Investigation targets off-track betting books

Jim Adams
1/26/05

Horse betting scandal tars Tonkawa casino

NEW YORK - Federal agents are probing an arcane but potentially profitable
side business of tribal casinos as an offshoot of a major scandal rocking
thoroughbred horse racing.

The business, offering rebates on high-volume off-track betting, is not in
itself illegal. But the simultaneous start of two highly visible
prosecutions, in New York and North Dakota, is spotlighting alleged
criminal abuses. The Jan. 13 indictment in the New York case charged the
involvement of Gambino organized crime family associates in a betting ring
that used the Tonkawa tribal casino in Tonkawa, Okla., among other
conduits. The mention in the indictment has caused several prominent
racetracks to cut ties with the Tonkawa race book, at least temporarily,
even though the tribe itself is not accused of wrongdoing.

"There is no allegation that anybody at Tonkawa did anything improper,"
said John Sullivan, a casino spokesman. He said it was only mentioned twice
in the 77-page indictment, but that it did appear its services had been
used by "some pretty bad guys."

He said the tribe was now negotiating with the racetracks that cut off
their services and was confident it could meet "the intent" of their
conditions for resumption.

Meanwhile a senior federal official confirmed to Indian Country Today that
high-end horse race betting through tribal casinos has become a major
concern of the federal Indian Gaming Task Force, composed of agents from
the FBI, the Department of the Treasury, the IRS, the Department of the
Interior and the National Indian Gaming Commission. Christie Jacobs,
director of the IRS Office of Indian Tribal Governments, said, however, the
problem seemed limited to several remote tribal casinos where tribal
leaders had not become actively involved in management.

"We hope it's not the tip of the iceberg," she said.

Sullivan, a lawyer on the staff of Las Vegas Dissemination Corporation
(LVDC), a satellite broadcasting (simulcasting) and betting service in Las
Vegas, Nev., said that less than 10 operations in the Americas or Europe
provided the kind of high-volume rebating on horse-race betting described
in the New York indictment. "Rebate shops" have grown rapidly in recent
years, he said, now doing about $1.5 billion in business, about 10 percent
of the total annual handle at U.S. racetracks. Two of the past or present
proprietors in this secretive field have been publicly identified as Indian
tribes, namely the Tonkawa and the Coeur d'Alene, he said, although he
added that a third unidentified tribe had apparently sought to enter the
business in recent months.

None of the reports of bet rebating have involved the "race books" at
large, well-established tribal casinos. Both the Foxwoods Casino Resort,
owned by the Mashantucket Pequots, and the Mohegan Sun Casino, owned by the
Mohegan Indian Tribe, maintain well-appointed centers for off-track horse,
greyhound and Jai Alai betting in conjunction with major tracks and
simulcasting services. LVDC provides the live race simulcasts and bet
processing for Foxwoods.

"We don't offer rebates," said Foxwoods spokesman Arthur Henick. "We don't
even have telephone accounts.

"You have to be physically present to bet here."

Sullivan said there was nothing inherently illegal in the business of
taking off-track betting over telephone or Internet and offering rebates to
high-volume gamblers. The criminal charges in New York, he said, involved
money laundering and tax evasion, as well as conspiracy to fix a horse
race, on the part of the gamblers. One of the rebate shops mentioned in the
indictment, Racing Services Inc. of Fargo, N.D., did go bankrupt and incur
criminal charges, he said, "because it got greedy."

The federal trial of the former president of Racing Services Inc. for
running an unlicensed gambling operation began Jan. 18 in federal District
Court in Fargo. The co-defendant, the former vice president, pled guilty on
the opening day to charges of conducting an illegal business and illegal
wire transfers. (At the same time, RSI offered legal off-track betting in
conjunction with the University of North Dakota.) By coincidence, the 17
defendants in the New York case were arraigned the same day in federal
district court in Manhattan. They all pled not guilty.

