iii.

iv.

History of violations.

NIGC regulations, 25 C.F.R. § 575.4 (c), provide that “[t]he Chair[] may adjust a
civil fine by an amount that reflects the respondent’s history of violations over the
preceding five (5) years.” The Respondents do not have a history of prior
violations.

Negligence or willfulness.

NIGC regulations, 25 C.F.R. § 575.4(d), provide that “[t]he Chair[] may adjust
the amount of a civil fine based on the degree of fault of the respondent in causing
or failing to correct the violation, either through act or omission.”

Respondents began submitting drafts of its management contract with the Tribe to
the NIGC for review in March of 2004. After many revisions, Respondents and
the Tribe finally submitted a management contract dated February 8, 2005, that
was approved by the NIGC Chair on March 17, 2005. Such action demonstrates
that they understood the mandate of the Act, that the contract required NIGC
approval before management of the Tribe’s gaming operation would be lawful.
The fact that Respondents knowingly disregarded 'the Act’s mandate by choosing
to operate the Tribe’s gaming operation from September 24, 2004 through March
16, 2005 without an approved management contract and profit thereby
demonstrates a willful violation of federal law.

Moreover, documentation in the notice of violation’s record and Respondents’
submission indicates that Respondents intended to circumvent the management
contract amendment approval process because they knew the Chairwoman would
not, and could not under IGRA, approve the contract modifications, because the
modifications gave Respondents a greater amount of the net gaming revenue than
permitted under IGRA.

In Respondents’ June 3 submission, they argue that there was no intent to deceive
or avoid the administrative oversight of the NIGC because all of its intentions and
business dealings with the Tribe were “wholly transparent” and done with the
approval of the Tribe. See Respondents’ submission, June 3, 2011, p. 2, Agency
CFA Rec. No. 76. In support of its argument, Respondents attached as an exhibit
a fax transmittal sheet dated November 28, 2005, sent from Terry Pechota to
Rollie Samp — attorneys representing the Tribe’s Gaming Commission and Tribe
respectively. /d. The exhibit states:

There are a couple of things that can be done as I see it. First, Mark
Lyons [Respondents’ accountant] pointed out that you can pay
Randy a consulting fee. . . . Second, the Tribe can do anything it
wants with the net profit. If the Tribe feels that it should pay some
of its net profits to Randy as a voluntary act in order to keep Randy
and his operation at the casino (because the Tribe reeps [sic] other


the amount of $1,000,000 is appropriate. This fine represents an appropriate balancing of
the factors cited above including that managing without a contract constitutes a
substantial violation of IGRA.

Managing Under Two Unapproved Modifications to A Management Contract:

The Chairwoman has determined that one violation occurred each day that the
Respondents acted under the unapproved modifications to a management contract.
Respondents acted under the first unapproved modification from February 15, 2007,
through July 31, 2008. Respondents acted under the second unapproved modification
from August 1, 2008, through April 5, 2010.

The Chairwoman may assesses a fine in the amount of Twenty-Eight Million Five
Hundred and Seventy-Five Thousand ($28,575,000) or $25,000 per day for the 1143 day
period between February 17, 2007, and April 5, 2010 that the Respondents acted under
the two unapproved modifications to a management contract. However, after applying
the factors cited above, and noting that Respondents actions were done with the approval
of the Tribe, the Chairwoman has determined that a fine in the amount of $2,000,000 is
appropriate. This fine represents an appropriate balancing of the factors cited above;
including that managing under an unapproved modification to a management contract
constitutes a substantial violation of IGRA.

Sole Proprietary Interest:

The Chairwoman has determined that one violation occurred each day that the
Respondents had a proprietary interest in and responsibility for the OTB. Respondents
had a proprietary interest in and responsibility for the OTB from August 31, 2006,
through April 5, 2010.

The Chairwoman may assesses a fine in the amount of Twenty-Eight Million Five
Hundred and Seventy-Five Thousand ($32,850,000) or $25,000 per day for the 1314 day
period between August 31, 2006, and April 5, 2010 that the Respondents had an unlawful
proprietary interest in and responsibility for the OTB. However, after applying the
factors cited above, and noting that Respondents actions were done with the approval of
the Tribe, the Chairwoman has determined that a fine in the amount of $2,000,000 is
appropriate. This fine represents an appropriate balancing of the factors cited above;
including that Respondents’ unlawful proprietary interest in and responsibility for the
OTB constitutes a violation of IGRA.

