Peppermill’s $1M settlement over slot machine spying is finalized
Commission grants license for company exec, despite arrests
The Peppermill in West Wendover.
The issue: The commission considered a two-count complaint by the Gaming Control Board against Peppermill Casinos Inc., which owns operations in Reno, Sparks, Henderson and Wendover, for sending out an employee to illegally gather information on the slot machine win percentages of its competitors. The complaint also recommended a $1 million fine.
The vote: 3-0 to approve the settlement and fine, with Chairman Peter Bernhard declaring a conflict of interest and not voting and Commissioner Joe Brown abstaining.
What it means: The commission's approval of the settlement was a formality since Peppermill executives had already signed off on it. Commissioners could have changed the level of the fine and suspended or revoked the Peppermill's license.
The complaint alleged that since 2011, Peppermill employee Ryan Tors had a slot machine "reset" key that allowed him to enter the slots in other competitors to determine the amount of hold — the amount kept by casinos on wagers.
On July 12, hotel security officers at the Grand Sierra Resort in Reno caught Tors using a reset key at their property. An investigation revealed that, beginning at least in 2011, Tors had used the reset key to obtain the information in 10 other casinos in the Reno-Sparks and Wendover areas.
Using a reset key to access information isn't illegal, but the Control Board intends to distribute an industry notice warning licensees not to use it in competitors' properties.
The complaint, drafted by Deputy Attorney General Michael Somps, said Peppermill's management instructed Tors "to use a slot machine reset key to access and obtain theoretical hold percentages information from slot machines belonging to one or more casinos that are competitors."
The stipulation said the casino company cooperated with board investigators in providing records and interviews with executives. Tors was placed on paid leave after the matter was discovered.
Peppermill President William Paganetti Jr., who attended Thursday's hearing, said his casino, one of the largest properties in Reno, did not use the information gained by Tors to change the hold percentage in its slot machines or to gain a competitive advantage over other casinos. The reset key can't access the "brain box" of a slot machine to alter payouts.
Prior to the commission's vote, Paganetti read a statement apologizing for his company's actions, saying he was embarrassed over the Peppermill's inappropriate actions.
"I was dumb as a post for letting this continue," he said. "I want to rebuild my credibility and I pledge to you this conduct will never happen again."
He said he also sent letters to executives of other casinos apologizing for the matter.
The board said, however, it would file another complaint against Peppermill if it found the illegally obtained information was being used to change slot machine hold percentages.
Attorney Frank Schreck, representing the Peppermill, said that while the company admitted that what Tors did was "an unsuitable method of operation," it wasn't illegal. He said the information wasn't used to gain a competitive edge, but to keep up with what a competitor was doing.
"It was abject stupidity on their part," Schreck said of his client.
Commissioner John Moran Jr. said the most difficult part of the decision was determining the level of the penalty. Because of the nature of the incident, Moran said he wasn't sure whether the $1 million fine was too much, too little or if the incident rose to the level of suspending or revoking the company's gaming license.
"It wasn't as if this was a rogue employee going out using the reset key," he said. His biggest concern, he said, was that company management was aware of the practice.
Somps said there was no previous incident to serve as a precedent for setting a $1 million fine. He said the state and the Peppermill agreed that the amount was a penalty that would prevent similar incidents from occurring again.
Control Board Chairman A.G. Burnett on Thursday said the fine was calculated based on the company's reported earnings. He said the board wanted to send a message to the industry discouraging the practice while not bankrupting the company. The amount was reached after discussions among the board members, Somps and representatives of the Peppermill.
Control Board records show the win percentage on slot machines statewide in 2013 was 6.4 percent.
It was the second seven-figure fine levied by the commission in two months. In January, the board levied a record $5.5 million fine against C.G. Technology for failing to supervise an employee taking illegal sports wagers.
•••
The issue: The commission conducted a suitability hearing and considered the licensing of Todd McTavish, senior vice president, general counsel and chief compliance officer for Austin, Texas-based Multimedia Games.
The vote: 5-0 to approve the licensing of McTavish.
What it means: The commission picked up where the state Gaming Control Board left off when it recommended approval of licensing for McTavish.
Bernhard and Commissioners Tony Alamo and John Moran Jr. had concerns about some of McTavish’s trouble with the law and his failure to disclose them when he was investigated by the Control Board.
As a high school student, McTavish was arrested in the vandalism of a school. While in college as a student athlete at Penn State University, he was accused of being involved with a group of students manufacturing phony identifications.
In 1993 in Michigan, he was arrested on a count of illegal sale of controlled substances for allegedly selling steroids to a friend.
He also was arrested on a count of disorderly conduct after an incident at a Michigan bar in 1995 and months later was accused of being involved in a disturbance at a friend’s home. Those charges were dismissed.
Months after that, he pleaded guilty to driving while intoxicated in Tennessee and has since had numerous traffic violations and speeding tickets.
“This is a tough one,” Bernhard said, noting that McTavish would be placed at a high level of responsibility as a company’s compliance officer. He said he reluctantly supported the licensing.
McTavish, whose company is a supplier of slot machines at the Orleans and is looking to expand within the state, was supported at the meeting by Multimedia CEO Patrick Ramsey.
http://www.vegasinc.com/business/2014/feb/20/gaming-commission-oks-license-businessman-despite-/
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