The Many Hats Of A Prominent New York Firm

Friday, July 1, 2005 - 01:00

Editor: Dan, please describe your practice at Willkie Farr & Gallagher LLP.

Rubino: My practice at Willkie has been primarily in the areas of mergers and acquisitions, securities and finance, corporate governance, restructurings and legal and financial compliance, investigations and reviews. Industries covered include: gaming and entertainment, retail, finance, cable and telecommunications.

Editor: What are the circumstances that led to Willkie's being chosen to investigate the suitability of the BLB group to acquire the gaming license to own and operate Lincoln Park? Was it done through open bidding?

Rubino: Rhode Island's Department of Business Regulation asked for firms to make an on-site presentation with respect to their background and experience. We were one of a number of firms that pitched the business in an open bidding situation, and in light of the various disciplines that we offer and our gaming related experience, we were fortunate to have succeeded. The Rhode Island Department of Business Regulation is the entity that approves the transfer of the gaming license, known as a Facility Permit. The context of our involvement was interesting because Willkie was retained by the State of Rhode Island following the federal indictment of Lincoln Park and certain of its senior executives on conspiracy and bribery charges. The Department, our client, did not have the infrastructure nor the wherewithal to do an exhaustive investigation of the multiple parties comprising the BLB consortium throughout the United States and overseas. Since revenues from this facility represent Rhode Island's third largest revenue source, the significance of having an outside law firm's imprimatur and recommendation was of paramount importance.

Editor: How did the team at Willkie become comfortable with the fact that its remuneration was coming from the parties it was investigating?

Rubino: The client relationship was always between the Department of Business Regulation and Willkie. The State had outlined the process that anyone who wanted to be considered for the Facility Permit would have to pay the fees and costs of the investigatory effort undertaken by the State, which included hiring of outside counsel and other advisors. Our fees were our customary hourly charges, not contingent fees. It is not unusual for states or agencies to require others applying for permits, licenses or approvals to pay the fees of outside counsel, especially in the economic environment that states and agencies face today. The bottom line is that our role was totally independent and objective and the fact that our fees were paid by the parties that we were investigating did not in any manner compromise our independence, our objectivity, and our ultimate goal of protecting the interests of the State as well as the people of Rhode Island.

Editor: What was the nature and scope of the investigation?

Rubino: Willkie conducted its investigation on behalf of Rhode Island's Department of Business Regulation in collaboration with the Rhode Island Lottery Commission, the Rhode Island Department of Administration, as well as the Office of the Governor of Rhode Island. There was no limit on the investigation. It was a worldwide effort because the three entities comprising the BLB consortium each have significant business affiliations and numerous activities in the gaming, real estate and lodging industries. We interviewed and investigated multiple individuals and corporate entities within each of the three entities in the US, the Bahamas and England. We also hired a private investigative firm out of London that assisted us with respect to the law enforcement aspect of the investigation. We also reviewed the legal, business and financial aspects of the acquisition, including an analysis of the plans and projections for operating Lincoln Park in the future. After an exhaustive investigation, we prepared a written report to the State and to the Department of Business Regulation, which was made publicly available and followed by a public hearing. At the public hearing, we, on behalf of the Department of Business Regulation, presented our conclusions and recommendations with respect to the Facility Permit Transfer approval.

Editor: Was this transaction a sale of a fee interest or simply the transfer of an operating license?

Rubino: BLB is acquiring Lincoln Park, which is the gaming venue. Whenever a sale of the facility occurs, the transfer of the gaming license from one entity to another to operate the gaming facility falls within the jurisdictions of the Department of Business Regulation and the Rhode Island State Lottery Commission for approval. The State continues to receive the revenue stream from the new owner of Lincoln Park.

Editor: What conditions did you place on the sale?

