Arizona regulators say Vegas company should lose license

By Steve Green

Published Monday, June 22, 2009 | 4:24 p.m.

Updated Monday, June 22, 2009 | 7:14 p.m.

An Arizona agency says Global Cash Access Inc. of Las Vegas can't be trusted as a casino vendor because it committed theft and fraud years ago -- and in recent years has lied to regulators about that scandal and other issues.

The harsh words about the company are in a June 3 report from the Arizona Department of Gaming recommending Global Cash lose its license to do business in that state, where it now contracts with about 20 Indian casinos.

Global Cash, which provides gaming credit services and ATM machines in casinos, revealed the Arizona action earlier this month and said it plans to contest the recommendation.

"The notice summarizes the basis for the department’s intention and alleges that GCA, its founding stockholders and certain of GCA’s management undertook actions that demonstrate that GCA is not suitable under the department’s standards to act as a provider of gaming services to Native American tribes conducting gaming in Arizona," Global Cash said in a regulatory filing.

"The notice provides GCA with the right to an informal settlement conference as well as a formal hearing before an administrative law judge in Arizona. GCA intends to seek the holding of the informal settlement conference prior to July 15, and the holding of the formal hearing, if necessary, as soon as possible thereafter. In the meantime, absent further action by the department that prohibits GCA from doing so, GCA intends to continue its operations in Arizona in the ordinary course of business," Global Cash said.

"GCA takes the notice and the allegations made therein very seriously. GCA believes that it has taken appropriate actions during the prior 20 months that will permit GCA to fully demonstrate that it should be considered suitable for certification by the department. Many of these actions involve the termination of GCA’s relationships with certain affiliated parties and have been previously publicly communicated and provide the basis for GCA’s belief that GCA is in fact suitable to act as a provider of gaming services to Native American tribes conducting gaming in Arizona," the company said.

George Gresham, chief financial officer at parent company Global Cash Holdings, on Monday said Arizona operations generate about 5 percent of the company's revenue. He declined further comment on the Arizona licensing issue.

The Arizona report said that from 1999 to 2002, Global Cash deliberately miscoded transactions involving Visa by disguising cash transactions as retail purchases, meaning it would pay a lower fee to banks issuing the Visa cards at issue.

Global Cash made $26 million with this scheme, the Arizona report says. It says the company was fined $384,000 by Visa, but otherwise never returned the stolen money.

The Arizona report says that in later years, it attempted to deceive gaming regulators in Michigan in 2004 and in Arizona in 2005 by not disclosing all the required information about the miscoding issue.

"GCA deprived a regulatory agency of material information needed to make an informed suitability determination," the Arizona report said of the Global Cash case in Michigan.

Company founders Karim Maskatiya and Robert Cucinotta "both attempted to mislead the investigators to hide GCA's interchange fee fraud and their involvement in it," the Arizona report says.

And Arizona regulators say Maskatiya and Cucinotta lied to them by failing to disclose they had been questioned about the murder of Maskatiya's wife in California in 1982.

"Police detectives questioned both Maskatiya and Cucinotta regarding the murder. Both were read their Miranda rights. The detectives felt that Maskatiya and Cucinotta gave inconsistent statements and did not cooperate with the investigation. They also felt that Maskatiya knew, but would not reveal, the identify of the murderer," the Arizona report said. Yet both men answered 'no' when asked by Arizona regulators if they had ever been questioned by a law enforcement agency, the report said.

The Arizona Gaming Department said Maskatiya and Cucinotta were on the GCA board of directors until June 2008, but resigned six weeks after being interviewed by the department. It says they continue to hold more than 25 percent of the company's stock.

In a section of the report called "ongoing matters of concern," the Arizona regulators say:

--Global Cash has never acknowledged or taken any action in regard to its wrongdoing.

--Global Cash has continued contacts with people and companies involved in the Visa fee fraud.

--The former Global Cash principals failed to disclose information about the murder investigation to regulators in Arizona and Mississippi.

--Cucinotta and Maskatiya failed to disclose other information including their ownership of various companies.

