DeNaples findings gutted before slots vote, sources say
Investigators ordered to remove analysis about casino owner's alleged ties to organized crime

By Matt Birkbeck
Of The Morning Call
May 11, 2008


State gaming regulators ordered their investigators to change a background report on Mount Airy Casino Resort owner Louis DeNaples -- and gave DeNaples early access to challenge its findings -- before awarding him a slots license, according to sources.

The Pennsylvania Gaming Control Board's Bureau of Investigations and Enforcement revised its report on DeNaples at least six times, sources said, after board Executive Director Ann Neeb and General Counsel Frank Donaghue reviewed each draft and objected to BIE's findings as inconclusive, unsubstantiated or hearsay.

DeNaples' attorneys were alerted to the findings as the investigation unfolded, said the sources, who are familiar with the process but spoke on the condition of anonymity.

The process used in Pennsylvania is alien to experienced gaming jurisdictions such as New Jersey and Nevada, where investigators conduct background checks of license applicants independently. There, only after gaming investigators complete their work, are background reports delivered to decision-makers. Also, in those states, decision-makers expect to hear all allegations -- proven or not -- about an applicant prior to voting.

Pennsylvania's decision-makers discounted assertions they believed to be unproven. ''We only wanted to know what could be proven,'' Tad Decker, the former board chairman, said in an interview.

Neeb and Donaghue ordered BIE to strip investigators' analysis of their findings from the report, sources said. That overruled Michael Schwoyer, thendeputy chief counsel for BIE, who argued that BIE's conclusions were vital and necessary for the board's consideration, sources said.

DeNaples' final background report included only brief references to what BIE had uncovered about DeNaples, including alleged ties to reputed mobster William D'Elia, questionable campaign contributions to Gov. Ed Rendell and others by some of DeNaples' businesses, and the purchase and resale of trucks damaged by Hurricane Katrina by a company DeNaples co-owns.

BIE forwarded some of what it found during its DeNaples investigation to federal and state agencies as ''criminal referrals.'' An agency makes such a referral when it suspects criminal wrongdoing but may not be in a position or be best able to pursue it.

At BIE's insistence, the investigators' raw findings were attached to the final DeNaples report as exhibits. The information in the exhibits went largely unexplained in the final report.

Some of the information -- it's unknown how much -- was aired during the board's review, which included two closed-door meetings with DeNaples and his lawyers.

In December 2006, the board voted unanimously to award DeNaples a slots license. In February 2007, the board suspended his license because in January a county prosecutor had charged him with perjury, accusing him of lying to the board about his ties to organized crime. Through a spokesman, DeNaples has said he has no such ties and is innocent.

Board spokesman Doug Harbach said Neeb and Donaghue's involvement in the crafting of DeNaples' background report was proper and routine.

''BIE's reports were not 'ordered' to be changed,'' Harbach said in an e-mailed response to questions. ''This allegation is completely misleading and a mischaracterization of the process.

''Reports of this magnitude will certainly undergo a number of revisions,'' Harbach said. ''The appropriate bureaus within the gaming control board, including BIE, made edits and revisions based upon their review as each continued work on the matter, and for no other reason.

''The Board Â… did not have a role in the preparation of any applicants' background report,'' Harbach said.

But two state legislators, told by The Morning Call of the changes sources said were made to the DeNaples report, questioned the integrity of the process.

''We have a [gaming] board that seemingly thwarted the action of its own agency,'' said Rep. Doug Reichley, R-Lehigh.

''The whole purpose of doing background investigations is to get the complete and unvarnished truth about all aspects of any applicant for a license,'' said Senate Majority Whip Jeff Piccolo, R-Dauphin. ''What the board did in this case was serve as an advocate for the licensee.''

Both lawmakers recently have called for changes in gaming law to make the process of awarding licenses more transparent, and to place the attorney general, not BIE, in charge of background investigations. Each voted against the law allowing slots in Pennsylvania.

The background investigation of DeNaples was conducted by John Meighan and Roger Greenback, two former veteran FBI agents with backgrounds combatting organized crime, who spent more than 1,500 hours on the task. Like every other successful slots applicant, DeNaples had to demonstrate ''character and integrity'' under state gaming law.

According to Ed Marsico, the Dauphin County district attorney who filed perjury charges against DeNaples, the two investigators ''believed that DeNaples was lying about his background.'' Of special interest to the investigators was any connection between the well-off Scranton-area businessman and Pennsylvania organized crime figures.