The total of all fine amounts ($5,000,000) in great part reflects the known economic
benefit that Respondents realized ~ rom their actions, as well as, an
appropriate balancing of the other factors incfuding that two of the violations are
substantial violations of IGRA.


by

by

violations does not lessen the severity of the violation. From September 24, 2004
through March 16, 2005, Respondents managed the OTB without an approved
contract. Moreover, from February 15, 2007 through April 5, 2010, Respondents
operated and managed the OTB under two unapproved modifications to an
approved management contract. Such actions threaten the integrity of Indian
gaming by circumventing the management contract review and amendment
review processes set forth in IGRA, 25 U.S.C. §§ 2710(d)(9) and 2711, and NIGC
regulations, 25 C.F.R. parts 533 and 535, to ensure the suitability of individuals
and entities involved in Indian gaming and compliance with the Act.

Significantly, in circumventing the management contract amendment review
process, Respondents exceeded the statutory cap set forth in IGRA for payment of
management contractors. See 25 U.S.C. §§ 2711(c); 2710(d)(9)(applying Section
2711 (c) to Class III management contracts). In so doing, Respondents received
more than 70% of the net gaming revenue from the OTB over the(_ {period
of the approved management contract.

Respondents’ violation of the sole proprietary interest mandate of IGRA is a
serious violation. IGRA requires, as one of the necessary conditions for a tribe to
open and operate a casino, a gaming ordinance approved by the NIGC Chair. 25
U.S.C. §§ 2710(b)(1)(B); 2710(d)(1)(A). For approval of a gaming ordinance,
IGRA requires, among other things, that the tribal gaming ordinance provide that
the Tribe have “the sole proprietary interest in and responsibility for the conduct
of any gaming activity.” Jd. §§ 2710(b)(2)(A), 2710(d)(1)(A); 25 C.F.R. §§
522.4(b)(1), 522.6(c). The formal declaration of the policy behind the Act
underscores this point by stating that one of the purposes of IGRA is “to ensure
that the Indian tribe is the primary beneficiary of the gaming operation.” 25
U.S.C. § 2702(2).

Respondents’ control of the OTB and the excessive profit they gained from the

OTB acting under two unapproved modifications to the management contract

constitutes the sole proprietary interest violation. As noted above, Respondents

received more than 70% of the net gaming revenue from the OTB over thd by
~ period of the approved management contract. Such violation threatens the

NIGC’s ability to achieve its congressionally mandated goals of shielding the

Tribe from corrupting influences; ensuring that the Tribe is the primary

beneficiary of the gaming operation; and ensuring that gaming is conducted fairly

and honestly by both the operator and players. See 25 U.S.C. § 2702(2).

These substantial and serious violations deprived the Tribe of over, bY
pf gaming revenue, which the Tribe could have used to fund tribal

operations and programs, promote economic development, donate to charitable

organizations, or help fund local government agency operations.


rewards), I see no reason that the Tribe could not do this. It’s the
Tribe’s money. This could not be done in the agreement, however.
NIGC would not approve something where the Tribe was required
to do this as a matter of contract.

Id. at Ex. 1, Agency CFA Rec. No 76.

Further, Mr. Gallo believed the payments were not discretionary. In his
deposition, when asked if he was told the bonus payment or check swapping was
discretionary, Mr. Gallo stated:

A. It wasn't discretionary as far as the amendments go.
Rollie had always said that it was the Tribe's discretion.
And I said to him, I said, well, if the payment -- I mean, if
they're not going to swap checks I'll be leaving. Terry is
the one that said that we want the business here, there will
be a check swap.

See Gallo Deposition., Vol. I, 156:25-157: 11, May 11, 2010, Agency CFA Rec.
No. 58.

Instead, the parties negotiated, drafted, and signed a modification to the approved
management contract and submitted it for the Chair’s approval in February of
2007. The contract modification submitted in February 2007 was never approved
by the Chair — yet the parties acted under the modification and Respondents
retained a greater amount of net revenue than is allowed in the approved
management contract.

