks of its tellers. To date, 24 individuals have been charged with crimes in connection with various scams, including money laundering, tax fraud to tapping into their NYRA cash drawers to run lucrative loan-sharking operations. NYRA officials for years have known, prosecutors said, that tellers were shorting their cash boxes as part of scheme to avoid income taxes; prosecutors said the schemes resulted in $19 million in unreported income since 1980.

"For nearly 20 years, NYRA and members of its senior management conspired to permit mutuel employees to use NYRA's funds as if they belonged to the employees. This went undetected for so long because the corruption pervaded the culture of the organization,'' said Acting U.S. Attorney Andrew C. Hruska.

In a written statement today, NYRA Chairman Barry Schwartz said NYRA "accepts and acknowledges responsibility for its involvement in the improper tax deductions taken by its clerks.'' NYRA is "gratified'' with the deferred compensation deal, he said, and noted that NYRA has already "taken numerous significant remedial steps to make sure that something like this never happens again and to enhance all of our compliance and cash-handling procedures.''

Schwartz said the deal will now make NYRA "free to rejoin our partner'' in renewing the $100 million VLT construction project at Aqueduct that he said would be open by next winter.

"We are very pleased that the U.S. attorney investigation of NYRA has been resolved and that NYRA is now able to proceed with VLT operations at Aqueduct,'' added J. Terrence Lanni, chairman and chief executive officer of MGM Mirage.

The two former senior NYRA managers indicted are Clement Imperato, former vice president of the NYRA mutuel department from 1988 to 1996 and Vincent Hogan, former director of the pari-mutuel department. In addition, four tellers who worked at NYRA from the 1970s until 2003 -- James Boggiano, Barbara Fasone, Dennis King and Gerald Pontrelli -- were indicted. The six individuals face varying charges, including tax evasion and conspiracy to defraud the government. Hogan was charged with making illegal payments to a union official. They were all due in a Long Island courtroom Thursday.

The indictment states that NYRA defrauded the government through its role in a widespread tax evasion scam by its workers. The scam was done by tellers who took cash from their teller boxes and falsely reported them as legitimate shortages. The money taken was then returned to NYRA, which, in turn, provided documents permitting the workers to show those payments as unreimbursed employee expenses. That reduced their state and federal tax payments. "The end result was a taxpayer-financed perquisite provided by NYRA to its mutuel employees,'' according to legal papers filed by the U.S. Attorney's office.

NYRA's survival was predicted in the past week by Senate Majority Leader Joseph Bruno, the racing group's chief booster at the state Capitol, and
NYRA officials were already moving to re-new its construction of a casino at Aqueduct to hold 4,500 video lottery terminals; the new gambling venture, approved under a 2001 law, was on hold after MGM Mirage, its management partner in the deal, put on hold its participation pending the outcome of the federal probe.

State Comptroller Alan Hevesi, who earlier this year released a scathing report on NYRA's operations, praised the appointment of an independent monitor. "We look forward to working with the independent monitor to restore confidence in the NYRA, ensure that the association's officials operate in a fiscally responsible manner, and strengthen the association's finances to allow it to contribute to the state's economy and finances,'' Hevesi said.

NYRA backers say the federal decision not to bring NYRA to trial will enable it to keep the franchise to run Aqueduct, Belmont and Saratoga at least through 2007, its current franchise deadline.

The head of the NYRA horsemen's group said Wednesday he is "thrilled'' NYRA is moving to settle the federal prosecution. "It's not like NYRA did this on purpose. It's not the worse charge in the world ... Let's get it done and over with,'' said Richard Bomze, president of the New York Thoroughbred Horsemen's Association.

Bomze said the probe will force NYRA "to change some of its ways, to run a tighter ship.''

Bomze said the one "frustration'' he has, however, is that horsemen will likely end up shouldering much of the costs of NYRA's problems. He noted that NYRA must, by law, steer the first $2 million of its "profit'' to purses. But he noted that between fines and fees paid by NYRA for lawyers, public relations executives and security consultants the purse account will end up footing much of the bill.

"It's ironic that we'll end up paying the expenses for NYRA to survive,'' Bomze said. "But I do want NYRA to survive.''

For the state, NYRA's immediate survival will mean cash - from the VLT revenue-sharing program - coming in sooner than later; NYRA estimates the VLTs will be worth $400 million to the state each year. The state's top leaders, from Gov. George Pataki to Assembly Speaker Sheldon Silver and Senate Majority Leader Joseph Bruno, have either remained publicly neutral during NYRA's legal battles with prosecutors or aided in its defense. Officials say NYRA's collapse would devastate, at least temporarily, the state's racing industry; NYRA is also a lucrative and steady source of campaign contributions for state officials over the years.

NYRA critics have privately accused prosecutors of being too lenient on NYRA, noting that harsher action has been taken against prominent corporations around the country in the past couple years for criminal wrongdoing. But Hruska told reporters in Brooklyn today that the government sought to do "everything we can'' against NYRA without forcing its demise.

"We've done everything we can to punish NYRA short of dissolving it," Hruska told reporters.