Casino execs have to watch their step

By Liz Benston

Wednesday, Jan. 6, 2010 | 2 a.m.

If you’ve ever had a problem with your ex-wife, your lawyer or a friend, it might be nobody’s business but your own. Except if you own or operate a Nevada casino — in which case, all of your dirty laundry, no matter how lightly smudged, is subject to scrutiny by the Gaming Control Board.

Case in point: When a federal judge in 2008 sentenced prominent Los Angeles attorney Terry Christensen to three years in jail for conspiring to wiretap the ex-wife of his longtime client and MGM Mirage board member Kirk Kerkorian, Nevada gaming regulators took note that an industry insider was close friends with a man who had become a felon.

This news might be a nonissue for most business executives, but it can present a problem in the commercial casino industry, where holders of state gaming licenses must submit to extensive background checks designed to keep out the mob and other potentially criminal influences that could taint or defraud Nevada’s economic engine.

Regulators haven’t ordered Kerkorian, who owns the largest chunk of MGM Mirage stock, or Gary Jacobs, an MGM Mirage executive who recently resigned for other reasons, to disassociate with Christensen — perhaps because the attorney’s actions were far removed from the casino business and Nevada.

But they could have. In fact, Nevada regulators recently strengthened their authority to discipline casino bosses and their employers for concerns that could have little, if anything, to do with the workplace.

Among a slew of little-watched bills that became law last year was an amendment to state law clarifying that gaming license holders who fail to uphold the same personal and professional standards required to initially obtain their licenses may be disciplined.

The Gaming Control Board pressed for this law, which resembles rules in existing gaming regulations, to counter any legal argument that the board might be overstepping its authority by disciplining a casino license holder for any infraction, however minor.

Regulators have broad discretion to issue warnings, impose conditional licenses with probationary periods and even revoke licenses — a rarely invoked power that essentially bans individuals from the casino industry for life.

The standard for personal and business behavior is deliberately broad. It includes disciplinary action for activities “inimical to the public health, safety, morals, good order and general welfare of the people of the state of Nevada, or that would reflect or tend to reflect discredit upon the state of Nevada or the gaming industry.” Moreover, associating with “persons of notorious or unsavory reputation,” people with “extensive police records” or involved with “subversive movements” or people who could damage the state’s or industry’s reputation because they are unethical or otherwise unprofessional could be grounds for punishment.

Or not.

Before and after Christensen’s conviction, Michael Milken — the banker responsible for financing Steve Wynn’s Mirage resort and, by extension, fueling the Wall-Street-backed growth of the Las Vegas Strip — long mingled with prominent casino executives in Las Vegas who would no doubt count him a friend. After serving time in jail for securities violations, Milken, though publicly branded as a criminal, has also been hailed as a benefactor of significant, lifesaving medical research.

In other cases, regulators have licensed people with police records that reveal offenses including DUIs, drug arrests and domestic violence, crimes that don’t pose the same direct risks to casino operations as, say, tax fraud and rigging games.

In addition to tracking transgressions committed by friends, relatives and associates of casino executives, regulators also are on the lookout for seemingly lesser offenses committed by the executives themselves, which could include any inappropriate behavior outside the confines of the job and beyond the typical requirements outlined in company handbooks.

This is par for the course for casino executives, who willingly surrender certain privacy rights in exchange for gaming licenses — a privilege that, until fairly recently, nearly guaranteed a lucrative existence in a highly profitable industry.

Casino companies and gaming license attorneys contacted by the Sun said the change in state law didn’t warrant much attention because they have operated with the knowledge that regulators have absolute authority to discipline executives or their companies.

And yet, while regulators have plenty of tools to go after license holders for how they operate their casinos, the amendment removes any potential gray areas that might arise in the realm of executives’ private lives, Las Vegas gaming attorney Frank Schreck said.

Traditionally, regulators have been reluctant to punish license holders for things unrelated to the workplace unless it was “extraordinarily bad,” Schreck said.

As an example, regulators in 1989 fined the now-deceased casino owner Ralph Engelstad for holding private parties at his property commemorating the birthday of Adolf Hitler.

This law could give regulators more confidence in disciplining someone for lesser offenses, though regulators still have to prove that the license holder’s conduct made the state or industry look bad, Schreck said. That’s a fairly high standard relative to state requirements to initially obtain a license, when individuals must prove they are upstanding citizens in all respects, Schreck said.

No specific incident or indiscretion triggered the new law, which became effective last year and clarifies existing policy, Gaming Control Board Member Randall Sayre said.

The amendment has been put to use in an upcoming complaint against a license holder, though Sayre declined further comment on the complaint, which is confidential until it becomes public and is reviewed by the Gaming Commission.

Sayre says the law will help regulators establish a pattern of bad behavior by an individual who commits another offense long after obtaining a casino license.

For example, a casino license holder with one arrest after he has rebuilt his reputation and paid retribution might not seem like a big deal. One arrest could be more of a problem if tied to other infractions that occurred before the license was granted — problems the license holder might have thought were over and done with.

Nevada doesn’t require re-licensing every few years as some states new to legalized gaming do — a fact that has given the state a reputation as a more forgiving place to do business.

In general, it’s much harder to lose a casino license than win it in the first place, though employees singled out for any form of regulatory punishment are commonly fired — a career-ruining outcome. There’s no hard-and-fast rules about what will trigger regulators’ ire, though.

“Once you get licensed you don’t have a free pass to commit indiscretions,” Sayre said. “And we don’t have to limit what we analyze to gaming-related indiscretions.”