Testimony hurts Station Casinos

David Strow

Thursday, Aug. 31, 2000 | 11:26 a.m.

KANSAS CITY, Mo. -- A disgraced St. Louis gaming attorney found an ally today in his efforts to convince Missouri regulators that Station Casinos Inc. of Las Vegas and the former chairman of the Missouri Gaming Commission engaged in a long-running pattern of regulatory violations in that state.

The long-awaited hearing before the Missouri Gaming Commission saw the first public testimony of Michael Lazaroff on Wednesday since the prominent gaming attorney was ousted from law firm Thompson Coburn for hiding bonus payments from his law partners.

During more than four hours of testimony, Lazaroff repeatedly claimed that Station had approved of repeated contacts with former Missouri Gaming Commission Chairman Robert Wolfson -- contacts that would violate a 1994 Missouri gaming ethics regulation. Wolfson was chairman of the commission from April 1993 to January 1999.

"I believe to this day, but for my relationship with Chairman Wolfson, Station would not have received the right to present their full case for licensure in Missouri (in 1994)," Lazaroff said.

But Station and Wolfson sought to paint an entirely different picture of events. Wolfson accused Lazaroff of distorting the truth -- while Station branded Lazaroff as an admitted liar who was attempting to accuse Station of wrongdoing to lighten his pending punishment from a federal court. Officials for St. Louis-based President Casinos Inc. also denied Lazaroff's claims that the attorney had conversations with Wolfson on President's behalf.

"The testimony of Chairman Wolfson and the two people from President were pretty stark in contrast to what Mr. Lazaroff said," said Charles German, an attorney for Station. "Someone is mistaken. We've yet to see a single live witness that corroborates Mr. Lazaroff."

But this morning a witness testified via video. He was Joe Canfora, Station's former top executive in Missouri who was fired and then sued the company.

Canfora testified that Lazaroff and Frank Fertitta III, CEO of Station, were well aware they -- Lazaroff and Fertitta III -- were violating the law by having Lazaroff contact Wolfson with questions about Station's effort to obtain a Missouri gaming license.

Canfora testified about a conference call Fertitta III had with Lazaroff.

"I don't remember specifics of the conversation, but there was some reference about Lazaroff talking to his friend (Wolfson). I asked Frank, 'Should we be doing that?' Frank did this (put his finger over his lips)," Canfora said in in his video testimony.

Lazaroff pleaded guilty to three felony counts earlier this summer, and is scheduled to be sentenced in October. He said Wednesday he has been told his sentence could be lightened if he cooperates with the Missouri investigation.

In a brief issued Tuesday, Station said the Lazaroff investigation began at the instigation of Canfora, who Station claims "suggested to the MGC staff that the should look into several bonuses that Station had paid to Michael Lazaroff while he was a partner at the Thompson Coburn law firm in St. Louis."

Canfora's suggestion apparently came after Canfora announced he would lead a competing bid against Station's $22.5 million offer for the Flamingo Hilton Kansas City. Canfora was fired by Station in March 1997, just months after he successfully built and opened the $300 million Station Casino Kansas City.

It was during Station's hearings for approval of the Flamingo that the bonus payments first came to light, forcing Lazaroff's ouster. Within days, Station withdrew its offer to buy the Flamingo, though it insisted the move had nothing to do with the Lazaroff investigation.

Lazaroff also testified Wednesday he feared his life was in danger when news broke of the bonus payments.

He said a Station lawyer, David Helfrey of St. Louis, told him, "There will undoubtedtly come a time when you are tempted to lie to save yourself. But we know you will do the right thing."

It was unclear from Lazaroff's testimony why he perceived this statement as a threat.

Referring to the fact he was facing the loss of his career and jail time, Lazaroff said, "I could not figure a way out. I have spent my life helping people out of jams and I couldn't see a way out. I feared for my life and I feared for my family."

But Lazaroff said he wasn't thinking rationally at the time.

"Mind you I wasn't the most rational person at the time."

On Wednesday, Lazaroff denied rumors that had caused the most fear on Wall Street in recent weeks -- the fear that Lazaroff would claim some of the $500,000 in bonus payments provided by Station were used to pay off local officials.

When asked if this was the case, Lazaroff said, "absolutely not," saying he spent the money on himself. Moreover, Lazaroff admitted he lied to Station officials about the bonus payments, telling them his law partners had already approved of Lazaroff keeping them to himself.

But Lazaroff did accuse Station and Wolfson of violating a 6-year-old ethics regulation that forbids contact between gaming companies and individual Missouri gaming regulators. Portraying himself as a middle man between Station and Wolfson, Lazaroff claimed he made hundreds of calls to discuss gaming matters with Wolfson -- often at the request of Station executives, including Fertitta III, Chief Financial Officer Glenn Christenson and General Counsel Scott Nielson.

These connections went so well, Lazaroff claimed, that Nielson once commented that "I wish we had this kind of relationship and this kind of influence in Nevada."

In one specific case, Lazaroff said he was told by Wolfson that Station needed to build a hotel with its casino if it hoped to be approved. Lazaroff said he relayed this information to Station and it indeed included a hotel with its project.

Missouri Gaming Commission officials, however, said it was common knowledge that the state agency wanted to see companies make major investments like hotels with their casinos.

Contacts between gaming companies, their attorneys and individual commissioners on pending issues, referred to as "ex parte" contacts, are forbidden under a 1994 Missouri gaming ethics regulation. The idea behind the regulation was to ensure that companies didn't try to influence commissioners outside of the hearing room, and instead presented their case only to the full commission.