Respondents knew that modifications to management contracts must be submitted
and approved by the Chair in order to be valid because its original contract was
submitted to the Chair in 2004, and subsequently approved by the Chair on March
17, 2005. Respondents also submitted to the NIGC the February 2007
modification to the management contract which was never approved. Thus, the
fact that the February 2007 modification was submitted indicates Respondents
knew the modification had to be approved prior to the parties acting under it.
Even though the modification was never approved, Respondents chose to operate
the OTB as if it had been approved, thus demonstrating their willful violation of
federal law.

Respondents again disregarded IGRA’s mandate that modifications to a
management contract be submitted to, and approved by, the Chair when they
entered into a second modification in August of 2008.The Tribe’s attorney, Rollie
Samp, confirmed by letter dated October 31, 2008, that the Tribe’s Executive
Committee passed a resolution approving the second modification effective as of
August 1, 2008. See Letter from R. Samp to Whom It May Concern, October 31,
2008, Agency CFA Rec. No. 53(d). The second modification was never submitted


Ts Interest shall be assessed at rates established from time to time by the Secretary of the
Treasury on amounts remaining unpaid after their due date. 31 U.S.C. § 3717.

8. The above-described amount represents an appropriate balancing of the other factors
cited above.

: b4
9. The total fine amount of $5,000,000 is not inclusive of thef_ ar “That Respondents
were ordered to pay to the Tribe in the Notice of Violation.

10. Pursuant to 25 C.F.R. § 577.3, within 30 (thirty) days after service of this Notice of
Proposed Civil Fine Assessment, Respondent may appeal the proposed fine to the full
Commission by submitting a notice of appeal to the National Indian Gaming
Commission, 1441 L Street, NW, Suite 9100, Washington, DC 20005. Respondents have
a right to assistance of counsel in such an appeal. A notice of appeal must identify this
Notice of Proposed Civil Fine Assessment. Within ten (10) days after filing a notice of
appeal, Respondents must file with the Commission a supplemental statement that sets
forth with particularity the relief desired and the grounds therefore and that includes,
when available, supporting evidence in the form of affidavits. If Respondents wish to
present oral testimony or witnesses at the hearing, Respondents must include a request to
do so with the supplemental statement. The request to present oral testimony or
witnesses must specify the names of proposed witnesses and the general nature of their
expected testimony, and whether a closed hearing is requested and why. Respondents
may waive their right to an oral hearing and instead elect to have the matter determined
by the Commission solely on the basis of written submissions.

Dated this (ray of February 2012.

Mbt

Tracie L. Stevens
Chairwoman

Ces Meredith Moore, Esq.
Attorney for Bettor Racing
(via fax: (605) 335-4961)
(via e-mail: MeredithM@cutlerlawfirm.com)



Netional Gudian Saming Commission

NOTICE OF PROPOSED CIVIL FINE ASSESSMENT

Ref: CFA-11-01

_J. Randy Gallo (Via Certified U.S. Mail)

Lg ‘7 be
Bettor Racing, Inc. (Via Facsimile & Certified U.S. Mail)
3709 S. Grange Avenue

Sioux Falls, SD 57105
Fax: (605) 275-9421

Under the authority of Section 2713(a) of the Indian Gaming Regulatory Act (IGRA or
the Act), and National Indian Gaming Commission (NIGC) regulations, 25 C.F.R. part
575, the NIGC Chairwoman (Chairwoman) hereby provides notice of her intent to assess
a civil fine against Mr. J. Randy Gallo and Bettor Racing, Inc. (collectively
“Respondents”), for violations of IGRA, 25 U.S.C. §§ 2710(b)(2)(A), 2710(d)(9), and
2711, and NIGC regulations, 25 C.F.R. §§ 522.4(b)(1), 522.6(c), 573.6(a)(7), as set forth
in detail in the attached Notice of Violation, NOV 11-01, issued on May 19, 2011. NOV-
11-01, May 19, 2011, Agency CFA Rec. No. 75 (NOV 11-01).

The violations cited in the notice of violation are: (1) Respondents managed an off-track
betting operation (OTB) at the Flandreau Santee Sioux Tribe’s (Tribe’s) Royal River
Casino without an approved management contract from September 24, 2004, through
March 16, 2005; (2) Respondents managed the OTB under two unapproved modifications
to a management contract from February 15, 2007, through April 5, 2010; and, (3)

Respondents had a proprietary interest in the OTB from August 31, 2006, through April
5, 2010.

