1 1 STATE OF NEW JERSEY 2 CASINO CONTROL COMMISSION 3 - - - - - - - - - - - - - - - - - - - 4 5 PUBLIC MEETING NO. 07-10-31 6 7 - - - - - - - - - - - - - - - - - - - 8 9 Wednesday, October 31, 2007 10 Atlantic City Commission Offices 11 Joseph P. Lordi Public Meeting Room - First Floor 12 Tennessee Avenue and Boardwalk 13 Atlantic City, New Jersey 08401 14 10:30 a.m. to 12:41 p.m. 15 and 4:01 p.m. to 4:09 p.m. 16 17 18 Certified Court Reporter: Darlene Sillitoe 19 - - - - - - - - - - - - - - - - - - - - - - - - - - - 20 ATLANTIC CITY COURT REPORTING, LLC 21 CERTIFIED COURT REPORTERS AND VIDEOGRAPHERS 22 1125 ATLANTIC AVENUE, SUITE 416 23 ATLANTIC CITY, NEW JERSEY 08401 24 (609) 345-8448 www.accourtreporting.com 25 2 1 B E F O R E : 2 CASINO CONTROL COMMISSION: LINDA M. KASSEKERT, CHAIR 3 MICHAEL A. FEDORKO, VICE CHAIR MICHAEL C. EPPS, COMMISSIONER 4 RALPH G. FRULIO, COMMISSIONER WILLIAM T. SOMMELING, COMMISSIONER 5 PRESENT FOR THE CASINO CONTROL COMMISSION: 6 DARYL W. NANCE, ADMINISTRATIVE ANALYST DANIEL J. HENEGHAN, PUBLIC INFORMATION OFFICER 7 OFFICE OF THE GENERAL COUNSEL: 8 DIANNA W. FAUNTLEROY, GENERAL COUNSEL/EXECUTIVE SECRETARY 9 LEONARD J. DIGIACOMO, ASSISTANT GENERAL COUNSEL SETH H. BRILIANT, SENIOR COUNSEL 10 LON E. MAMOLEN, SENIOR COUNSEL BERNADETTE T. FRIGEN, PROGRAM SUPERVISOR 11 CLAIRE FRANK, PROGRAM SUPERVISOR/SENIOR EEO COORDINATOR 12 13 DIVISION OF GAMING ENFORCEMENT: DEPUTY ATTORNEYS GENERAL 14 JAMES ARMSTRONG, DEPUTY ATTORNEY GENERAL MARYJO FLAHERTY, DEPUTY ATTORNEY GENERAL 15 JAMES FOGARTY, DEPUTY ATTORNEY GENERAL CHARLES F. KIMMEL, DEPUTY ATTORNEY GENERAL 16 FREDERICK J. McDONOUGH, DEPUTY ATTORNEY GENERAL 17 18 19 20 21 22 23 24 25 3 1 A P P E A R A N C E S : 2 ITEM NO. 9 LEONARD J. DiGIACOMO, ASSISTANT GENERAL COUNSEL 3 MARY JO FLAHERTY, DEPUTY ATTORNEY GENERAL LYNNE KAUFMAN, ESQ. 4 FOR: ADAMAR OF NEW JERSEY STERNS & WEINROTH 5 BY: DENNIS DALY, ESQ. FOR: CREDIT SUISSE 6 ITEM NO. 11 CLAIRE FRANK, PROGRAM MANAGER 7 MARY JO FLAHERTY, DEPUTY ATTORNEY GENERAL TIMOTHY J. LOWRY, ESQ. 8 FOR: HARRAH'S OPERATING COMPANY 9 ITEM NO. 12 CLAIRE FRANK, PROGRAM MANAGER JAMES FOGARTY, DEPUTY ATTORNEY GENERAL 10 NICHOLAS CASIELLO, ESQ. FOR: MGM MIRAGE 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 4 1 AGENDA PUBLIC MEETING NO. 07-10-31 2 OCTOBER 31, 2007, 10:30 a.m. ITEM PAGE VOTE 3 1 Ratification of the minutes of 8 9 October 17, 2007 4 2 Applications for employee and casino service industry licenses: 5 12 applications for initial and/or renewal 9 10 of casino key and casino employee licenses 6 6 applications for initial and/or renewal 10 10 of casino key and casino employee licenses 7 Applications for initial and/or renewal of casino key employee licenses and for 8 qualification: David R. Coskey, Sr., Vice President of 11 11 9 Marketing for Marina District Development Company, LLC 10 Joseph A. Domenico, Senior Vice President 11 11 and General Manager for Bally's Park Place, Inc. 11 For qualification in connection with their respective gaming related casino service 12 industry licenses pursuant to NJAC 19:51.1.14B(h) Tracey L. Elkerton, Aristocrat 12 12 13 International, Pty Ltd., Aristocrat Technologies, Australia, Pty Ltd. and 14 Aristocrat Technologies, Inc. Robert C. Caller, Bally Gaming, Inc. 12 12 15 Kenneth L. Bossingham and Luke K. Orchard, 12 12 Atronic Americas, LLC 16 Yuji Taniguchi, Konami Gaming, Inc. 12 12 Jerome R. Smith, Shuffle Master, Inc. 12 12 17 3 Stipulations of settlement and Consent agreements: 18 a) Kiep V. Le (07-0475-EA) 13 14 b) Rafiq S. Salim (a/k/a Ronald Thornton, 13 14 19 Robert Thorpe) (07-0178-EA, 070168-RC) c) Shanya H. Davis (07-0080-ER) 13 14 20 d) Anthony Dabney (07-0222-ER) 13 14 e) Kimberly N. Jenkins (07-0221-ER) 13 14 21 f) Basheema T. Washington (07-0525-ER) 13 14 g) Christine L. Moss (07-0280-EA) 13 14 22 h) John W. Perry (07-0116-RC) 13 14 i) Victor M. Sternberg (a/k/a Victor 13 14 23 Stemborg) (07-0357-RC) 4 Stipulation of settlement in application 15 16 24 of Susanna's, Inc, (t/a Susanna Foo Chinese Cuisine and qualification of Susanna Foo) 25 (07-0017-SI) 5 1 CONTINUED AGENDA PUBLIC MEETING NO. 07-10-31 2 OCTOBER 31, 2007, 10:30 a.m. ITEM PAGE VOTE 3 5 Applications for suspension: a) Maurice J. Callaway (a/k/a Pete 16 