Thursday, March 21, 2002 | 11:12 a.m.
Taking advantage of a deteriorating situation, competitors of Arthur Andersen are aggressively trying to woo casino companies away from the embattled Chicago accounting firm, Las Vegas gaming industry sources say.
With the exception of the Hard Rock Hotel, Las Vegas casino companies universally stuck by Andersen while news of the Enron scandal unfolded. Their loyalty continued even when Andersen was hit with a federal indictment last week for obstruction of justice.
But the formula changed when New Jersey's Division of Gaming Enforcement recommended that Andersen be barred from doing business with Atlantic City casino operators until a decision can be made on whether Andersen is suitable to be licensed in New Jersey. The New Jersey Casino Control Commission will consider the matter on March 27.
The one Las Vegas company that would be immediately affected is Harrah's Entertainment Inc., operator of two Atlantic City casinos. A New Jersey ban would compel Harrah's to fire Andersen, even though the company's board wanted to stick with the firm.
"I don't see how someone could operate here with them, and with someone else in New Jersey," said Shannon Bybee, executive director of the University of Nevada, Las Vegas' International Gaming Institute. "Whoever's the toughest sets the standard."
Other Las Vegas operators that use Andersen -- specifically, MGM MIRAGE, Mandalay Resort Group, Station Casinos Inc. and Ameristar Casinos -- would not be forced to drop Andersen if New Jersey did this, since none have current operations in that state.
But Andersen's competitors smell blood, and they're trying to grab that business, gaming executives say.
"Literally every accounting firm has contacted us to make sure that if we decide to change auditors, that they're very interested," one casino executive said, speaking on condition of anonymity.
But picking up even one huge casino client isn't a simple matter for the firms, another executive said.
"No one's assembled a staff that could handle this," one executive said. "You can't just take this business with a snap of the fingers. You have to have the people capable of doing the work. I don't know if they would be able to absorb even one (casino company) without hiring the staff."
Part of the sales pitch, another executive said, is a "what if" scenario -- what if we were able to offer you the current Andersen auditors in Las Vegas, led by Tom Roche, the current head of Andersen's Las Vegas gaming team?
It would be a potent argument, the executive admitted, since one reason Las Vegas gaming companies are so committed to Andersen is the relationships and expertise of the Andersen casino auditing team.
"Certainly one of the considerations would be the personnel assigned to the engagement," the executive said. "These guys, particularly Tom Roche, bring a lot to the table. People we were familiar with would be viewed very positively."
Roche and officials with Andersen's Las Vegas office couldn't be reached for comment. But the executive noted it could be difficult to get Roche away from Andersen, noting he was "a very loyal guy."
"It would be a huge decision for him to leave," the executive said.
Andersen will make an attempt to keep its casino customers from being wrested away from it in New Jersey. Patrick Dorton, spokesman for Andersen in Chicago, said the firm plans to plead its case before the New Jersey commission March 27.
"No one in New Jersey had anything to do with the issues in Houston (where Enron is based)," Dorton said. "We believe it's in the public interest to continue our work for our clients in this industry. We will go to the commission hearing on March 27, and we hope to reach a fair and appropriate solution."
Though the decision lies with the commission, convincing them to allow Andersen to stay on will be very difficult, observers say. New Jersey gaming regulations state no company or individual can hold a license if it faces current prosecution or pending charges. New Jersey regulators have regularly exercised this regulation to force individuals and companies out of the gaming industry following an indictment.
"If they want to continue to let them have an exemption, the commission can let Andersen continue to operate without a license while the hearing is going on," said Nelson Rose, a gambling law expert and law professor with California's Whittier College. "But they absolutely don't have to, and it's completely within the discretion of the commission (to force out Andersen)."
In the world of a gaming commission, even hearsay carries weight, Bybee said.
"I've known people who couldn't get licenses because of arrests, even without indictments or convictions," Bybee said.
Andersen could appeal New Jersey's decision to a court, but its chances there would be "very slim," Rose said.
"I don't think they'd have any chance (with a lawsuit)," Rose said.
That's because, within the world of gaming regulation, normal constitutional protections simply don't apply. Neither does the concept of innocent until proven guilty, Rose said.
"In the casino industry, courts have consistently held that it is a highly dangerous industry, and if you don't like giving up your constitutional rights, you don't have to be a part of it," Rose said. "Because of the tainted history of legal gambling, there has to be a way to get at people and deny them a license (even without convictions)."
Gaming regulators around the country are watching the case. If they decided to follow New Jersey's lead, other gaming companies, such as MGM MIRAGE, Mandalay or Ameristar, could find themselves in the same position as Harrah's -- forced to look at a new auditor on the orders of one jurisdiction.
But it doesn't appear that will happen soon. Nevada is monitoring the situation, but has not moved against Andersen. Other states are echoing that position, including Missouri, Illinois, Michigan, Indiana and Mississippi.
"We're reviewing the Arthur Andersen situation, and we're closely following the (New Jersey) investigation," said Nelson Westrin, executive director of the Michigan Gaming Control Board. "If we feel it's appropriate, we will take action. The indictment causes us to look at it more carefully. But I don't expect anything imminently."
Kevin Mullally, executive director of the Missouri Gaming Commission, said the commission is trying to get more information from New Jersey, and has been in touch for more information from licensees that use Andersen.
"At this point, we have not chosen to take any action, but are monitoring the situation very closely and carefully," Mullally said. "We would need to see a pretty direct correlation between the Enron matter and gaming. We have not established that correlation."
Indiana also has no immediate plans to order licensees to stop using Andersen. But a New Jersey ban could change that, said the state's top gaming regulator.
Jack Thar, executive director of the Indiana Gaming Commission, said Indiana licensees who did business in Atlantic City would be asked to drop Andersen to honor New Jersey's order.
And what about the companies without Atlantic City ties, but that still used Andersen?
"We'll ask companies who have Andersen to re-examine it," Thar said. "First, this company has been indicted. Second, you'll have a gaming jurisdiction that's said, 'This company can't work here.' I think they (Indiana licensees) need to take that into account."
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