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Company running most lottery games worldwide has history of scandal

Jan 31, 2007, 5:30 am

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IGTIGT: Company running most lottery games worldwide has history of scandal

The company behind the more than 16,000 machines that spit out New York Lottery tickets has been linked to scandals across the country and around the globe.

Bribery allegations led a co-founder to quit his job as chairman. Its lobbyists have run afoul of the law in several states, including New York. Former government officials have received lucrative consulting contracts.

And in summer 2006, an investigation in Texas found that the company, GTECH Holdings Corp., doled out tens of millions of dollars — some of which went to foreign lottery officials — to expand its business in South America, Europe and the Caribbean.

"GTECH is a very aggressive business entity that has a past history of protecting its contracts by lawsuit or threat of lawsuit and of pursuing new contracts with sometimes questionable actions," a July report from the Texas Department of Public Safety said.

The company's latest annual report to the Securities and Exchange Commission devoted more than seven pages to its various legal entanglements.

That report, however, was the last full-year disclosure that must be made to American regulators — in August, GTECH was bought by an Italian company, Lottomatica S.p.A., for $4.7 billion.

Under the deal, GTECH retained its identity and structure, but shares of the company ceased trading on the New York Stock Exchange; shares of Lottomatica, which runs the Italian "Lotto" game, are traded on the Milan stock market.

GTECH spokesman Bob Vincent acknowledged past problems but said most predated current management's "very robust and diligent code of conduct."

"All you need to do is look at the performance of the company, look at the appreciation it's had with the new leadership that was brought in," he said.

Big profits

GTECH, with headquarters in West Greenwich, R.I., is the world's leading supplier of lottery technology and services. It runs 86 lottery systems in 48 countries and 26 American states, Vincent said.

For its fiscal year ended February 2006, the company reported more than $211 million in net income on $1.3 billion in revenues, for an after-tax profit margin of 16 percent.

In New York, GTECH operates all traditional lottery games as well as the Quick Draw keno game. A subsidiary, Interlott Inc., maintains the state's 3,800 instant-ticket vending machines; another, Spielo USA, is one of four companies that supply the growing number of video lottery terminals.

GTECH now has three multiyear contracts with the state worth more than $329 million; a fourth contract that expired in 2005 was worth an additional $18 million over seven years, according to the state Comptroller's Office.

Bribery claim

GTECH was founded in the early 1980s, and questions about its hard-nosed business tactics and influence over lawmakers have been raised almost from the start — especially after it beat out competitors that had made lower bids in Georgia, Illinois, Michigan and New York, among other states.

In 1993, GTECH co-founder Guy Snowden defended the company to The Wall Street Journal, calling it "absolutely sterling."

But five years later, Snowden quit his job as chairman after a British jury found he had libeled billionaire Richard Branson by denying Branson's allegation that the GTECH executive had tried to bribe Branson when they were competing to run Britain's lottery.

And in 1996, a federal prosecutor cited testimony about GTECH's spending on lobbyists and consultants after its national sales manager was convicted of taking kickbacks in New Jersey.

"If they're paying $20 million to buy access to public officials, there has to be something wrong with that," Kimberly Guadagno, then-assistant U.S. attorney for New Jersey, said at the time.

Company hires

Other incidents in GTECH's past include:

  • Hiring the former patronage chief for then-New York Gov. Mario Cuomo as a $20,000-a-month consultant. Tonio Burgos held the job for about three months until the deal leaked out.
  • Awarding a former gubernatorial aide in Missouri a 10-year, $80,000-a-year consulting contract after GTECH won that state's business.
  • Hiring lobbyists in Texas who included two former aides to then-Gov. George W. Bush, as well as former Lt. Gov. Ben Barnes. In 1996, public pressure led to Barnes' contract being bought out for $23 million.

GTECH lobbyists in Maryland and California were imprisoned for crimes unrelated to the company, although a California state senator said he took a payoff for supporting legislation favorable to the company. GTECH denied the claim and called the money a campaign contribution.

Four years ago, GTECH paid a $90,000 fine in New York to settle the case of a company lobbyist who exceeded the $75 limit on gifts to officials and who filed false reports.

'Somewhat surly'

New York state Sen. Frank Padavan, R-Queens, a staunch opponent of gambling, has issued a series of reports since 1997 that hammered GTECH over its "history of corruption."

"I would say their method of doing business is somewhat surly and unethical, and in some cases illegal," he said. "I don't think the state should be doing business with this sort of company."

