Federal Prosecutors Drop Case Against NYRA

Federal prosecutors have dropped their longstanding criminal case against the New York Racing Association, which officials said cooperated in reforming past episodes of wrongdoing that could have cost it the franchise to operate the tracks.

Just hours before a report was to be unveiled by Neil Getnick, a federal monitor appointed 18 months ago to oversee NYRA's operations, acting U.S. Attorney Eric Corngold and state Comptroller Alan Hevesi announced the December 2003 indictment against NYRA was being dismissed.

Besides having paid $2 million of a $3 million fine and having restructured its top management, NYRA "has complied with the terms of the deferred prosecution agreement" and "instituted a number of reforms," the U.S. Attorney's office said of the report being filed Sept. 13 by Getnick.

The report cites the appointment of new co-chairman of the board, new rules in its pari-mutuel department, and a crackdown on illegal doping of horses at NYRA tracks.

Getnick was appointed by a federal judge and given enormous powers to oversee NYRA's internal operations. The monitor was agreed to by NYRA under the terms of a federal plea deal stemming from a tax fraud case involving several pari-mutuel clerks, a case in which NYRA was criticized by officials for its involvement.

The criminal case was just one of a number of problems state and federal officials have uncovered at NYRA in recent years.

"I am pleased with the reforms implemented throughout the course of the deferred prosecution agreement, as outlined today by the federal monitor, the U.S. Attorney and the state Comptroller," said NYRA president and CEO Charles Hayward. "Our hard work, however, is not complete. We will continue our efforts to improve our performance and reinforce our position as the industry leader in Thoroughbred racing in America for years to come."

The dismissal of the case comes at a key time in NYRA's future.

The state is gearing up its process to award a new franchise to run New York's three premier Thoroughbred racetracks--Aqueduct, Belmont Park, and Saratoga. NYRA's racetrack franchise, first awarded in 1955, expires at the end of 2007. The decision by prosecutors and state officials is likely to be used by NYRA in a bid to keep its franchise, which is being eyed by a number of outside interests, including Magna Entertainment Corp.

NYRA officials were already sounding confident the developments will help its franchise renewal efforts. "I am pleased with the reforms implemented throughout the course of the deferred prosecution agreement, as outlined today by the federal monitor, the U.S. Attorney and the state comptroller,'' NYRA president Charles Hayward said in a statement.

"Our hard work, however, is not complete," he said. "We will continue our efforts to improve our performance and reinforce our position as the industry leader in thoroughbred racing in America for years to come."

Despite the optimistic assessment, Hevesi warned that further prosecutions involving NYRA may be coming. He and Getnick noted the monitor turned over to prosecutors a separate, sealed report along with the lengthy document made public Sept. 13.

Hevesi would only say that some "prior bad acts'' involving NYRA could lead to criminal cases. He declined to say if it involved current or past NYRA officials. "All of the bad news about NYRA may not be out yet," he said.

Getnick declined to elaborate on problems uncovered and turned over to prosecutors, but he hinted there may be some irregularities found pertaining to rebate shops with which NYRA once did business. Without offering specifics, he talked of money laundering and other corrupt acts involving some offshore rebate shops.

Hevesi, who joined Getnick in releasing the monitor's report, said NYRA has shown "remarkable and dramatic improvement" in its operations. "This is a different agency than it was," he said, noting he had earlier this year called NYRA the worst-run agency he has even seen.

The Democratic state comptroller said the value of the racing franchise also has risen dramatically because of improvements at NYRA. He said its value--if things like its racetrack properties are included--could be more than $1 billion. NYRA insists it owns the land upon which the tracks sit.

Hevesi said the state should ensure a "real competitive process" for the NYRA franchise, and that "others should be encouraged" to put in bids to obtain the franchise. Hevesi said Getnick's report and NYRA's reforms should clear the way for NYRA to be permitted to bid.

The 18-month monitorship didn't come cheaply for NYRA. Getnick said his final tab for the oversight work would be $4 million to $5 million, an amount NYRA, under its deferred prosecution deal, agreed to pay.

While Hevesi and Getnick said NYRA had undergone a complete management shuffle, most of NYRA's trustees who were on board during its various controversies still remain. While he said the NYRA board previously "had become a sleepy board of trustees," Getnick said its round of troubles in recent years had awakened some board members to take a more active role in trying to fix NYRA. But, without specifics, he said the NYRA board should work on a rotation-type basis to ensure new members participate.

