09/13/2005 12:00AM

Dismiss NYRA indictment, feds say

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The United States Attorney for the Eastern District of New York filed a motion on Tuesday to dismiss an indictment against the New York Racing Association on charges of conspiracy to commit tax fraud, following the recommendation of a report by an independent law firm appointed to monitor the racing association's operations from early 2004 until the middle of this year.

The motion, which requires court approval, acknowledged that NYRA has complied with the terms of a deferred prosecution agreement reached with the U.S. Attorney's office in December 2003. That agreement allowed NYRA to avoid criminal prosecution if the association paid a $3 million fine, reformed its management and operations, and agreed to the scrutiny of the monitoring firm for 18 months.

The firm, Getnick and Getnick, filed a report with the U.S. Attorney on Tuesday morning outlining a number of reforms undertaken by NYRA since early in 2004. The report said that NYRA has made eight distinct reforms over the past 18 months, including cutting off a number of offshore and domestic wagering outlets that operate in unregulated environments; the creation of raceday security barns to deter the administration of banned medications; and a commitment to operate in a fully transparent manner.

Neil Getnick, the firm's managing partner, outlined much of the report's findings during a speech in early August at a racing law conference in Saratoga Springs, N.Y. On Tuesday during a press conference organized by the New York State Comptroller, Alan Hevesi, Getnick reiterated those comments and called on NYRA to continue pursuing changes.

"The most important law is the law of inertia," Getnick said. "Let's keep this body moving forward."

Hevesi, whose office worked with the U.S. Attorney and the monitor, said that he agreed with the recommendation to dismiss the indictment. Hevesi has been sharply and repeatedly critical of NYRA's previous management. As recently as this June, Hevesi called NYRA "the poster child for mismanagement and corruption" in the state.

On Tuesday, however, Hevesi said there has been "a remarkable and dramatic improvement" at NYRA.

"This is a different agency than what it was two years ago, and even 18 months ago," Hevesi said.

Hevesi said that investigations into NYRA are continuing, including one dealing with jockey weights that began in December 2004 and is now before a grand jury. In separate remarks, Hevesi said that any misconduct that took place before NYRA implemented its most recent reforms will not be held against current management.

NYRA entered into the deferred prosecution agreement after 19 of its mutuel tellers were indicted on tax-fraud charges. Since then, 25 employees of NYRA have been convicted of various charges of tax fraud or conspiracy as the association faced relentless attacks from state politicians and regulators.

Steve Duncker, who was made co-chief operating officer of NYRA during a management shake-up in 2003 just before the deferred prosecution agreement, called the motion to dismiss the indictment "extremely gratifying." Subsequent to Duncker's appointment, Charles Hayward was named president and chief operating officer of NYRA in November 2004 and was instrumental in some of the reforms, including the decision to cut off some wagering outlets and the establishment of raceday security barns.

Duncker, who worked closely with Getnick during the monitorship, was in Lexington, Ky., at the Keeneland September yearling sale on Tuesday and listened on his cell phone to the press conference announcing the motion to dismiss the indictment.

"It shows that the changes we made are the right changes, and it gives us confidence to pursue even more change," Duncker said.

The motion could not come at a more important time for NYRA, which has conducted New York's major race meets since 1955 and operates Aqueduct, Belmont Park, and Saratoga Race Course. NYRA's franchise to operate the tracks, which is granted by the state legislature, expires at the end of 2007. The franchise will increase in value next year, when a slot-machine casino is scheduled to open at Aqueduct and take in approximately $1 billion in handle annually, and a number of companies and political organizations are staking out positions to influence the bidding process.

Although NYRA is now free of the scrutiny of the federally appointed monitor, a five-member oversight panel was established by state legislation earlier this year to watch NYRA through the remaining term of the franchise. A separate nine-member panel appointed by Gov. George Pataki and legislative leaders Joseph Bruno and Sheldon Silver will convene by the end of the year to establish guidelines for bidding on the new franchise and to issue recommendations about which bid to accept.

The process to award the franchise has been difficult to handicap because all bidders - including NYRA's own officials - have called on legislators to radically change the racing law governing the franchise. Any changes to the law could threaten entrenched political interests in the state, including New York's powerful off-track betting companies, but would have a dramatic impact on the value of the franchise and the number of bidders willing to operate under a new structure.

The eight reforms cited by Getnick were also cited by Hevesi as being critical components of any plan to operate the NYRA franchise in the future, and he called on the state to incorporate the reforms into the request for proposals that will be issued to bidders, likely in the middle of next year.

During the press conference, Hevesi said that the reforms had made NYRA's franchise worth "$1 billion or more." But when asked how the comptroller's office had arrived at that figure, considering that NYRA has lost at least $15 million the past two years and has a negative cash flow, Hevesi said it was an "approximation." Much of that value is likely based on estimated revenue from the slot-machine casino at Aqueduct, which is expected to open in the fall of 2006.