Zoeller: ‘Open the books so Hoosiers can follow the money’

Indiana Attorney General Greg Zoeller testified yesterday before the Gaming Study Committee in Indianapolis.

Here’s a press release from his office concerning his testimony:

Attorney General Greg Zoeller: Open the books so Hoosiers can follow the money
Use of casino revenue should be transparent, Zoeller urges legislators

INDIANAPOLIS (10/19) – If riverboat casino dollars flow into a development company’s coffers, that company should be required to disclose how it spends the money, Indiana Attorney General Greg Zoeller urged legislators today.

Zoeller testified at a hearing of the legislative Gaming Study Committee about his continuing support of a proposal to require public disclosure by any for-profit or nonprofit corporation that receives casino revenue through a Local Development Agreement or LDA.

In communities with riverboat casinos, state law requires that an LDA be set up so a portion of casino revenue is set aside and directed to fund local economic development projects to boost tourism.

Zoeller’s support of a legislative change to update state law and require transparency stems from the case of East Chicago Second Century, Inc. That for-profit corporation received 0.75 percent of the revenue from the East Chicago riverboat casino – or $16 million over 10 years – under a 1995 LDA brokered by former East Chicago Mayor Robert Pastrick.

“Second Century has for years resisted any public disclosure or accounting of how the gambling proceeds were used or how the money benefited East Chicago,” Zoeller said. “Gaming has to be licensed by the state, and other gaming revenues flow back to the state, so it’s a mystery why the Second Century board would be so secretive about how it uses gaming dollars.”

The Attorney General’s office filed a lawsuit to force Second Century to open its books and to impose a legal framework called a “constructive trust” over the organization to create accountability. Second Century got the case dismissed at the trial court and Indiana Court of Appeals levels, but the Attorney General appealed to the Indiana Supreme Court. On April 13, the state’s highest court ruled in the Attorney General’s favor and revived the case — and remanded it back to the trial court to decide whether Second Century must make public disclosure of how it spent casino revenue.

“Beyond asking the trial court to impose a constructive trust on the Second Century organization and reform its operation, we are trying to pry open the long-closed financial books to find out who benefited from the $16 million Second Century received,” Zoeller said. “We are asking the trial court to do that with Second Century, and we are asking the Legislature to require that same public disclosure wherever casinos have Local Development Agreements with outside entities, not just in East Chicago.”

A disclosure proposal that Zoeller worked on with legislators was contained in an earlier version of last spring’s House Bill 1514, but in the provision was removed during conference-committee negotiations in the final days of the regular session in late April. The overall bill passed into law. Now the Attorney General is asking legislators to revive the LDA provision in the next session that starts in January.

The proposal would apply to any organization that receives casino revenue through an LDA: a for-profit corporation, a nonprofit such as a community foundation, or a charitable trust. Results of an audit would be made public, with certain exceptions for economic development that still could be reviewed by the Attorney General’s office.

“If we prevail in the trial court, disclosure would apply to Second Century only; but if the Legislature approves this statutory change, then it would be the law statewide and would apply to any similar arrangements in other riverboat communities,” Zoeller said. “While gaming has created tourism business and jobs, those who receive funds from the gaming industry ought to do so under the floodlight of complete scrutiny,” he said.

“Gaming is not an industry that historically has had the public’s complete trust. Public disclosure is the antidote for public distrust,” Zoeller added.

Today’s meeting of the Gaming Study Committee is the third such hearing of the joint House-Senate panel as it considers gambling-related legislation in advance of the 2010 session. Zoeller and Deputy Attorney General David Miller testified before the 11-member committee today.

New leadership in East Chicago canceled the Pastrick-era LDA contract, and approximately $6.3 million in revenue remained in escrow at the end of 2008.

The administration of former Mayor Pastrick in East Chicago was the subject of a long-running corruption investigation in which the Attorney General’s office brought a racketeering lawsuit against Pastrick and other East Chicago political figures. In June, Pastrick and former mayoral aide James Fife III defaulted in the lawsuit and a judgment was entered against them on every racketeering count the Attorney General alleged. The federal court has not yet awarded damages in the East Chicago racketeering case.

The separate civil lawsuit of Zoeller v. Second Century awaits trial in Marion County Superior Court.

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