The investigators' initial background report included information from a 2001 federal affidavit that quoted confidential informants who told of business ties between DeNaples and D'Elia, the reputed mobster.

The affidavit, part of a separate federal gambling probe, also provides details of an FBI video showing D'Elia on several occasions entering the back door of DeNaples Auto Parts in Dunmore, Lackawanna County, which DeNaples owns with his brother Dominick.

Meighan and Greenback included a 2006 federal search warrant of D'Elia's home and car, in which the state police and U.S. Department of Homeland Security found DeNaples' unlisted home number in D'Elia's address book, along with bank statements from First National Community Bank in Dunmore, of which DeNaples served as chairman and is a major stockholder.

The investigators also learned that DeNaples was the subject of an FBI probe of his purchase of 30 Freightliner trucks flooded during Hurricane Katrina. Richard Rothstein, who bought one of the trucks, told the FBI and then BIE of his purchase.

DeNaples bought the trucks as salvage for $6,000 each, The Morning Call reported in March, and several were later sold by DeNaples Auto Parts with titles that did not disclose the flood damage. One truck sold caught fire. When it was repaired, mechanics found dried mud and dead salamanders under the dashboard.

An FBI spokeswoman said the case was referred to the state police, who are investigating to determine if the purchase and resale involved ''title washing,'' a felony offense that entails dealers buying flood-damaged vehicles, cleaning them and selling them in different states without disclosing the damage on the title, as required by law.

That investigation remains open.

BIE's initial background report, and those that followed, were given to Donaghue and Neeb, who told BIE to change them, sources said.

In one case, sources said, Donaghue objected to the inclusion of Pennsylvania Crime Commission reports. Abolished by the state Legislature and disbanded in 1994, the Crime Commission recounted how four people -- including one high-ranking member of Scranton's Bufalino crime family -- were convicted in 1982 of tampering with the jury in DeNaples' 1977 trial on charges of falsifying records to collect more than $500,000 in federal funds for cleanup work from Hurricane Agnes. In 1978, DeNaples pleaded no contest to a conspiracy charge in connection with the Hurricane Agnes matter.

Donaghue also objected to the 2001 affidavit, particularly the information provided by confidential informants linking DeNaples with D'Elia, sources said.

Other information uncovered by BIE -- including DeNaples' alleged ties to imprisoned Philadelphia cleric Shamsud-din Ali and claims by several witnesses that DeNaples was a guest at the 1999 wedding of D'Elia's daughter along with several Philadelphia mobsters, including ''Skinny'' Joe Merlino -- were also challenged by Donaghue and Neeb and eventually deleted from BIE's final report, sources said.

''The issues were arguments between lawyers, BIE agents, Donaghue and the executive director. We couldn't get involved,'' Decker, board chairman at the time, said in an interview for this story. ''If it couldn't be proven, then we would disregard it anyway.''

Asked why, spokesman Harbach said in an e-mail:

''It is the rules of administrative law requiring that the Board base its decisions upon information in the evidentiary record. In order to be included in the evidentiary record of an administrative proceeding, the information must either [be] admissible under the rules of evidence or such Â… [that] it bears sufficient indicia of reliability that it is capable of being relied upon by the Board in exercising its quasi-judicial responsibilities. As has oft been recited, the Board cannot, as a matter of law, base its decisions on information which is comprised of rumor, innuendo or speculation -- because this is the type of information which is not substantiated in that form. This is a matter of well-established case law based upon principles of due process, rules of evidence, and administrative agency law.''

Other gaming jurisdictions, including Nevada and New Jersey, bar anyone outside of law enforcement, much less an applicant, from rebutting investigative information before it is presented to decision-makers.

''It shouldn't happen,'' said Frank Catania, director of New Jersey's division of gaming enforcement from 1994 to 1999.

Catania said that unlike Pennsylvania, where the gaming board sought only proven information, the New Jersey Casino Control Commission wants to know everything about an applicant, even if it was inconclusive, rumor or innuendo.

''We're going to do a full investigation and write our conclusions, and tell them if something was true, wasn't true, or we didn't have enough information,'' Catania said. ''We're the investigative branch. They are the judicial branch. They take our report, but don't change it.''

Pennsylvania's gaming law does not prohibit Neeb and Donaghue from participating in BIE's report-drafting process, according to research by Reichley. Harbach did not respond to a request for the board's written guidelines on the drafting process.