--Global Cash continues to have problems with payments of fees to casinos and with payments to casino patrons.

--Global Cash principals had contact with gaming regulators that created an appearance of impropriety.

"GCA has committed a theft, fraud and concealment," the Arizona report added. "It has conspired in these actions with (related company) USA Payment Systems. It has demonstrated a willful disregard for compliance with gaming regulatory authorities and has misrepresented and concealed material facts, documents and information in its dealings with the department and others."

"Casino vendors providing electronic fund access must be reputable, honest, diligent and effective. GCA has proven itself to be none of these," the report said. "Allowing GCA's continued participation in gaming in Arizona damages the public's trust in Arizona casinos and casino regulators. Casinos cannot properly operate where patrons continually suspect or assume they are being cheated, and regulators are assumed to be either involved or incompetent."

The Las Vegas company earlier this month announced the dismissal of one of two shareholder lawsuits alleging wrongdoing by directors and executives -- lawsuits mentioned by the Arizona gaming regulators.

Global Cash, based in Las Vegas, operates kiosks and other services in casinos in the United States and internationally allowing patrons to obtain credit and cash through ATM cash withdrawals, credit card cash advances, check cashing and money transfer services.

The company also owns Central Credit LLC, which provides credit information on gamblers to casinos.

In the first quarter ended March 31, Global Cash earned $8.97 million or 12 cents per share, on revenue of $181.7 million. That was up from a profit of $1.66 million or 2 cents per share on revenue of $143.5 million in the same quarter of 2008. While sales declined 9.2 percent on a same-store basis, total revenue increased because of two acquisitions, the company said.

Concerning the lawsuit dismissal, the company said that in December 2007, a "derivative" lawsuit was filed by a shareholder in U.S. District Court for Nevada.

The shareholder, seeking to sue on behalf of the company, alleged some current and former directors and a former chief executive officer and a chief financial officer violated their fiduciary duties and violated securities laws. A similar suit was filed in February 2008 and the cases were later combined.

In the other case, filed in April 2008, a lawsuit seeking class action status was filed by a stockholder in federal court in New York against Global Cash, certain former directors, a former chief executive officer and certain underwriters of two public stock offerings. A similar suit was filed in June 2008 and they were combined and moved to Nevada, where the case is pending.

Court records show that shareholders in all the cases alleged the company had discovered it had underpaid commissions to casinos -- but failed to promptly disclose the problem to investors.

One suit said a whistleblower had come forward in November 2007, charging the company was miscoding transactions in order to avoid paying commissions, but that this wasn't disclosed until Dec. 7, 2007.

On that day, one of the suits charges, Global Cash told investors it would need to spend $10 million to resolve the issues and to correct its accounting problems.

This, the suit charged, caused the value of the company's stock to fall from more than $15 per share to $5.50 per share -- a $913 million loss in market capitalization. (The stock closed Monday at $6.71). Some of the defendants had sold more than $6 million of their shares while in possession of this non-public information, the suit charged.

In seeking dismissal of the derivative suits, attorneys for Global Cash said the shareholders had failed to comply with a provision in the Federal Rules of Civil Procedure requiring such claims to either first be presented to the company board of directors or, in the alternative, to show a majority of the board of directors were incapable of making independent and disinterested decisions regarding the grievance.

They also defended Global Cash's disclosures, saying that in early 2006 the company auditor had found deficiencies in internal financial controls and that the company was working to correct the problems. They said that in early 2007, Global Cash also disclosed weaknesses in the calculation of commissions and that it was working to correct the problem.

Global Cash attorneys also said the company dealt promptly with the whistleblower complaint and disclosed it to investors. A probe found "no evidence of fraud or intentional misconduct," the attorneys said. Still, GCA set aside $2.6 million of additional expense to settle commission disputes, the attorneys said.

While the shareholder class action suit remains pending, U.S. District Judge James Mahan dismissed the derivative lawsuit last month because of the plaintiffs' failure to either first present their claims to the board of directors, or spell out why they did not.

"The court finds that the amended complaint does not allege with ... facts sufficient to undermine the ability of a majority of the board of directors to consider a demand," he wrote.