The New York indictment delivered an even greater blow to thoroughbred
racing than it did to tribal casinos. It told a lurid tale of a gambling
ring it called the "Uvari group" which had handled more than $200 million
in sports bets through conduits in Curacao, Netherlands Antilles, and the
Isle of Man in the United Kingdom, as well as in Fargo and the Tonkawa
reservation. The group took its name from two brothers and a son named
Uvari. The indictment charged a connection to the famous Gambino family
once led by the late John Gotti.

One detail which caught the attention of the New York tabloids and OTB
patrons everywhere was the charge that one defendant, David "Pebbles"
Applebaum, had conspired with several well-known horsemen to dope a horse
in a race at Aqueduct Raceway. The previously undistinguished horse, named
A One Rocket, was force fed a concoction known in racing circles as a
"milkshake" through a hose down his nose and won his race by ten lengths.

The "milkshake" is a mixture that supposedly retards muscle exhaustion and
is not detected by post-race drug testing. It has long been rumored to be
the cause of some dramatic improvements in performance, although it is
banned at every racetrack in the U.S.

According to the indictment, Applebaum and Anthony Uvari, son of one of the
group's partners and himself a Gambino associate, were physically present
at the Tonkawa reservation during the Fall of 2000 and discussed illegal
gambling. This was the only mention of the reservation, other than its
listing as a betting conduit, but it is significant as one of the few
documented cases, outside of television dramas, of a physical connection
between an organized crime figure and Indian territory.

The already shaky reputation of horseracing might underlie the sharp
retaliation against the Tonkawas, Sullivan suggested. The New York Racing
Association, which operates Aqueduct, Belmont and Saratoga, cancelled its
contract with Tonkawa and the other rebate shops as of Jan. 24. Sullivan
noted that NYRA itself is operating under an independent monitor as part of
a deferred prosecution deal with the U.S. Attorney after 2003 tax evasion
charges against a number of employees.

The New Jersey Sports and Exposition Authority also cut off signals from
its tracks, Monmouth Park and The Meadowlands. Churchill Downs Inc., which
owns six racetracks, said it was reviewing its contracts. The National
Thoroughbred Racing Association issued a non-binding statement Jan. 15
urging member tracks to remove business from rebate shops unless they
disclosed their ownership and allowed host tracks "full access to wagering
data for security purposes."

Top executives of the Tonkawa casino were out of town Jan. 19, an employee
said, to work on meeting these conditions and regaining access to the
racetrack signals. Sullivan indicated they sought some changes in the
wording of the new conditions but believed they could honor "the intent."

In the meantime, the bankruptcy and indictment of Racing Services Inc. in
North Dakota has uncovered some detail about the intensely anonymous world
of rebating syndicates. The company began simulcasting in 1989, when North
Dakota legalized interstate off-track betting, but the surge in its betting
volume, the handle, began after 1997, when Nevada outlawed cash rebates for
horse bettors. The rebates, 10 percent or more for high volume bettors, are
possible because pari-mutuel betting pools deduct around 20 percent or more
for racetrack fees, purses and taxes. Horsemen have long opposed rebating
because they believe it cuts into their purse money.

By 2003 RSI's off-track handle had grown from $9 million to $214 million a
year. Amazingly, according a state representative's floor speech in the
North Dakota legislature, around $130 million of the handle came from one
man. Even after that statement, state officials refused to identify the
bettor until his name emerged in the RSI bankruptcy. He turned out to be a
little-known professional gambler from Las Vegas named Peter Wagner.
According to a complaint from a racetrack that denied RSI its betting
signal, Wagner used elaborate computer software to make his picks and a
direct link to the betting terminal to enter his wagers seconds before race
time.

In defending himself to the North Dakota Racing Commission, Wagner noted
that he ran most of his bets through a licensed state charity, Team Makers,
which raises funds for athletic scholarships to North Dakota State
University. State legislation granted Team Makers a simulcasting site in
Fargo.

When RSI ran into legal trouble, for allegedly running an unlicensed $100
million gaming operation on the side, Wagner pulled out of the state, along
with other high rollers. The state simulcast betting, now run by the
appropriately-named Lien Games, dropped from about $10 million a week to
$10,000. The business, speculated a reporter for Fargo's Forum
Communications, has moved off shore or to Indian reservations.

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