In response, a spokeswoman for the New York Lottery issued a written statement citing a positive report issued last year by the North American Association of State and Provincial Lotteries, a trade group of which New York is a member.

The NASPL review was led by Robert McLaughlin, then deputy director and general counsel to the New York Lottery. In November, McLaughlin was picked to head the Lottery after Director Nancy Palumbo quit to work for the New York Daily News newspaper.

David Gale, executive director of NASPL, said the review was conducted because a majority of association members have regulations regarding buyouts that required their approvals in advance of GTECH's sale to Lottomatica.

Gale said the report was not available to the public, but its results "are representative of the fact that the lottery organizations did approve the buyout."

Texas inquiry

Another pre-buyout report, ordered by the Texas Lottery Commission, found that GTECH:

  • Initially denied having written reports on alleged political corruption in the 2003 extension of its Brazilian lottery contract, then refused repeated requests for copies of those reports.
  • Made several "suspicious" and "questionable" payments in Brazil, including $380,000 to a "paper company" suspected of money laundering.
  • Paid a California company that diverted $1.9 million to national lottery officials in Trinidad and Tobago.
  • Hired a politically connected consultant to work in Poland who admitted he did little to almost nothing while under contract for $18 million.
  • Lent $20 million to finance a sports stadium in the Czech Republic during negotiations for a lottery deal there.

'Handled properly'

GTECH spokesman Vincent said most of the information in the Texas report "was stuff that we provided to them voluntarily."

"We have confidence that any incidents we encountered have been handled properly," he said.

Vincent said the company often faced criticism from opponents of state-sponsored gambling, which he said came with the territory of winning gambling licenses from various governments.

"That's a lot different from the company selling widgets down the road," he said. "Any incident gets magnified, because once it gets disclosed, it gets disclosed to 90 licensing agencies."

Scandal reached from N.J. to Texas to White House

The farthest-reaching scandal involving GTECH Holdings Corp. sent a former top executive to prison and helped scuttle a nomination to the U.S. Supreme Court.

J. David Smith was GTECH's national sales director when he took almost $170,000 in kickbacks from lobbyists in New Jersey.

In 1996, he was convicted of fraud and other charges that sent him to prison for five years.

Smith's conviction led the Texas Lottery Commission to investigate GTECH's operations in that state, after Smith's pre-sentence report implicated him in another kickback scheme with the company's Texas lobbyists.

Those lobbyists included former Lt. Gov. Ben Barnes, who made headlines during the 2004 presidential campaign with his claim that he helped President Bush get into the National Guard and avoid combat during the Vietnam War.

No charges were filed over the Texas allegations, and the New Jersey judge made Smith's prosecutors apologize to Barnes and GTECH for the disclosure.

But the Texas probe led to the 1997 firing of Texas Lottery Director Nora Linares after officials learned that a friend, whom she later married, had secretly worked as a $6,000-a-month GTECH consultant.

Linares, a former state Democratic Party official, sued GTECH and the commission, claiming she had been fired for political reasons. In an out-of-court settlement, GTECH paid her $435,000, plus $290,000 for her lawyers. The company admitted no wrongdoing.

Linares' successor, Lawrence Littwin, lasted less than five months before he also was fired. Littwin, who had formerly worked for a GTECH competitor, also sued, claiming he was fired after looking into possibly illegal political contributions by GTECH.

Littwin won a $300,000 settlement from GTECH, which included a confidentiality order as part of the deal.

At the time of the 1997 firings, the chairwoman of the Texas Lottery Commission was Dallas lawyer Harriet Miers, who would later become White House counsel to Bush. Her resignation after six years in that job was announced this month.

In 2005, Bush nominated Miers to the Supreme Court to replace Chief Justice William Rehnquist after he died.

But Miers backed out of the nomination after widespread criticism of her qualifications, as well as published reports that predicted she would face grilling at her confirmation hearing over the controversies at the Texas Lottery.

The Journal News

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1 comment. Last comment 15 years ago by truecritic.
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truecritic's avatar - PirateTreasure
United States
Member #22394
September 24, 2005
1583 Posts

"That report, however, was the last full-year disclosure that must be made to American regulators — in August, GTECH was bought by an Italian company, Lottomatica S.p.A., for $4.7 billion."

Hmm...numbers racket started by mob years ago.  Numbers go legit by being called Lottery and run by individual States.  Numbers  now to be run by Italian company...???  What? Doesn't sound good to me.