17 4 Callaway) (07-0652-RC) b) Rafael Velez (07-0666-RC) 16 17 5 6 Consideration of temporary prohibitory 17 18 order in State v. John J. Schultz (07-0663-MI) 6 7 Motion to vacate order in State v. Jose 19 20 G. Prado-Ramirez (07-0538-RC) 7 8 Amended and restated petition of adj. Tropicana Casinos and Resorts, Inc., 8 Adamar of New Jersey, Inc., et al, for declaratory relief with respect to NJAC 9 19:45-1.11c(2) and other related Audit Committee issues (PRN 2910708) 10 9 Petition of Adamar of New Jersey, et al, 31 91 for relief from certain portions or 11 Resolution No. 06-11-02-02 (PRN 2050702) 10 Petition of Harrah's Operating Company, adj. 12 Inc., Marina Associates, Atlantic City Showboat, Inc., Bally's Park Place, Inc., 13 and Boardwalk Regency Corp., requesting permission for Joseph Rahi to perform the 14 duties and exercise the powers of Senior Vice President National Middle Eastern/European 15 Operations for the Eastern and Western Regions Of Harrah's Operating Company, Inc., pending 16 Plenary qualification (PRN 2850706) 11 Consideration of the qualification of 20 22 17 Dennis Gallagher to serve as Vice President, Chief Regulatory and Compliance Officer for 18 Harrah's Operating Co., Inc. 12 Consideration of the qualification of 23 24 19 James G. Dumond to serve as Vice President of Compliance for MGM MIRAGE 20 13 Readoption of NJAC 19:45 (Accounting and 25 25 Internal Controls) 21 14 Petition of IGT and Atlantic City 26 27 Showboat, Inc., d/b/a Showboat Casino Hotel 22 for permission to terminate the "Jackpot Hunter" slot machine game and to transfer its progressive 23 jackpots (PRN 2900701) 15 Proposed publication and temporary 27 29 24 adoption of amendments to NJAC 19:46-1.17 and 1.18 (Multiple Deck Packaging) 25 16 Proposed publication of amendments and 29 30 new rules for Ultimate Texas Hold'em 6 1 E X H I B I T S : 2 ITEM NO. 2 DESCRIPTION EVD 3 4 EL-1 Remand for hearings 12 license X applications 5 EL-2 Grant 6 licenses X 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (Exhibits retained by Commission.) 25 7 1 (Public Meeting 07-10-31 was commenced 2 at 10:30 a.m.) 3 MR. NANCE: I'd like to read an opening 4 statement: 5 This is to advise the general public 6 that in compliance with Chapter 231 of the 7 Public Laws of 1975 entitled the "Open Public 8 Meetings Act," the New Jersey Casino Control 9 Commission on October 16th, 2006, filed with 10 the Secretary of State at the State House in 11 Trenton an annual meeting schedule. On October 12 16th, copies were mailed to the Press of 13 Atlantic City, the Newark Star Ledger. 14 Members of the press will be permitted 15 to take photographs, and we would ask that this 16 be done in a manner which is not disruptive or 17 distracting to the Commission. 18 The use of cellular telephones in the 19 public meeting room while the Commission is in 20 session is prohibited. 21 Any members of the public who wish to 22 address the Commission will be given the 23 opportunity to do so before the Commission 24 adjourns for the day. 25 Please stand for the Pledge of 8 ITEM NO. 1 1 Allegiance. 2 (The flag salute was recited.) 3 CHAIR KASSEKERT: Good morning. 4 MR. NANCE: Good morning. 5 The matters discussed in closed session 6 were: 7 Employee and enterprise licensing 8 matters. 9 The Commissioners approved the October 10 17, 2007, closed session minutes. 11 Litigation update regarding: 12 Warren Lackland and Lewis M. Springer, 13 Jr., versus the State of New Jersey, Casino 14 Control Commission; 15 Appeal in applications of Interstate 16 Drywall Corporation, et al.; 17 Gloria Ford versus State of New Jersey, 18 Casino Control Commission, et al; 19 Tyron J. Floyd versus Casino Control 20 Commission and Sands Hotel Casino; 21 And Husain versus Casino Control 22 Commission, et al. 23 Item No. 1, ratification of the minutes 24 of October 17th, 2007, public meeting. 25 COMMISSIONER SOMMELING: Move to 9 ITEM NO. 2 1 approve. 2 VICE CHAIR FEDORKO: Second. 3 CHAIR KASSEKERT: The motion has been 4 made and seconded. All in favor? 5 (Ayes.) 6 CHAIR KASSEKERT: Opposed? 7 (No response.) 8 CHAIR KASSEKERT: Motion carries. 9 MR. NANCE: Item No. 2, application for 10 employee and casino service industry licenses. 