Inspector General Finds State Leaders Disregarded Public Duty in Aqueduct Deal

IG Forwards Report to Prosecutors and Ethics Panels

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ALBANY, NY (10/21/2010)(readMedia)-- New York State Inspector General Joseph Fisch today released a report that criticizes the Governor's Office and state Legislative leaders for failing to fulfill their public duty in the January 2010 selection of Aqueduct Entertainment Group (AEG) to operate Video Lottery Terminals (VLTs) at Aqueduct Racetrack in Queens.

The 300-page report concludes that AEG should have been disregarded at the start, and that the chaotic process resulting in AEG's multi-billion dollar award was a "political free-for-all" marked by unfair advantages and more than $100,000 in campaign donations.

The ill-advised method which allowed the state's top three elected officials to pick Aqueduct's slot-machine vendor was created in 2008 by then Governor Eliot Spitzer, then Senate Majority Leader Joseph Bruno and Assembly Speaker Sheldon Silver. In the process, the statute removed lobbying restrictions and allowed campaign cash to flow to the decision makers.

"This process was doomed from the start, and at each turn, our state leaders abdicated their public duty, failed to impose ethical restraints and focused on political gain at a cost of millions to New Yorkers," Inspector General Joseph Fisch said. "Unfortunately, and shamefully, consideration of what was in the public's best interest, rather than the political interest of the decision makers, was a matter of militant indifference to them."

The Inspector General's office found that Governor David A. Paterson, Senate Democratic Conference Leader John Sampson, Senate President Pro Tempore Malcolm Smith and Assembly Speaker Sheldon Silver each contributed to the multi-million dollar debacle. The report strongly recommends that the "three men in a room" process used to select AEG never be repeated and that New York State impose stringent procurement restrictions on all major contracts to ensure that they are competitive, transparent and fair.

Specifically, the Inspector General determined that:

1. Governor Paterson's office ignored expert advice from the state Budget Director and Division of the Lottery, which urged them to disregard AEG's bid. AEG was financially precarious due to its heavy reliance on debt and significant licensing issues.

2. Senate leaders leaked bid analyses to AEG lobbyists which gave them an advantage.

3. Senator Sampson likely pressured AEG to include a New York City contractor in the deal before he would select AEG as the winner.

4. Senator Malcolm Smith maintained a façade of recusal from the process but still advocated for AEG.

5. Assembly Speaker Silver, who believed AEG was not the best choice, failed to actively participate in the process.

AEG was selected on January 29, 2010. But public pressure and post hoc conditions imposed by Speaker Silver led to the dissolution of the deal. The public outcry was prompted by news that Governor Paterson sought political backing from an AEG partner, the Reverend Floyd Flake, three days after AEG's selection. In addition, AEG offered the state $100 million less than other bidders. The Inspector General determined that the Governor's meeting with Flake was ill-advised but found no evidence of a quid pro quo. A new vendor, Genting New York, LLC, was chosen in August after a streamlined process run by Lottery.

In February 2010, the Inspector General's Office began its investigation and shortly thereafter received a request from Assembly Speaker Silver to review the entire bid process. After an eight-month investigation, the Inspector General reached the following conclusions:

Office of the Governor and Executive Branch

• When Governor Paterson acquiesced to the Senate's choice of AEG, he did so without knowledge of AEG's continuing licensing problems or that executive agencies had earlier advised him to disregard AEG's bid. Paterson's counsel, Peter Kiernan, apparently never notified the Governor that the Division of the Lottery considered AEG unacceptable.

• Governor Paterson's assistant, David Johnson, who had no official role, advocated for AEG, communicated with AEG principals and attended a post-award meeting with AEG, Senator Sampson and AEG lobbyist Carl Andrews. Johnson invoked his Fifth Amendment right against self-incrimination when called to testify before the Inspector General.

• Although Lottery's ranking of bidders attempted to infuse order into a chaotic process, this input was rejected by the Governor's office.

• Secretary to the Governor Lawrence Schwartz failed to provide meaningful assistance and ignored official vetting data gathered by the executive branch. His testimony before the Inspector General was characterized by a remarkable professed lack of recall.

New York State Senate

• From the beginning, Senate officials improperly aided AEG by leaking competitive bid data. In May 2009, an assistant to Secretary to the Senate Angelo Aponte e-mailed AEG consultant Hank Sheinkopf an internal memo detailing and analyzing all six competing bids. When questioned, Aponte claimed not to recall why his assistant would release the memo. Aponte's testimony was deemed not credible. Sheinkopf invoked his Fifth Amendment right against self-incrimination in a possible criminal proceeding.

• In November 2009, Senator Sampson disclosed inside information to AEG lobbyist and former state Senator Carl Andrews. Sampson exhibited further poor judgment when he attended a February 2010 "victory party" at Andrews' Albany home after AEG was selected, but before the Memorandum of Understanding was finalized. Senator Sampson apparently insisted that his preferred developer, Don Cogsville, be included in AEG's non-gaming development plans. When questioned by the Inspector General's office, he stated that he could not recall, among numerous other significant matters, whether he had recommended Don Cogsville.

• Sampson sued to prevent the Inspector General from getting the same records he turned over to Andrews. Andrews also filed a lawsuit, which is ongoing, against the Inspector General, to prevent disclosure of his communications with the Senate.

• Campaign contributions further politicized the procurement, with the Senate Democratic Campaign Committee directing AEG contributions. Under a standard procurement practices, such acceptance of money by a decision-maker would be legally prohibited. Three potential vendors – SL Green, AEG, and Delaware North – and their associates gave more than $100,000 to elected officials during the bidding process.

• Senate President Pro Tempore Malcolm A. Smith, who stated he had recused himself from the selection process due to his personal relationship with AEG partner, the Reverend Floyd Flake, continued to advocate for AEG and was repeatedly updated by Senate staff, e-mail evidence revealed. Senator Smith also attended the February 2010 AEG victory party at Carl Andrews' home with Senator Sampson and Senator Eric Adams, chair of the Racing and Wagering Committee.

New York State Assembly

• Although Speaker Silver was the best-informed of the leaders due to a thorough bid analysis conducted by his staff, he refused to select a vendor. When the Governor acquiesced to the Senate's choice of AEG, Silver failed to veto AEG although he knew it was a poor selection. He instead created a "poison pill" against the deal by imposing post hoc conditions, which further delayed the process at a cost to the state.

The Inspector General's Office is forwarding its report to United States Attorney Preet Bharara and New York County District Attorney Cyrus R. Vance, Jr., for appropriate action and referring Senators Sampson and Smith and Senate Secretary Aponte to the Legislative Ethics Commission.