Racing group tries to head off indictment

Joe Drape

Monday, Aug. 4, 2003 | 9:23 a.m.

SARATOGA SPRINGS, N.Y. -- New York Racing Association officials will meet with federal prosecutors on Tuesday in an effort to head off a possible criminal indictment that could put the racing association out of business, two racing industry officials said on Sunday.

The racing association, a nonprofit corporation franchised by the state to conduct racing at Aqueduct, Belmont Park and Saratoga Race Course, has proposed paying a civil fine rather than face charges that it took part in a criminal conspiracy to commit tax fraud, the officials said. The three-year-old federal investigation centers on whether the racing association could have prevented the illegal behavior of 16 clerks who were convicted of tax evasion and three who were convicted of money laundering.

The two sides met in February to examine whether the racing association's management had colluded or allowed tax fraud by clerks in a decade-old practice called "shorting," in which clerks would take money from their cash drawers. The racing association, in turn, would deduct that amount from their paychecks, which allowed the clerks to pay lower income taxes.

The scheme played a prominent part in a scathing report released in June by the New York attorney general, Eliot Spitzer, who accused management of fostering an environment of corruption. Racing association officials have countered that measures were taken to eliminate the practice in 2000, before either the attorney general's investigation or the federal inquiry had begun.

Before the meeting last February, lawyers from Davis, Polk & Wardwell sent a 24-page report to the U.S. attorney's office in Brooklyn detailing how a criminal indictment would cripple the racing association's operations.

The lawyers' report details how a criminal indictment would jeopardize the racing association's simulcast contracts, which in 2001 earned more than $70 million, said the officials. The contracts would most likely be immediately revoked in New Jersey and Nevada, two important markets that provided nearly $11 million in revenues in 2001 and that are under rigid casino and gaming rules.

Under Nevada law, for example, the state commission may find that the New York Racing Association is no longer suitable to transmit horse races to Nevada casinos because an indictment and potential conviction pose a threat to the public interest or the effective regulation of gambling.

"The casinos would either have to drop the signal or risk losing their own licenses," a racing official said.