Station agrees to $1 million fine

David Strow

Wednesday, Nov. 29, 2000 | 11:15 a.m.

Station Casinos Inc. of Las Vegas on Tuesday agreed to pay a $1 million fine to the state of Missouri -- a settlement that will finally allow the company to exit that state.

The settlement, approved by the Missouri Gaming Commission this morning, calls for Station to pay $1 million to the Missouri School Fund -- and will allow the company to move forward with the sale of its casinos in Kansas City and St. Charles to Ameristar Casinos Inc. of Las Vegas for $475 million.

The $1 million fine will have no significant financial effect on Station. Exiting Missouri will allow Station to focus on its expanding Las Vegas locals' casino empire.

"A million dollars is easily acceptable," said Dennis Forst, gaming analyst with McDonald Investments. "Their primary interest is to extricate themselves from Missouri and focus themselves on Las Vegas.

"(The Missouri investigation) is the major hurdle that was overhanging the stock. This is very good news for them."

Investors appeared to agree -- this morning, Station shares shot up $1.75 to $19, a gain of more than 10 percent.

Station Chairman and Chief Executive Frank Fertitta III expressed relief at the settlement in a statement this morning.

"We are pleased to have reached an agreement with the Missouri Gaming Commission that should finally allow us to put these matters in Missouri behind us," Fertitta said. "We are looking forward to being able to focus our attention on our operations and growth plans in Las Vegas."

One final hurdle does remain, as Ameristar has yet to be approved by the commission. A hearing on the matter is set for Dec. 20, seven days before Station's license in St. Charles expires.

But even if Ameristar does not receive approval at that hearing, or a vote is delayed, the Missouri casinos won't be forced to shut down; in the settlement, the commission agreed to extend Station's two Missouri licenses to May 31 if a sale to Ameristar is not immediately approved.

"They just needed the opportunity to have a hearing, really," said Kevin Mullally, commission deputy director. "Certainly there's concern, particularly at this time of year, about innocent employees and their jobs."

Mullally could not comment on whether the commission had concerns about Ameristar, since the investigation into that company was still proceeding.

The Missouri investigations began after Michael Lazaroff, Station's former counsel in that state, was charged with defrauding his law partners. An investigation in that case revealed Lazaroff had been paid $500,000 in bonuses by Station.

Lazaroff then accused Station officials of having knowledge of his frequent contact with then-commission Chairman Robert Wolfson to assist the company in its Missouri business -- contact that was prohibited by Missouri gaming regulations. Station refused to testify at an Aug. 30 hearing in Kansas City, prompting Missouri regulators to vote to revoke Station's two licenses.

In October Lazaroff was sentenced to 30 days in prison and 90 days of home confinement after pleading guilty to felony charges.

In the settlement, the commission charged that Station failed to report the bonus payments to Lazaroff, failed to "properly supervise" Lazaroff and failed to report the improper contacts with Wolfson. The settlement also contained allegations that Station had failed to enforce the state's $500 "loss limit," had allowed minors to gamble and had failed to remove "inaccurate slot machine signage from its slot machine area."

In the settlement, Station denied all of these allegations and didn't admit wrongdoing.

Nevada regulators had been following the Lazaroff case, but ultimately took no action of their own in response to the Missouri probe.

"In the absolute worst case, they could have been found unsuitable (to hold a license), which would have caused Nevada to take a look at them," said Adam Steinberg, gaming analyst with CIBC World Markets.

Another possibility, Steinberg said, was that the casinos could have been closed, which would have greatly reduced their sale value.

"That would have been unlikely, but not out of the realm of possibility," Steinberg said. "That would not have been a wise move on their (the commission's) part, because you're losing tax dollars, and putting a significant portion of local residents out of work."

With those possibilities gone, Steinberg thinks it will be far easier for Station to hit his $23 per share price target.

"That's pretty conservative," Steinberg said.