11 This is agenda item will be entered as 12 Exhibit List 1 and 2. Exhibit List 1 consists 13 of 12 applications for initial and/or renewal 14 of casino key and casino employee licenses. 15 The Division has objected to licensure. 16 COMMISSIONER FRULIO: Motion to remand 17 for hearings. 18 VICE CHAIR FEDORKO: Second. 19 CHAIR KASSEKERT: I think this is motion 20 to grant applications? 21 COMMISSIONER EPPS: No. 22 COMMISSIONER FRULIO: No. 23 CHAIR KASSEKERT: No? I'm sorry. 24 Objection. 25 MR. NANCE: Objection. 10 ITEM NO. 2 1 CHAIR KASSEKERT: Objection. I'm sorry. 2 Your motion is correct. 3 Is there a second? 4 VICE CHAIR FEDORKO: Second. 5 CHAIR KASSEKERT: Motion is made and 6 seconded. All in favor? 7 (Ayes.) 8 CHAIR KASSEKERT: Opposed? 9 (No response.) 10 CHAIR KASSEKERT: Motion carries. 11 MR. NANCE: Exhibit List 2 exists of six 12 applications for initial and/or renewal of 13 casino key and casino employee licensees. 14 Staff and the Division have recommended 15 that these licenses be granted. 16 COMMISSIONER FRULIO: Motion to grant 17 applications. 18 VICE CHAIR FEDORKO: Second. 19 CHAIR KASSEKERT: The motion has been 20 made and seconded. All in favor? 21 (Ayes.) 22 CHAIR KASSEKERT: Opposed? 23 (No response.) 24 CHAIR KASSEKERT: Motion carries. 25 MR. NANCE: For consideration are the 11 ITEM NO. 2 1 following applications for initial and/or 2 renewal of casino key employee licenses and for 3 qualification: For David R. Coskey, Jr. [Sic], 4 Vice President of Marketing for Marina District 5 Development Company, LLC; and Joseph Domenico, 6 Senior Vice President and General Manager for 7 Bally's Park Place, Inc. 8 Staff and the Division have recommended 9 that these applications be granted. 10 COMMISSIONER FRULIO: Motion to grant 11 initial and renewal key licenses and for 12 qualification. 13 VICE CHAIR FEDORKO: Second. 14 CHAIR KASSEKERT: Motion is made and 15 seconded. This is a roll call vote. 16 MR. NANCE: Commissioner Sommeling? 17 COMMISSIONER SOMMELING: Yes. 18 MR. NANCE: Commissioner Epps? 19 COMMISSIONER EPPS: Yes. 20 MR. NANCE: Commissioner Frulio? 21 COMMISSIONER FRULIO: Yes. 22 MR. NANCE: Vice Chair Fedorko? 23 VICE CHAIR FEDORKO: Yes. 24 MR. NANCE: Chair Kassekert? 25 CHAIR KASSEKERT: Yes. 12 ITEM NO. 2 1 MR. NANCE: The record will reflect that 2 the motion is unanimous. 3 For consideration are the following for 4 qualification in connection with their 5 respective gaming related casino service 6 industry licenses pursuant to NJAC 7 19:51-1.14B(h) for: Tracey Elkerton for 8 Aristocrat International Party, Ltd., 9 Aristocrat Technologies Australia, Party Ltd., 10 and Aristocrat Technologies, Inc.; Robert C. 11 Caller, Bally Gaming, Inc.; Kenneth L. 12 Bossingham, and Luke Orchard, Atronic Americas, 13 LLC; Yuji Taniguchi, Konami Gaming, Inc.; and 14 Jerome R. Smith for Shuffle Master, Inc. 15 Staff and the Division have recommended 16 qualification. 17 COMMISSIONER FRULIO: Motion to find Ms. 18 Elkerton and Messrs. Caller, Bossingham, 19 Orchard, Taniguchi, and Smith plenary qualified 20 in connection with their respective gaming CSI 21 licenses pursuant to NJAC 19:51-1.14B(h). 22 COMMISSIONER EPPS: Second. 23 CHAIR KASSEKERT: The motion has been 24 made and seconded. All in favor? 25 (Ayes.) 13 ITEM NO. 3 1 CHAIR KASSEKERT: Opposed? 2 (No response.) 3 CHAIR KASSEKERT: Motion carries. 4 MR. NANCE: Item No. 3, stipulation of 5 settlement and consent agreements. When I call 6 your name, please come forward, stand behind 7 the center table, spreading across the room so 8 that you may be seen: 9 Kiep Le, Rafiq Salim, Shanya Davis, 10 Anthony Dabney, Kimberly Jenkins, Basheema 11 Washington, Christine Moss, John Perry, and 12 Victor Sternberg. 13 CHAIR KASSEKERT: Has everyone whose 14 name been called come forward? Okay. 15 I'm going to ask that the both of you 16 state your name for the record, starting with 17 you, sir. 18 MR. DABNEY: My name is Anthony Dabney. 19 CHAIR KASSEKERT: Thank you. 20 Ma'am, your name? 21 MS. MOSS: Christina Moss. 22 CHAIR KASSEKERT: Okay. In a moment 23 we're going to vote on the stipulations which 24 you've agreed to with the Division of Gaming 25 Enforcement. I'm going to ask at this point if 14 ITEM NO. 3 1 any of you wish to be heard on your matter. 