Casino supply company’s founders sue over link to criminal activity

By Steve Green (contact)

Published Monday, Nov. 9, 2009 | 4:34 p.m.

Updated Monday, Nov. 9, 2009 | 6:58 p.m.

Two founders of casino industry supplier Global Cash Access Holdings Inc. of Las Vegas are suing an accounting firm, charging it harmed them by disclosing information in an FBI bulletin they say wrongly associated the founders with criminal activity.

Attorneys for Robert Cucinotta and Karim Maskatiya filed suit Friday in federal court in Las Vegas against Deloitte & Touche LLP and Larry Krause, managing partner of Deloitte's Nevada practice.

Asked about the allegations Monday, Deloitte & Touche said in a statement: "We believe the complaint to be without merit and intend to defend against it vigorously."

Cucinotta and Maskatiya say in the lawsuit that in October 2007, Deloitte was the public auditor of Global Cash Access and another unnamed client when the unnamed client received an "FBI Intelligence Bulletin" describing a "number of serious crimes allegedly committed by plaintiffs and an allegation that GCA was currently defrauding the gaming industry by miscoding certain financial transactions."

Global Cash Access, or GCA, operates credit services and ATM machines in casinos around the country.

The lawsuit says the unnamed client investigated the allegations and found the information in the FBI Bulletin was not credible.

The unnamed client forwarded the FBI Bulletin to Deloitte for "information purposes only," the suit charges, adding Deloitte then passed the information on to GCA's audit committee and cited the information as coming from an "anonymous source."

The lawsuit complains this was improper since the unnamed client had not authorized Deloitte to forward the information to GCA.

The lawsuit says: "Deloitte stated that: 'GCA founders Karim Maskatiya and Robert Cucinotta are suspected of involvement in serious wrongdoing, including murder, extortion, tax fraud and financial fraud, and also may be subject to substantial back taxes and penalties owed to the IRS."'

"Deloitte's refusal to disclose the source of the defamatory allegations left the (GCA) Audit Committee totally blind to everything about the FBI Bulletin, including its very existence, the investigations conducted by the client and the communications between Deloitte and the client," the lawsuit charges. "Had the FBI Bulletin been shared with members of GCA's board, they would have immediately discovered that the allegations relating to GCA's purported fraud on the gaming industry were plainly derived from allegations asserted and dealt with several years prior to the date on the FBI Bulletin. In other words, the FBI Bulletin would have immediately been discovered as a hoax or a scheme."

Cucinotta and Maskatiya assert Deloitte didn't contact them or investigate the information in the FBI Bulletin before contacting the GCA Audit Committee; and that Deloitte demanded that GCA investigate the allegations and said it wouldn't certify the third quarter 2007 financial statements until the probe was completed.

The actions by Deloitte caused GCA to announce on Nov. 14, 2007, it would delay filing its quarterly financial report with the Securities and Exchange Commission pending conclusion of an investigation into "confidential" issues, the lawsuit says.

"Predictably, the market reaction to that shocking press release was brutal and GCA market capitalization declined by $400 million," the lawsuit charged, adding Cucinotta and Maskatiya together lost almost $100 million in a single day.

GCA hired the law firm Skadden Arps Slate Meagher & Flom LLP to conduct a "massive internal investigation" that involved interviews with 27 witnesses and reviews of more than 200,000 documents, the lawsuit says.

The Skadden Report concluded in December 2007: "We have found no evidence that (Cucinotta and Maskatiya) engaged in serious wrongdoing or are under investigation by law enforcement officials," the lawsuit says.

The suit says Cucinotta and Maskatiya have been damaged because the share price never returned to the pre-investigation level, that they suffered "significant reputational injury despite the findings and conclusions of the Skadden Report," have been named as defendants in a number of lawsuits related to the investigation "and have been subjected to unwarranted scrutiny by gaming regulators."

The suit says counsel for Maskatiya on May 1, 2008, requested Deloitte identify the source of the "defamatory statements" made to the GCA Audit Committee and that Deloitte responded by threatening to terminate its relationship with GCA if Maskatiya did not rescind his request or resign from the GCA board of directors.

Unwilling to drop his request, Maskatiya resigned because Deloitte's threat to withdraw as GCA auditor "presented the risk of serious injury to GCA and massive losses to its shareholders."

Deloitte later sought a waiver from Cucinotta of claims against Deloitte, with Deloitte again threatening to resign as GCA's auditor, putting Cucinotta in the position of either signing such a waiver or resigning from the board, the suit says. Cucinotta eventually resigned from the board, the suit says.

Later, as a result of a lawsuit filed by Cucinotta in state court in New York, Deloitte was forced to reveal the source of its information was the FBI Bulletin, the lawsuit says.

The suit says that Cucinotta and Maskatiya were exonerated by the FBI in a Feb. 3, 2009, letter in which the FBI said it had "no information of a negative nature regarding Robert Cucinotta, Karim Maskatiya or MCA processing" -- a company they were involved with.

The suit says that after Cucinotta and Maskatiya were forced off the GCA board, GCA moved to buy all their GCA shares "pursuant to seriously oppressive terms."

"The losses Maskatiya and Cucinotta suffered on the sales of their GCA shares were proximately caused by Deloitte's wrongdoing," the suit charges.

The suit asserts claims of defamation and interference with prospective economic advantage and seeks unspecified damages. It was filed by attorneys with the Las Vegas office of Gordon Silver and the New York office of Patton Boggs LLP.

Global Cash, in announcing June 24 of this year it was buying back 12.4 million shares held by Cucinotta and Maskatiya, said it was acting in hopes of keeping its license to do business in Arizona.

In June, the Arizona Department of Gaming recommended Global Cash lose its right to serve Indian casinos in that state because of wrongdoing it alleged against the company, Cucinotta and Maskatiya.

Global Cash says it has since settled that investigation with an agreement in principal that will allow it to continue operating in Arizona.