Withdrawing Applications

Be careful what you wish, because sometimes you can't back out.

It is always surprising to read about someone applying for a gaming license who is turned down when regulators uncover some horrendous incident in the applicant's past. These cases often involve questionable and even illegal business practices and dealings with associates of organized crime. Suspect applicants usually compound their licensing problems by failing to disclose required information, or worse, by lying.

As Bill Clinton and now Martha Stewart have learned, the punishment for the coverup is often far worse than the crime.

You have to wonder how applicants with pasts they want to hide think they can get away with it. Since regulators almost always charge the applicants themselves for the costs of investigations, these individuals know there are staff workers checking out every statement made, or purposely not made, on the long, detailed application forms.

Sometimes, would-be licensees find out too late that their past has caught up with them. This is the worst of all possible worlds in the gaming industry. Being denied a license does not mean the applicant can say, "Oh well, so it cost me some time and money, but I'll just go somewhere else where there are casinos." Gaming licensees are forbidden, except in rare circumstances, from employing, associating, or having any dealings whatsoever with a person who has been found unsuitable.

When an applicant is turned down, he or she must report it to regulators in other jurisdictions. Many states and tribes have express agreements to share findings of unsuitability. Even those jurisdictions that have not entered into these reciprocal licensing agreements will ask on the gaming license application form whether the applicant has ever been disqualified from working in any gaming industry.

The applicant who has been disqualified in another state then has no options: Many jurisdictions have rules stating that a finding of unsuitability by any government is grounds for license denial; but saying that the disqualification never occurred is lying. It is hard to imagine any surer way to be denied a license than to lie to the regulator who is supposed to issue the license.

Maybe the person seeking a gaming license simply forgot: "Oh, that felony gambling conviction." Or, maybe he has always been able to talk his way out of tight spots before.

Some regulators let applicants withdraw their applications. Particularly early in the process, it is easier for regulators to let a troubled applicant gracefully withdraw than to go through the unpleasant disqualification process. But in other cases, it may be too late.

The Court of Appeals of Arizona recently ruled that the Arizona Department of Gaming has the power to deny an applicant's request to withdraw his application for certification to provide gaming services. The trial court in the case has gone the other way, ordering the Gaming Department not to deny or take any further action because the applicant wanted to withdraw his application.

The case involved Jeremy E. "Jerry" Simms, who had become somewhat of a sticky problem for state regulators in Arizona. In May 2000, the Department of Racing granted Simms a license, even though it had found evidence he had made questionable payments to officials in California. AZcentral.com reported that they included paying a member of the Coastal Commission "for a permit to build a swimming pool and a scheme to stop a rival from building a hotel."

When The Arizona Republic reported that Jim Higgenbottom, director of the Racing Department, had recommended that Simms get a license anyway, Gov. Jane Hull fired Higgenbottom and ordered that the application be reviewed.

Simms compounded his problems by applying for another license with a different regulator, the Gaming Department. Simms was co-owner and manager of Turf Paradise racetrack in Phoenix, and he wanted to expand to video off-track betting at Indian casinos.

The Gaming Department uncovered a few more questions in Simms' past. He made a couple of loans he failed to report on his application: In 1995, he loaned $2.2 million and received back nearly $2.6 million from Alan Glick. If the name Alan Glick sounds familiar, it should: He is the young man who somehow borrowed $160 million from the Teamsters Pension Fund to buy the Stardust and Fremont casinos in Las Vegas. Two of Glick's friends at the time were Frank "Lefty" Rosenthal and Anthony "Tony the Ant" Spilotro. Their story is told in the movie and nonfiction book Casino.

Glick was never convicted, but law enforcement says he was a front for the Mafia.

There was more, but it became clear even to Simms that he was not going to get certification from the Arizona Department of Gaming to be a supplier to Indian casinos in that state. So, he tried to withdraw his application.

The Gaming Department refused. It had spent a lot of time and money on this investigation, and it wanted to label Simms as unsuitable.

Simms' lawyers came up with two fairly straightforward arguments for why the Gaming Department had to terminate its proceedings. Once Simms withdrew his application, they argued, the Gaming Department no longer had power over him, since its only power was to decide applications. Also, the state Gaming Department's power in this particular case arose from compacts that Arizona had signed with tribes, and the compacts did not give the Gaming Department power to deny a license once the application had been withdrawn.

The Gaming Department's arguments had to be more circumspect. Although the compacts did not explicitly state that the Gaming Department could deny a request to withdraw, this power was inherent to its duty to protect the tribes, state, and gaming public from criminal elements.

The Court of Appeals agreed. It looked to the purposes of the Indian Gaming Regulatory Act and the state legislation creating the Arizona Department of Gaming. It found the Gaming Department had the "police power" of the state, which is basically whatever power it takes to protect the health, safety, welfare, and morals of its residents.

The lessons are clear: Do not apply for a gaming license unless you have nothing to hide. And do not expect that you can withdraw your application if bad things do turn up, unless the statutes or regulations specifically give you that right.

Professor I. Nelson Rose is recognized as one of the world's leading authorities on gambling law. His website is www.GamblingAndTheLaw.com.