Lazaroff claims these connections began with Station's knowledge in 1993, when Wolfson, a previous friend of Lazaroff's, was named as commission chairman. Lazaroff claimed they continued through the end of last year.

Station first began operations in Missouri in May 1994 with the St. Charles Riverfront Station riverboat casino near St. Louis. At the time, Station was one of the first gaming companies to open a casino operation in that state.

While Station was seeking approval for this license, Lazaroff claimed he placed a call to Wolfson. During this call, Lazaroff claimed he told Wolfson "I can't have Frank III (Fertitta) get on a plane and be rejected (for a license)."

"He told me they should go ahead with their travel plans," Lazaroff said. "That indicated to me that we would be selected (for a license)."

Over the next several years, Lazaroff claims he presented Station's financing plans for Station Casino Kansas City to Wolfson prior to their distribution to other commissioners, primarily to avoid difficulties in convincing the commission that the $300 million project could be successfully financed.

But Tom Irwin, former executive director of the MGC, said Station's project was approved on the merits.

"I can't imagine any person with an IQ above three digits that would have selected another project other than the one we selected."

"I confess the presentation (of Station) was spectacular. They were building something pretty special," he said.

In a separate press conference, Station attorney German immediately challenged Lazaroff's credibility, saying Lazaroff was attempting to lighten his sentence by providing such testimony. As evidence, German played a tape of a voice mail message left by Lazaroff on the voice mail of Mel Fisher, executive director of the Missouri Gaming Commission, on Dec. 8. Shortly after leaving the message, Lazaroff attempted to kill himself with an overdose of sleeping pills.

"At no time did Station Casinos ask me to ever get information from Robert L. Wolfson," Lazaroff said on the tape, which Fisher said was authentic. "At no time did I attempt ... to get any information from Robert Wolfson and I talked an awful lot but never did that occur. I want that to be abundantly clear, to you and everyone else. I pray you will not punish the innocent."

German said it was up to Lazaroff to determine what did and did not violate Missouri regulations.

"You rely on your lawyer to tell you what's allowed and what isn't," German said. "Our people relied on their Missouri lawyer to keep them out of trouble, not get them into it."

Station's Tuesday brief acknowledges that Station officials were aware of communications between Lazaroff and Wolfson, but said "there was no reason for Station to believe that Lazaroff was doing anything wrong." The company said it believed Lazaroff was discussing "social matters and industry-wide, general gaming issues" with Wolfson.

"By its terms ... the rule only proscribed communications about a pending matter under the jurisdiction of the (commission), but did not bar a commissioner from communicating about other matters," Station's brief said.

When asked in hearings to explain the message, Lazaroff said he was focusing his energies on trying to get Station's application to acquire the Flamingo Hilton Kansas City approved.

"In order for (investigators) to prove there were ex parte communications, Mr. Wolfson would have to say 'yes,"' Lazaroff said. "In talking with Mr. Wolfson, I was very confident in the fact he would not say there were ex parte communications. As long as we stuck to that story ... there would be no proof of ex parte communications.

"I believed if (Station) was approved for the Hilton deal, all this (the bonus payment controversy) would fall by the wayside."

Wolfson was adamant in insisting that he'd never discussed specific gaming issues involving Station or other licensees with Lazaroff that would have violated the ex parte rule, though he admitted to discussing "generic" gaming issues with the attorney. Wolfson later admitted that he probably shouldn't have had any gaming-related conversations with Lazaroff.

'I was appalled by the distortions I just heard, sprinkled with elements of truth,' Wolfson testified in response to Lazaroff's testimony. 'Whenever he tried to change the subject with me, I tried to discourage him. His frequent calls to me seemed to be trying to curry favor with me. We never had a tacit agreement (to talk about Station) at any time.' Wolfson acknowledged an error in dealing with Lazaroff. He said he asked the gaming attorney to place a $20 horse racing wager during one of Lazaroff's visits to Las Vegas. This bet was placed at a Station casino in Las Vegas after Station was licensed in Missouri. Wolfson said he asked Lazaroff to place the bet because the wager could only be placed in Nevada. Lynne Nikolaisen, a Missouri Gaming Commission member, asked Wolfson, 'Didn't it occur to you ... that this was kind of a poor judgment call?' Wolfson responded, 'It was in bad taste and bad judgment. I completely agree.' Seven Station executives, including Fertitta, Chris! tenson and Neilson, were scheduled to testify, but Station announced the night before the hearing that the executives would not honor the commission's subpoenas. In its brief, Station argued it had fully cooperated with the commission's investigation, but that the structure of the Kansas City hearing violated its right of due process by depriving it of the ability to cross-examine Lazaroff.

The commission retaliated Wednesday morning by voting 5-0 to approve a preliminary order that would strip Station of its gaming licenses at its riverboat casinos in Kansas City and St. Louis.

Without a response from Station, the order would become effective in 30 days, forcing Station to shut down the casinos. But Station can request a hearing at any point in the next month, which would allow Station a hearing before the order became effective. Station attorneys said they plan to challenge the order and request this hearing -- a move that would compel the executives to appear in order to avoid the loss of Station's Missouri licenses.

This hearing, however, will focus solely on the issue of Station's refusal to honor the subpoenas, rather than any charges of wrongdoing in the Lazaroff matter.

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