2 You don't have to say anything if you don't 3 want to. 4 Does anyone wish to be heard? 5 MR. DABNEY: No. 6 MS. MOSS: No. 7 CHAIR KASSEKERT: Mr. Armstrong? 8 MR. ARMSTRONG: Chair, the Division has 9 nothing to add other than to ask you to adopt 10 these stipulations. 11 CHAIR KASSEKERT: Thank you. 12 Any questions? 13 COMMISSIONER SOMMELING: Madame Chair, 14 move to approve the stipulations. 15 VICE CHAIR FEDORKO: Second. 16 CHAIR KASSEKERT: The motion has been 17 made and seconded. All in favor? 18 (Ayes.) 19 CHAIR KASSEKERT: Opposed? 20 (No response.) 21 CHAIR KASSEKERT: Motion carries. 22 Thank you very much for coming. Good 23 luck. 24 MS. MOSS: Thank you. 25 MR. DABNEY: Thank you. 15 ITEM NO. 4 1 MR. NANCE: Item No. 4, stipulation and 2 application of Susanna's, Inc., and 3 qualification of Susanna Foo. 4 Mr. Corbett? 5 MR. CORBETT: Chair, Commissioners, 6 approval of the stipulation of settlement in 7 this case will grant the license application as 8 a nongaming casino service industry license. 9 The basis is the Applicant and qualifier has 10 proven their qualifications. 11 Mr. McDonough is here for the Division 12 and no one is here for the Applicant. 13 CHAIR KASSEKERT: Thank you. 14 Good morning, Mr. McDonough. 15 MR. McDONOUGH: Good morning, Chair. 16 Good morning, Commissioners. 17 You have our papers on this matter. We 18 ask you to please approve this settlement. 19 Thank you. 20 CHAIR KASSEKERT: Thank you. 21 Any questions? 22 COMMISSIONER SOMMELING: No questions, 23 Madame Chair. 24 VICE CHAIR FEDORKO: Motion to approve 25 the stipulation of settlement and grant the 16 ITEM NO. 5 1 nongaming service industry license of 2 Susanna's, Incorporated, and find Susanna Foo 3 qualified. 4 COMMISSIONER FRULIO: Second. 5 CHAIR KASSEKERT: The motion has been 6 made and seconded. All in favor? 7 (Ayes.) 8 CHAIR KASSEKERT: Opposed? 9 (No response.) 10 CHAIR KASSEKERT: Motion carries. 11 MR. McDONOUGH: Thank you. 12 CHAIR KASSEKERT: Thank you. 13 MR. NANCE: Item No. 5, applications for 14 suspension for Maurice Callaway and Rafael 15 Velez. 16 Miss Frigen? 17 MS. FRIGEN: Let me -- sorry. Let me, 18 before we hear from the Division -- let me 19 inquire whether Mr. Callaway or Mr. Velez is 20 present or represented here today? 21 Apparently they are not here. 22 CHAIR KASSEKERT: Mr. Armstrong? 23 MR. ARMSTRONG: Madame Chair, you have 24 our complaints seeking revocation of their 25 registration. Very serious matters. We ask 17 ITEM NO. 6 1 that you suspend their credentials while our 2 complaints are pending. 3 CHAIR KASSEKERT: Thank you. 4 Any questions? 5 COMMISSIONER SOMMELING: Madame Chair, 6 move to suspend the credentials of Maurice J. 7 Callaway and Rafael Velez. 8 COMMISSIONER EPPS: Second. 9 CHAIR KASSEKERT: The motion has been 10 made and seconded. All in favor? 11 (Ayes.) 12 CHAIR KASSEKERT: Opposed? 13 (No response.) 14 CHAIR KASSEKERT: Motion carries. 15 MR. NANCE: Item No. 6, consideration of 16 temporary prohibitory order in State versus 17 John Schultz. 18 Miss Frigen? 19 MS. FRIGEN: Madame Chair, 20 Commissioners, for the record I would note that 21 we did receive a letter from Edward Jacobs 22 advising that his client would not be 23 contesting the temporary prohibitory order. 24 CHAIR KASSEKERT: Thank you. 25 Mr. McDonough? 18 ITEM NO. 6 1 MR. McDONOUGH: Yes. Good morning. 2 Deputy Attorney General Norma Stancil 3 filed the papers in this matter. I'm appearing 4 for her today. They're self-explanatory. We 5 believe the relief we seek is justified. 6 If you have any questions, I'll be happy 7 to respond to them. 8 Thank you. 9 CHAIR KASSEKERT: Thank you. 10 Any questions? 11 COMMISSIONER SOMMELING: No questions, 12 Madame Chair. 13 VICE CHAIR FEDORKO: Motion to grant the 14 Division's motion for a temporary order 15 prohibiting John Schultz from conducting 16 business either individually or through his 17 company with any casino licensees or applicants 18 until further order and require that any 19 existing business with casino licensees or 20 applicants be terminated by November 15th, 21 2007. 22 COMMISSIONER FRULIO: Second. 23 CHAIR KASSEKERT: The motion has been 24 made and seconded. All in favor? 25 (Ayes.) 19 ITEM NO. 7 1 CHAIR KASSEKERT: Opposed? 2 (No response.) 