Rubino: There were a number of items that we suggested as preconditions to the approval of the license transfer. These included the adoption of enabling legislation related to the long-term revenue sharing arrangements between the new owners of Lincoln Park and the State of Rhode Island; the completion of the Lincoln Park reorganization; the receipt of regulatory approval from the Lottery Commission; the consummation and closing of the transaction; and the approval of a Department of Business Regulation hearing officer. We also recommended that the granting of approval of the license transfer be contingent on BLB complying with such terms as an annual renewal and affirmation process, and the adoption and implementation of industry "best practice" codes, standards and procedures relating to the business and operations at Lincoln Park, including accounting and internal compliance and controls, corporate governance, legal compliance and business ethics, and cross jurisdictional revocation procedures.

Editor: How strict are the gaming laws in Rhode Island?

Rubino: The gaming laws in Rhode Island are only partially developed, so in addition to utilizing the existing regulatory and legal framework within the State, we looked to other jurisdictions for comparisons. We came to our conclusions in the Report using what we referred to as the "best practice" approach with respect to the transfer of the license. Using such states as New Jersey, Nevada and Colorado (which has dog racing), with their well established regulatory schemes, we superimposed this composite model onto Rhode Island's legal framework for the purposes of our review. Willkie applied the highest statutory standard of review to provide for the protection of the public. Going forward, it is likely that the Department will revise, update and expand its legal and regulatory framework.

Editor: My understanding is that one of the principals had allegedly attempted to influence a government official some 20 years ago in South Africa although was never indicted. Can you explain the circumstances?

Rubino: That is one of the issues that did come up in the course of our work, but the depth of the investigation and "digging down" that we did satisfied us as to our ultimate recommendation. The fact of the matter is that it was more than 20 years ago when the "incident" happened. Since then many other jurisdictions did exhaustive analyses and investigations with respect to that same incident. That individual was never denied a license anywhere in the last 20 years and was considered a "model corporate citizen" by the other jurisdictions in which he held licenses. Also, one must keep in mind that the BLB consortium consists of three major corporate players. He is affiliated with an entity that has a 37.5 percent ownership interest in BLB, but the individual in question only controls 12 percent of that entity, or 4.5 percent of the interest in BLB. The individual in question is not at all involved in the operations of Lincoln Park, and will not be going forward. All of these facts were mitigating factors in connection with our recommendation.

Editor: How are the revenues that Rhode Island receives from Lincoln Park to be monitored?

Rubino: The Rhode Island Lottery Commission also has jurisdiction over the operations of Lincoln Park. Within the commission's rules and regulations, there are detailed audit procedures and standards with respect to ensuring that the share of revenue flowing from Lincoln Park is what the State is entitled to. BLB is currently in the process of negotiating a revenue-sharing agreement with the State. The closing of the deal is conditional upon approval of this agreement by the State legislature.

Editor: Does the State retain the right to approve any modifications to the facility, subletting, etc.?

Rubino: Yes, the State, through the offices of the Department of Business Regulation and Lottery Commission, will retain the ability to approve any material modifications of the property as well as ownership changes. In addition, the rules of the Lottery Commission, along with the existing regulatory scheme, gives the State the ability to supervise and monitor the operations of the facility. The State also has the ability to revoke the license in certain circumstances. BLB's significant experience in gaming, lodging and entertainment, and compliance with the rules and regulations that relate to these industries, should benefit the State in this regard.

Editor: Do you see the hiring of outside counsel to do this kind of investigative work for government instrumentalities to be the beginning of a trend?

Rubino: I think it will be part of a trend. States and agencies within states will look to outside sources that can facilitate the convergence of disciplines: transactions, investigations, government relations, finance, public relations - all on a global scale. There are also obvious funding issues that states are faced with, together with inadequate staffing and systems to properly address these issues. Any effort that can bring private enterprise into the picture, especially in the form of providing funding, is attractive.

A related issue is the concept of privatization and how that's taking hold in the United States. One could analogize these particular functions to a state monetizing its assets or allowing private enterprise to provide functions and services normally performed by government. Hiring of outside attorneys, consultants, and the like to provide for functions that governmental bodies do not have the capacity or financial wherewithal to pay for is a form of efficient, sound and proper outsourcing. If such outsourcing can be funded by private enterprise, it will become much more prevalent in the future.

Please email the authors at drubino@willkie.com with questions about this article.