In addition to Donaghue and Neeb, DeNaples' attorneys were allowed to challenge and rebut BIE's findings as they were uncovered, said sources.

DeNaples' attorney John Donnelly, in an interview for this story, said every slots applicant was allowed to ''stipulate,'' or make objections to BIE's findings, and provide experts to rebut those findings.

Donnelly provided a former U.S. attorney to rebut the affidavit and search warrant. During questioning of a PennDOT official, Donnelly elicited testimony that state regulations were ''confusing'' when it came to titling salvage vehicles. He also had an election law expert testify that DeNaples' contributions to Rendell and others via RAM Consultants and D&L Realty were legal, sources said.

BIE, said sources, suspected that RAM and D&L were companies used by DeNaples solely to provide political contributions, which is illegal.

''What we did was not uncommon,'' Donnelly said of the give-and-take. ''Often times investigators will say 'Here's the report' and we might be at odds. It's like any kind of litigation case.''

DeNaples' attorneys were given weeks to review and respond to BIE's findings, sources said. But other gaming applicants, such as Crossroads Gaming and Pocono Manor Investors, were only given up to 48 hours. Harbach did not respond when asked why.

''We had less than 24 hours to review our report,'' said Kathryn Leese Simpson, a Harrisburg attorney who represented Crossroads in its failed attempt to open a casino near Gettysburg.

What the Pennsylvania Gaming Control Board knew and didn't know about DeNaples, and why, before awarding him a slots license has been a topic of debate among legislators and law enforcement since January.

That month a Dauphin County grand jury charged DeNaples with perjury for allegedly lying to the gaming board about a relationship with D'Elia, former Scranton mob boss Russell Bufalino and Ali. DeNaples' slots license was suspended, and a trustee was appointed to oversee Mount Airy.

The gaming board's handling of DeNaples was criticized in February by state police Commissioner Jeffrey Miller, who told a Senate committee that he ''was surprised'' the board awarded DeNaples a slots license.

Miller acknowledged that BIE, because it is not classified as a criminal justice agency, did not have access to investigative information from other law enforcement agencies, such as the FBI and state police.

The state police, for instance, have photos of DeNaples at the D'Elia wedding, said sources, which they could not share with BIE because of its non-criminal justice agency status.

The Morning Call reported in September that despite a consultant's recommendation, the Rendell administration gave BIE the job of doing the background checks instead of the state police. Despite its limitations, Miller said that in his opinion BIE gathered enough information for the board to deny DeNaples a license.

Miller was talking in part about BIE's four criminal referrals to other agencies. The referrals, sources said, included the sale of the Katrina trucks and DeNaples' political contributions through RAM Consultants and D&L Realty.

Leslie Amoros, a Pennsylvania Department of State spokeswoman, said her agency cleared some of the RAM contributions, including $115,000 to Rendell in 2002, after determining that RAM, as a legal partnership, was allowed to make campaign donations.

Amoros said other ''information'' from BIE was forwarded by State to the attorney general, and declined further comment.

The attorney general is conducting an investigation of political contributions -- including those from DeNaples -- to various current and former elected officials, according to recent media accounts. Kevin Harley, a spokesman for the attorney general, declined to comment.

matthew.birkbeck@mcall.com
610-820-6581

''[In New Jersey] we're going to do a full investigation… and tell them if something was true, wasn't true. …They are the judicial branch. They take our report, but don't change it.''
- FRANK CATANIA, former director of N.J. Division of Gaming Enforcement

THE SEQUENCE OF EVENTS

A revised report is issued to the gaming board, which awards DeNaples a license. The report lacks investigators' analyses, but includes their raw findings as an attachment, sources say. New Jersey and Nevada would not allow such a process.

State investigators submit report to gaming board executive director and chief counsel providing evidence on Scranton-area businessman DeNaples' suitability for a slots license, including alleged ties to organized crime.

In the editing process, board executives order investigators to change the report, according to sources. DeNaples' attorneys are invited to rebut, resulting in a report being issued to the gaming board that sources say lacked vital information.

''Agents Greenback and Meighan believed that DeNaples was lying about his background.''
- ED MARSICO, Dauphin County District Attorney

''We only wanted to know what could be proven.''
- TAD DECKER, former Pennsylvania Gaming Control Board chairman who presided over the DeNaples decision

Source: The Morning Call