3 CHAIR KASSEKERT: Motion carries. 4 MR. McDONOUGH: Thank you. 5 CHAIR KASSEKERT: Thank you. 6 MR. NANCE: Item No. 7, motion to vacate 7 order of State versus Jose Prado-Ramirez. 8 Miss Frigen? 9 MS. FRIGEN: Madame Chair and 10 Commissioners, given the nature of the motion 11 and the Division's nonobjection, Respondent's 12 attorney, Theodore Grove, was advised his 13 presence was not mandatory here today. 14 But for your consideration is the motion 15 to vacate the suspension order based upon the 16 dismissal of the underlying criminal charges. 17 CHAIR KASSEKERT: Mr. Armstrong, 18 anything you want to add? 19 MR. ARMSTRONG: Chair, you have our 20 response to this motion. We don't object to it 21 since criminal charges were dismissed, but we 22 do wish to proceed with our revocation 23 proceeding at this point. 24 CHAIR KASSEKERT: Thank you. 25 Any questions? 20 ITEM NO. 7-8, 10-11 1 COMMISSIONER SOMMELING: No questions, 2 Madame Chair. 3 VICE CHAIR FEDORKO: Motion to grant Mr. 4 Prado-Ramirez's motion to vacate the 5 Commission's suspension order dated September 6 19, 2007. 7 COMMISSIONER FRULIO: Second. 8 CHAIR KASSEKERT: The motion has been 9 made and seconded. All in favor? 10 (Ayes.) 11 CHAIR KASSEKERT: Opposed? 12 (No response.) 13 CHAIR KASSEKERT: Motion carries. 14 Thank you. 15 MR. NANCE: Item No. 8 has been 16 adjourned. 17 Item No. 10 has been adjourned. 18 For your consideration, Item No. 11, 19 consideration of the qualification of Dennis 20 Gallagher to serve as Vice President, Chief 21 Regulatory and Compliance Officer for Harrah's 22 Operating Company, Inc. 23 Miss Frank? 24 MS. FRANK: Good morning, Chair and 25 Commissioners. 21 ITEM NO. 11 1 Dennis Gallagher received temporary 2 qualification from the Commission in February 3 of this year. A draft resolution on his 4 plenary qualification has been shared with the 5 parties. 6 Tim Lowry is here for Harrah's and Mary 7 Jo Flaherty for the Division. 8 CHAIR KASSEKERT: Thank you. 9 Good morning, Mr. Lowry. 10 MR. LOWRY: Good morning, Madame Chair. 11 CHAIR KASSEKERT: Anything to add with 12 respect to your resolution? 13 MR. LOWRY: No. Nothing further. We 14 rest on the papers. 15 CHAIR KASSEKERT: Thank you. 16 Ms. Flaherty? 17 MS. FLAHERTY: Yes, Chair and 18 Commissioners. 19 You have our letter reported October 20 22nd, 2007, and we agree with the Division and 21 the resolution. 22 Thank you. 23 CHAIR KASSEKERT: Thank you. 24 Any questions? 25 COMMISSIONER SOMMELING: No questions, 22 ITEM NO. 11 1 Madame Chair. 2 COMMISSIONER FRULIO: Motion to adopt -- 3 sorry. 4 CHAIR KASSEKERT: Go ahead. 5 COMMISSIONER FRULIO: Move to adopt the 6 draft resolution and find Dennis Gallagher 7 qualified to serve as Vice President, Chief 8 Regulatory and Compliance Officer for Harrah's 9 Operating Company, Inc. 10 CHAIR KASSEKERT: Is there a second? 11 COMMISSIONER SOMMELING: Second. 12 VICE CHAIR FEDORKO: Second. 13 CHAIR KASSEKERT: Motion is made and 14 second. This is a roll call vote. 15 MR. NANCE: Commissioner Sommeling? 16 COMMISSIONER SOMMELING: Yes. 17 MR. NANCE: Commissioner Epps? 18 COMMISSIONER EPPS: Yes. 19 MR. NANCE: Commissioner Frulio? 20 COMMISSIONER FRULIO: Yes. 21 MR. NANCE: Vice Chair Fedorko? 22 VICE CHAIR FEDORKO: Yes. 23 MR. NANCE: Chair Kassekert? 24 CHAIR KASSEKERT: Yes. 25 MR. NANCE: The record will reflect that 23 ITEM NO. 12 1 the motion is unanimous. 2 CHAIR KASSEKERT: Thank you. 3 MR. LOWRY: Thank you. 4 MR. NANCE: Item No. 12, consideration 5 of the qualification of James Dumond to serve 6 as Vice President of Compliance for MGM MIRAGE. 7 Miss Frank? 8 MS. FRANK: James G. Dumond received 9 temporary qualification from the Commission in 10 February of this year as well. A draft 11 resolution on his plenary qualification has 12 been circulated to the parties. 13 Mr. Casiello is here for MGM MIRAGE and 14 Mr. Fogarty for the Division. 15 CHAIR KASSEKERT: Thank you. 16 Good morning, Mr. Casiello. 17 MR. CASIELLO: Good morning, Madame 18 Chair and Commissioners. 19 I have nothing to add other than that we 20 have received and reviewed the draft resolution 21 and it is acceptable to us. 22 Thank you. 23 CHAIR KASSEKERT: Thank you. 24 Mr. Fogarty? 