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Lottery director's ties to St. Paul vendor probed

Jan 30, 2004, 6:42 am

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Minnesota LotteryMinnesota Lottery: Lottery director's ties to St. Paul vendor probed

Auditors probing the business dealings of Minnesota State Lottery director George Andersen have been pursuing a claim that he steered thousands of dollars of lottery money to a vendor he controlled.

Andersen was found unconscious Tuesday outside his home in Hugo. He had a self-inflicted wound to his wrist, and a knife was found nearby, authorities said. A preliminary autopsy report released Wednesday called his death a suicide and said he died from hypothermia due to exposure.

Andersen died a day after representatives of the state Legislative Auditor's Office briefed him on findings of their review of his operation of the lottery.

One element of the review, expected to be released next month, includes Andersen's relationship with Media Rare, a St. Paul promotions and production firm that did business with the lottery.

Organizers of a bass fishing tournament sponsored by the lottery accused Andersen in a 2001 lawsuit of controlling Media Rare, a vendor that received lottery money, and said he appeared to represent the firm in negotiating deals.

The suit said Andersen told tournament organizers John and Linda Hesse that "there was no limit to the amount of money available for purposes of the lottery's involvement in the tournament." He asked them to enter into a contract with Media Rare, and said they "need not worry about entering into a contract with an entity other than the lottery, since Media Rare was under the control of the lottery and would do anything that Andersen told them to do, in part because the lottery paid Media Rare such large amounts of money."

"There were no representatives of Media Rare present during the meeting between Andersen and Hesses," the suit said.

The Hesses said Media Rare dventually took control of the tournament.

A judge dismissed some of the Hesses' claims, including breach of contract and unfair competition. He said the suit did not show that Andersen had an interest in Media Rare or a legal right to control the firm, nor did he profit from its contract with the Hesses. But the judge allowed their claim of fraud to go forward.

The suit was then settled in 2002. John and Linda Hesse received payments for losses, according to their attorney, Carl Drahos. He declined to say how much they received.

Linda Hesse said Wednesday that representatives of the legislative auditor interviewed her regarding the suit, but she declined to elaborate.

The president of Media Rare, Jeff Denney, denied that Andersen controlled the firm, calling the claim "bizarre."

"A lot of people say some crazy things," he said, adding that he found the Hesses' lawsuit "frivolous."

Drahos said he couldn't determine why Andersen would have wanted to control Media Rare. "I would not even want to make the inference that he pocketed money, because I don't know that. We never looked at the books and records like a state auditor could."

"We thought about trying to follow the money trail in the lawsuit but . . . it was prohibitive from a cost standpoint," Drahos said.

A source familiar with the legislative audit, officially called a program evaluation, said it focuses on Andersen and "some of the lottery's business relationships and George's involvement."

Another issue examined by auditors was whether Andersen, an avid fisherman, accepted discounted or free entry fees to a series of bass tournaments run by Media Rare, the source said.

Control of contracts

Andersen's sovereign control over the lottery is evident in the informality of the contracts he signed.

Consulting contracts for most state agencies are reviewed by the Department of Administration to ensure that they contain important clauses to protect taxpayers. The attorney general's office also reviews contracts and certifies that they are in the proper legal form and signed properly. Each agency or their designates must sign the contracts before the contracts take effect.

The lottery's contracts with Media Rare Inc. and Minnesota Pro/Am Bass Tour Inc. were signed only by Andersen and Denney (the president of both companies). None of the signatures was notarized on eight agreements reviewed by the newspaper.

Two years ago, Andersen agreed to have the lottery lease a "unique" 1999 semi with a 51-foot trailer from Media Rare. The truck is used for promotional dvents. The five-year lease required the lottery to pay $200,000 to cover Media Rare's improvements to the vehicle, plus monthly rent of $4,000. Nothing indicates when the contract was signed.

Not long after it took effect, however, Andersen agreed to an amendment that required the state to pay for all repairs on the vehicle. Then last year, he agreed to another amendment requiring the state to pay Media Rare $125 an hour to coordinate all repairs and maintenance.

Finally, last month, Andersen agreed to amend the contract again so the lottery can buy the vehicle for whatever Media Rare owes on it at the end of the lease. The amendment states that the lease-purchase option had been "discussed" before the original contract was signed.

Andersen had rare authority "to do his own thing," said Kent Allin, an official in the state's contracting division, who declined to speculate on the propriety of the contracts without further study.

State law gives the lottery director broad discretion in contracting, he said.

The contract between the lottery and the fishing tournament, called the Minnesota Pro/Am Bass Tour, is for promotional rights at five fishing tournaments a year. The Star Tribune also has been a sponsor.

The contract for 2003 says the lottery will pay $75,000 when the contract is executed. A handwritten note on the contract says, "Received $72,000.00, J. Denney 9/12/02." Andersen did not initial the change, and nothing indicates why the amount differs from the amount stated in the contract.

Last April, Andersen and Denney signed three separate agreements that appear to amend the Bass Tour contract. Together, they added $27,500 to the deal, covering various promotional dvents and materials.

Minneapolis Star Tribune

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