Pursuant to IGRA, 25 U.S.C. § 2713(a), and NIGC regulations, 25 C.F.R. § 575.4, the
NIGC Chairwoman may assess a civil fine, not to exceed $25,000 per violation per day,
against a tribe, management contractor, or individual operating Indian gaming for each
violation cited in a notice of violation issued under 25 C.F.R. § 573.3. Respondents are
management contractors who managed and operated the OTB since September 24, 2004
through April 5, 2010. If noncompliance continues for more than one day, the
Chairwoman may treat each daily illegal act or omission as a separate violation. 25
C.F.R. §§ 575.3 and 575.4 (a)(2).

NIGC regulations, 25 C.F.R. § 575.5(a), provide that, within 15 days after service of a
notice of violation, or such longer period as the Chairwoman may grant for good cause,


to the NIGC for review and approval. Nonetheless, similar to the February 2007
modification, Respondents and the Tribe acted pursuant to the August 2008
modification through April 5, 2010.

Based on the above, it is clear that Respondents knowingly disregarded the
mandates of IGRA and NIGC regulations, and acted willfully when they operated
and managed the OTB without an approved management contract and pursuant to
two contract modifications that were never approved.

v. Good faith.

The Chairwoman may adjust a fine based on the degree of good faith of the
Respondents in attempting to achieve rapid voluntary compliance after a notice of
violation is issued.

In Respondents’ June 3 submission, they argue that they acted in good faith
throughout the term of the approved management contract. /d. However, NIGC
regulation 575.4(f) requires the consideration the good faith demonstrated by a
party to achieve rapid compliance after a notice of violation is issued. See 25
CER. § 575.4().

Respondents have not taken any action to correct the violation of acting under two

unapproved contract modifications since the notice of violation was issued. The

notice of violation required that within 30 days of its issuance, the Respondents

reimburse the Tribe for all the additional amounts of compensation received from

the Casino beyond those allowed under the approved management contract.

Specifically, as a measure to correct, Respondents were directed to pay the Tribe
bY C i the amount owed the Tribe for fiscal years 2005 through 2008.

. WHEREFORE, Pursuant to IGRA, 25 U.S.C. § 2713(a), and NIGC regulations, 25
C.F.R. §§ 575.3 and 575.4, fines for continuing violations may be assessed in an amount
up to $25,000 (twenty five thousand) per day per violation. Here, each daily illegal act
may be deemed a separate violation. See 25 C.F.R. §§ 575.3 and 575.4(a)(2).

Managing Without An Approved Contract:

The Chairwoman has determined that one violation occurred each day that the
Respondents managed the OTB without an approved contract.

The Chairwoman may assesses a fine in the amount of Four Million Three Hundred and
Fifty Thousand ($4,350,000) or $25,000 per day for the 174 day period between
September 24, 2004, and March 16, 2005, on the Respondents for managing the OTB
without an approved management contract. However, after applying the factors cited
above, and noting that during the time Respondents operated the OTB without an
approved management contract Respondents paid the Tribe what it would have received
under the contract had it been approved, the Chairwoman has determined that a fine in


the respondent may submit written information about the violation. Further, the
regulations provide that the Chairwoman shall consider any information so submitted in
determining the facts surrounding the violation and the amount of the civil fine.
Respondents submitted written information on June 3, 2011, pursuant to 25 C.F.R. §
575.5. See Respondents’ submission, June 3, 2011, Agency CFA Rec. No. 76.
Respondents’ June 3 submission was considered in formulating the proposed civil fine.

In arriving at the proposed civil fine, the Chairwoman considered the factors set forth in
NIGC regulations, 25 C.F.R. § 575.4, as follows:

i. Economic benefit of noncompliance.

Sections 575.4(a)(1) and (2) of NIGC regulations provide that “(t]he Chair[] shall
consider the extent to which the respondent obtained an economic benefit from
the noncompliance that gave rise to a notice of violation, as well as the likelihood
of escaping detection. The Chair[] may consider the documented benefits derived
from the noncompliance or may rely on reasonable assumptions regarding such
benefits. If noncompliance continues for more than one day, the Chair[] may treat
each daily illegal act or omission as a separate violation.”