Hevesi didn't say if the NYRA board should be replaced. But he did say: "If boards of directors do not do their jobs, they ought not to be boards of directors."

Getnick defended his decision to clear NYRA, even though during his monitoring period NYRA didn't release an on-time report of its financial condition this year and awarded certain contracts without following competitive bidding procedures. He said, for instance, that NYRA couldn't technically abide by one agreement with prosecutors--to have its video lottery terminal casino at Aqueduct up and running--because a state court ruled the VLT law illegal.

(The law has since been upheld, and NYRA is now pursuing its VLT casino.)

Both Hevesi and Getnick had harsh words for the New York State Racing and Wagering Board. Hevesi said the agency has had a plan before it since May from NYRA and OTB corporations for a new bettor rewards program to help compete with rebate shops. He said the failure by the board to act on the request "creates the impression they're not interested in sustaining" the reforms under way at NYRA.

Getnick, who sources claim had a confrontation with racing board chairman Michael Hoblock in the halls of a Saratoga Springs hotel during an Albany Law School symposium in August, accused the agency of hampering NYRA's improvements.

"The regulated entity is leading the way and the regulator is following," he said.

The racing board took credit for uncovering some of the "gross mismanagement and questionable financial practices'' within NYRA over the past decade, and said its work ultimately led to the federal indictment and appointment of the monitor. The board said though one of its three seats is vacant, Getnick's raising of the issue is "a pathetic excuse for the past mismanagement and continued failure of NYRA to comply with the law.''

"It's unfortunate that the independent monitor, in the course of his monitorship, chose not to consult with us despite our many requests to fully share the concerns we had about NYRA's practices,'' the board said in a statement.

Getnick said it's "absolutely essential" that government supports attempts by NYRA that are "moving in the right direction." He urged the racing board to back the NYRA simulcasting plan and its deal with OTBs for a player rewards program.

Officials with the racing board declined an immediate comment.

But Bennett Liebman, who runs a racing and wagering think tank at Albany Law School, said the end of the prosecution and Getnick's glowing report comes at a key time for NYRA as the franchise renewal process is preparing to get underway. "It helps them enormously,'' Liebman said of Getnick's backing of NYRA. "Without it, they would simply be out of business and with this kind of ringing endorsement it puts them one step up on whatever they're competition might be.''

Liebman questioned Getnick's appraisal of the state's racing industry and changes he says are needed to bolster racing in New York. "He doesn't have any expertise. Nobody is paying Neil $4 million to judge whether or not NYRA needs a rebate policy. He really needs to stick to the issue of whether NYRA has abided by the terms of its agreement with the federal government,'' Liebman said.

Release of the report ends Getnick's oversight. But Hevesi warned that if NYRA slips back to its previous practices, it could have severe implications for its attempt to bid again on its franchise.

"We'll be watching them," he said.

The report said NYRA has "brought itself into conformity with the law." Getnick said NYRA cooperated fully with his monitorship. His report states NYRA has "taken steps to rid the tracks of criminal activity."

"Two years ago, NYRA was a broken and corrupt organization that sanctioned the extensive tax evasion scheme for which it was indicted," Corngold said in a statement. "Today, having been subjected to the stringent conditions of the deferred prosecution agreement, and having been supervised by the court and the independent monitor, NYRA emerges as a substantially improved organization.

"We are pleased with NYRA's progress and that the deferred prosecution agreement has had its intended effect.''

In praising NYRA's current leadership, Getnick's report talks of the "old NYRA'' that became "arrogant and insensitive and corrupt.'' But he insisted NYRA's current leadership--even though a number of members of the NYRA board have been serving for years--has changed NYRA's culture.

Getnick did call for a rotation of NYRA board members on such things as its executive committee to ensure problems are viewed from "a fresh perspective."

Among the improvements Getnick outlined in his 140-page report are better conditions for backstretch workers, the cut-off of signals to questionable wagering outlets, broad new drug-testing programs and pre-race monitoring barns, segregated accounts for purse funds, a new internal code of ethics for employees, and better financial recordkeeping and racetrack security.

"When people look back on this experience, we hope they say this was the time that NYRA found itself again," Getnick said in his report, "not just that NYRA perhaps escaped prosecution. Rather, it was a time when the trustees of racing in New York remembered what their responsibilities entailed. And they stepped up and reformed NYRA to fulfill its true purpose."