25 MR. FOGARTY: Good morning. Yes. 24 ITEM NO. 12 1 We submitted a letter dated October 16th 2 recommending that you qualify Mr. Dumond for 3 the positions indicated for Marina District 4 Development Company, Borgata. And I've seen 5 Claire's draft resolution. We have no 6 objection to its entry. 7 CHAIR KASSEKERT: Thank you. 8 Any there questions? 9 COMMISSIONER SOMMELING: No questions, 10 Madame Chair. 11 VICE CHAIR FEDORKO: Motion to adopt the 12 draft resolution and find James G. Dumond 13 qualified to serve as Vice President of 14 Compliance and Compliance Officer for MGM 15 MIRAGE. 16 COMMISSIONER FRULIO: Second. 17 CHAIR KASSEKERT: Motion is made and 18 seconded. This is a roll call vote. 19 MR. NANCE: Commissioner Sommeling? 20 COMMISSIONER SOMMELING: Yes. 21 MR. NANCE: Commissioner Epps? 22 COMMISSIONER EPPS: Yes. 23 MR. NANCE: Commissioner Frulio? 24 COMMISSIONER FRULIO: Yes. 25 MR. NANCE: Vice Chair Fedorko? 25 ITEM NO. 13 1 VICE CHAIR FEDORKO: Yes. 2 MR. NANCE: Chair Kassekert? 3 CHAIR KASSEKERT: Yes. 4 MR. NANCE: The record will reflect that 5 the motion is unanimous. 6 CHAIR KASSEKERT: Thank you. 7 MR. CASIELLO: Thank you. 8 MR. NANCE: Item No 13, readoption of 9 NJAC 19:45, accounting and internal controls. 10 Miss Frank? 11 MS. FRANK: The notice of readoption of 12 Chapter 45 accounting and internal controls is 13 before you today for approval. If approved, 14 the readoption will be become effective 15 tomorrow with its filing with the Office of 16 Administrative Law. 17 CHAIR KASSEKERT: Thank you. 18 Any questions? 19 COMMISSIONER SOMMELING: Madame Chair, 20 readopt as -- move to readopt as published. 21 VICE CHAIR FEDORKO: Second. 22 CHAIR KASSEKERT: The motion has been 23 made and seconded. All in favor? 24 (Ayes.) 25 CHAIR KASSEKERT: Opposed? 26 ITEM NO. 14 1 (No response.) 2 CHAIR KASSEKERT: Motion carries. 3 MS. FRANK: Thank you. 4 CHAIR KASSEKERT: Thank you. 5 MR. NANCE: Item No. 14, petition of IGT 6 and Atlantic City Showboat for permission to 7 terminate the "Jackpot Hunter" slot machine 8 game and its transfer its progressive jackpots. 9 Mr. Briliant? 10 MR. BRILIANT: Good morning, Madame 11 Chair and Commissioners. 12 Mr. Previti has asked that this matter 13 be heard on the papers. 14 I have circulated a proposed draft 15 resolution, and he did indicate that it was 16 acceptable to him. 17 Mr. Kimmel is here on behalf of the 18 Division. 19 CHAIR KASSEKERT: Thank you. 20 Good morning, Mr. Kimmel. 21 MR. KIMMEL: Good morning, Chair, 22 members of the Commission. 23 I have read the draft resolution. I 24 have no objection to its adoption and recommend 25 that you do so. 27 ITEM NO. 15 1 Thank you. 2 CHAIR KASSEKERT: Thank you. 3 Any questions? 4 COMMISSIONER SOMMELING: No questions, 5 Madame Chair. 6 COMMISSIONER EPPS: Madame Chair, I move 7 to adopt the draft resolution and approve 8 Petitioners' request to transfer progressive 9 slot jackpots subject to the conditions in the 10 resolution. 11 COMMISSIONER SOMMELING: Second. 12 CHAIR KASSEKERT: The motion has been 13 made and seconded. All in favor? 14 (Ayes.) 15 CHAIR KASSEKERT: Opposed? 16 (No response.) 17 CHAIR KASSEKERT: Motion carries. 18 MR. BRILIANT: Thank you. 19 MR. NANCE: Item No. 15, proposed 20 publication and temporary adoption of 21 amendments to NJAC 19:46-1.17 and 1.18, 22 multiple deck packaging. 23 Mr. Mamolen? 24 MR. MAMOLEN: Good morning, Madame Chair 25 and Commissioners. 28 ITEM NO. 15 1 This matter is before you for both 2 publication and temporary adoption, and it 3 deals with the issue of multiple deck packaging 4 and cards used at authorized table games in New 5 Jersey. 6 In essence, it would enable 7 manufacturers to prepackage multiple decks, 8 those that are used for games in which cards 9 are actually played with in multiple decks and 10 those in which one deck is alternated in and 11 out. There's procedures requiring labeling or 12 a window on the multiple deck packages which 13 would identify the cards for purposes of 14 whether the color backs are to be used for the 15 cards that are used in games in which one deck 16 is used and it's alternated in and out of play, 17 whether or not the font is a special font, and 18 so forth. 19 Again, it's before you for publication 20 and temporary adoption. 21 CHAIR KASSEKERT: Thank you. 22 Any questions? 