Gaming board looks at misdeeds on Wall Street

Thursday, May 6, 2004 | 11:07 a.m.

Crackdowns by the Securities and Exchange Commission and other regulators on wrongdoing by investment companies are having a ripple effect on requests for waivers involving securities before the state Gaming Control Board.

The board on Wednesday asked Las Vegas attorney David Arrajj, who represented Goldman Sachs Asset Management, New York, to return next month with a more detailed explanation of what changes have been made at the company since it paid $110 million in a settlement with the SEC.

Goldman Sachs had sought a waiver from Nevada gaming regulations relating to voting securities and its role as owner of some Harrah's Entertainment Inc. stock.

A second investment company won approval in its request for a waiver from Nevada gaming regulations but didn't get everything it asked for. Franklin Templeton Investments, San Mateo, Calif., sought a similar waiver in connection with its ownership of Aztar Corp. stock.

Institutional investors are allowed to seek waivers to state regulations if their interest is strictly for investment purposes.

Gaming Control Board members grilled representatives of the two companies - Goldman Sachs, because it admitted to wrongdoing in the SEC probe and Franklin Templeton because it has been accused of wrongdoing in an investigation in Massachusetts - in a standard suitability investigation involving funds invested in the state's gaming industry.

Goldman Sachs was part of a widespread SEC probe into alleged conflicts of interest involving the company's financial analysts. Goldman Sachs was among 10 companies that settled to pay a total $1.4 billion for their role in defrauding investors with stock information schemes.

"We have an ongoing obligation to scrutinize funds invested in the Nevada gaming industry," said Gaming Control Board Chairman Dennis Neilander following Wednesday's meeting in Las Vegas. "In the case of Goldman Sachs, the matter was not fully resolved. We still had questions regarding their responsiveness."

Arrajj said the company was not prepared to respond with the detail regulators sought, particularly in naming who was responsible for the company's problems, what personnel moves were made as a result and what corporate policies were changed in response to the settlement.

Board member Bobby Siller said he was "a little shocked" that the company was not prepared to discuss the issue in greater detail when officials knew that the Gaming Control Board was going to look carefully at the matter, especially after last year's SEC crackdown.

Franklin Templeton got off a little easier, mainly because it has not been convicted of any wrongdoing. However, the state of Massachusetts is looking into allegations that the company did not use stock trading practices it had promised in its prospectus.

Murray Simpson, executive vice president and general counsel for Franklin Resources Inc., a Franklin Templeton subsidiary, said there was nothing illegal about the company's trading practices - but the company's prospectus prohibited "market timing" trades. The Massachusetts investigation involves interpretations of what constitutes market timing.

Franklin Templeton, which holds investment positions in 31 publicly traded companies with Nevada ties, holds the highest percentage in Aztar, the company that owns the Tropicana hotel-casino.

Neilander said when a company approaches a 15 percent ownership threshold in a Nevada gaming company, it is reported to the Control Board and beneficial owners are investigated to assure legitimacy of investments in the industry.