In Respondents’ June 3" submission they argue that it was actually the Tribe that
derived the economic benefit from the noncompliance, because if the Tribe had
not agreed to modify the approved management contract, Respondents would
have moved the OTB off the Flandreau Santee Sioux Reservation. See
Respondents’ submission, June 3, 2011, p. 3, Agency CFA Rec. No. 76. Had
Respondents operated the OTB in South Dakota rather than on the Flandreau
Santee Sioux Reservation from 2005 onward, the Respondents argue that they
would have derived the same or an even greater economic benefit, and the Tribe
would have only received! “per year for the term of the approved
management contract. Id.

While this may be true, it is not in fact what occurred. Instead, the Tribe and
Respondents together decided to modify the approved management contract to the
Respondents’ economic benefit. As set forth in the nov, such action without the
approval of the NIGC Chair is a violation of IGRA.

The economic benefit to the Respondents is reflected in the annual statements that
they provided the Tribe, which they entitled “settlement calculations” or
“calculation of split.” Respondents provided an annual calculation of the Tribe’s
share of the net revenues to the Tribe for fiscal years 2005, 2006, 2007, and 2008.
Using Respondents’ own calculation of the net income of the OTB, Respondents

by received an additionalf_ _bver and above what was due them under the
approved management contract for fiscal years 2005, 2006, 2007, and 2008. See
Declaration of Daniel Catchpole at 1-2 4 8, January 12, 2011, Agency CFA Rec.
No. 61. Therefore, Respondents derived an economic benefit of at least


bH

“jas a result of their noncompliance for fiscal years 2005, 2006, 2007,
and 2008.

This is not the total economic benefit gained by the Respondents from their
noncompliance. Respondents maintained all of the accounting records pertaining
to the OTB, and the NIGC Chairwoman has not obtained records to allow
calculation of Respondents’ economic benefit beyond that allowed in the
management contract for fiscal years 2009 through April 5, 2010. Thus,
Respondents economic benefit from their noncompliance with the Act is in all
likelihood greater than [

Seriousness of the violation.

Section 575.4(b) of NIGC regulations provides that “[t]he Chair[] may adjust the
amount of the civil fine to reflect the seriousness of the violation. In doing so, the

Chair[] shall consider the extent to which the violation threatens the integrity of
Indian gaming.”

Managing without an approved contract is a substantial violation of IGRA and
NIGC regulations. 25 C.F.R. § 573.6(a)(7). Substantial violations expose tribal
gaming operations to potential closure orders, which is the severest penalty
allowed under IGRA and NIGC regulations. IGRA requires that tribes obtain the
approval of the NIGC Chair to enter into a management contract for the operation
and management of a gaming operation. 25 U.S.C. §§ 2710(d)(9), 2711. NIGC
regulations reiterate this requirement, mandating that “[s]ubject to the Chair[]’s
approval, an Indian tribe may enter into a management contract for the operation
of a class II or class III gaming activity.” 25 C.F.R. § 533.1.

In Respondents’ June 3" submission they argue that the Chair’s conclusion that
Respondents profited more from the OTB than did the Tribe was erroneously
reached because she did not properly understand the facts. See Respondents”
submission, June 3, 2011, p. 2, Agency CFA Rec. No. 76. Specifically,
Respondents argue the Chair did not understand that the actions of both the Tribe
and Respondents were “undertaken with the explicit knowledge, permission, and
approval of the Tribe and Bettor Racing.” /d. Respondents also argue that at least
the concept of what the parties were trying to accomplish — a more advantageous
split of the profits for the Respondents by paying a bonus through a check-swap —
was discussed with former NIGC Chairman Phil Hogen, who at least tacitly,
approved of the parties’ arrangement. /d. at p. 3. Respondents argue that the
actions of the Tribe, its legal counsel, and the former NIGC Chairman cannot be
minimized and should counteract or negate the seriousness of Respondents’
actions. Id.

Both the Tribe and Respondents actions violate IGRA. That is why the notice of
violation was brought against both the Tribe and the Respondents. Further, the
Tribe’s actions and conduct demonstrating their approval and participation in the