23 COMMISSIONER SOMMELING: No questions, 24 Madame Chair. 25 COMMISSIONER FRULIO: Move to approve 29 ITEM NO. 16 1 the publication and temporary adoption. 2 VICE CHAIR FEDORKO: Second. 3 CHAIR KASSEKERT: The motion has been 4 made and seconded. All in favor? 5 (Ayes.) 6 CHAIR KASSEKERT: Opposed? 7 (No response.) 8 CHAIR KASSEKERT: Motion carries. 9 MR. NANCE: Item No. 16, proposed 10 publication of amendments and new rules for 11 Ultimate Texas Hold'em. 12 MR. BRILIANT: This is another variation 13 of hold 'em against the house. This one has 14 been dormant for some time and was recently 15 revived and for test by Trump Marina, and so 16 far, so good on it. It's before you at this 17 time for publication. 18 You have the Division's mathematical 19 analysis confirming that which has been put 20 forth by the proprietor. 21 CHAIR KASSEKERT: Thank you. 22 Any questions? 23 COMMISSIONER SOMMELING: No questions, 24 Madame Chair. 25 COMMISSIONER FRULIO: Move to approve 30 ITEM NO. 16 1 for publication. 2 VICE CHAIR FEDORKO: Second. 3 CHAIR KASSEKERT: The motion has been 4 made and seconded. All in favor? 5 (Ayes.) 6 CHAIR KASSEKERT: Opposed? 7 (No response.) 8 CHAIR KASSEKERT: Motion carries. 9 MR. BRILIANT: Thank you. 10 CHAIR KASSEKERT: I think we'll return 11 to Item 9 when counsel -- 12 We'll take a brief recess until counsel 13 comes back. Maybe we can find him. 14 (A recess was taken at 10:45 a.m.) 15 CHAIR KASSEKERT: I'm going back on the 16 record just to announce that we're going to 17 reconvene about ten minutes after 11:00 just in 18 case anybody wanted to run and make a phone 19 call or do something else of a personal nature 20 now. 21 Thanks. 22 (The public meeting was reconvened at 23 11:42 a.m.) 24 CHAIR KASSEKERT: We'll go back on the 25 record and move to Item 9. 31 ITEM NO. 9 1 MR. NANCE: Item No. 9, Petition of 2 Adamar of New Jersey, Inc., et al, for relief 3 from certain portions of Resolution No. 4 06-11-02-02. 5 Mr. DiGiacomo? 6 MR. DiGIACOMO: Chair, Commissioners, 7 good morning. 8 Ms. Lynne Kaufman for Tropicana and the 9 Wimar Corporation, for the Tropicana Casinos 10 related entities. Mr. Dennis Daly for Credit 11 Suisse Company, Petitioner in this case, and 12 Miss Mary Jo Flaherty for the Division of 13 Gaming Enforcement. 14 CHAIR KASSEKERT: Good morning. Ms. 15 Kaufman, Mr. Daly? 16 MR. DALY: Good morning, Chair. 17 Happy Halloween, everyone. 18 CHAIR KASSEKERT: Thank you. 19 Ready to proceed? 20 MR. DALY: Yes. I wish I had a mask. 21 VICE CHAIR FEDORKO: Oh, you don't? 22 (Laughter.) 23 COMMISSIONER FRULIO: He has his game 24 face on. 25 MR. DALY: We're here today asking for 32 ITEM NO. 9 1 two modifications of a resolution that the 2 Commission entered about 11 months ago in 3 connection with the ICA approval for what is 4 now known as Tropicana AC to operate the 5 Tropicana Casino here in Atlantic City. 6 In conjunction with that approval, you 7 also approved a material debt transaction. 8 That involved principally my client, Credit 9 Suisse, as the primary lender -- lead lender on 10 the credit facility. And what we need to talk 11 about today is one aspect of that credit 12 facility, that being the term loan. What we're 13 looking for from you is a ruling that 14 recognizes, as you did in the recent Harrah's 15 case, that not every entity that meets the 16 literal definition of a financial source under 17 Section 84 need, in fact, qualify as a 18 financial source. 19 There are several concerns about that, 20 and I'll get into them more in detail later. 21 But the first point simply is that you apply in 22 this case the two-percent rule as you applied 23 in the Harrah's case. Two percent of the 24 entire loan commitment that only such holders 25 that meet that threshold are the types of 33 ITEM NO. 9 1 entities that you need to be concerned about as 2 far as financial source qualification goes. 3 Anyone below that amount or whatever amount -- 4 whatever percentage amount you choose, they're 5 holding such de minimis that they need not be 6 considered financial sources. That is the 7 thrust of our first argument. Our first point 8 of departation with the prior resolution. 9 And the second -- I'll come back to that 10 and talk about it in more detail. But the 11 second relief that we seek is a modification of 12 the five-day prior notice provision that is 13 also in that resolution. We seek this because, 14 in the first instance, it is entirely 15 impossible in some regards to comply with that 16 regulation. It's -- or excuse me, with that 17 resolution. It does not comport with the 18 business realities out there. These trades -- 19 and let me inject just a few of the facts. 20 There's not a lot of facts that you need to 21 know about this. 22 The volume of trading is something that 23 was unprecedented in my experience with casino 24 regulation, and I believe with many of my 25 cohorts as well. There are 10 to 20 trades on 34 ITEM NO. 9 1 a normal business day involving this loan. 2 There are -- depending on how you count it, 187 3 or upwards of 500 entities involved in these 4 trades. Many of the trades are made amongst 5 the investors that have been in this 6 transaction for some period of time. As to 7 those, for example, the Credit Suisse, which is 8 the administrative agent, does not get notice 9 of those trades until after they have occurred. 10 Sometimes, I'm told, as much as 28 days after 11 those trades occur. So that alone should 12 suggest to you that it is impossible -- not 13 just impractical -- to comply with the five-day 14 prior notice of trades. They don't have 15 advance notice of trades. 16 It also is impractical from the 17 perspective of -- from the regulatory 18 perspective. If the point of notice of these 19 trades is that you can then investigate the 20 bona fides of each of these financial sources, 21 then one has to ask themselves is it really 22 feasible for the Division of Gaming Enforcement 23 or any regulatory body to do any meaningful 24 investigation of -- and we'll just take the 25 lowest possible number -- 187 different 35 ITEM NO. 9 1 entities here, putting aside for the moment the 2 500 that is actually the complete universe. I 3 suggest to you that they can't. 4 You recognized that in the Harrah's 5 situation. While there are distinguishing 6 points that can be made about that transaction, 7 the fundamental point remains the same. They 8 are -- they were deemed to be financial 9 sources, but they were only required to be 10 financial source qualifiers if they exceeded 11 the certain percentage. In that case at the 12 request of the Division of Gaming Enforcement 13 you settled upon the figure of two percent. I 14 suggest in this case that you should utilize 15 the same figure. There should not be a variety 16 of figures out there for the investment 17 community to operate in this arena. It needs 18 to have some degree of certainty. They need to 19 know upfront what the rules are. If you change 20 the rules and make it a case-by-case basis, you 21 are going to thwart the ability of these 22 investors to partake in these loans, and you 23 are going to undermine the casinos' ability to 24 attract investment capital. 25 And I know you've heard it from a 36 ITEM NO. 9 1 variety of sources over many years that 2 investment capital is the lifeblood of this 3 industry. Without it, you can't build new 4 facilities. You can't expand existing 5 facilities. 6 CHAIR KASSEKERT: Mr. Daly, I kind of 7 find this incredulous that all of a sudden we 8 now have a rule after one decision in one case 9 less than, you know, two months ago. This has 10 now become a sacrosanct rule. But please 11 continue. 12 MR. DALY: I'm not necessarily saying 13 it's sacrosanct. I'm urging you -- 14 CHAIR KASSEKERT: I think you are. 15 MR. DALY: Well, I'm urging you to apply 16 that in a consistent fashion going forward 17 and -- 18 CHAIR KASSEKERT: But I think the 19 Harrah's decision, the determination was it was 20 a case-by-case basis. I mean, I think that's 21 what we said in Harrah's. 22 MR. DALY: That may be. But what I'm 23 suggesting is that the investment community 24 needs to have the certainty of rules that can 25 be evenly applied as each opportunity comes 37 ITEM NO. 9 1 along. To have a two-percent rule in the 2 Harrah's case and a one-percent rule or 3 something else come out of this case, I 4 suggest, does not give the kind of reliability 5 and consistency that the investment community 6 needs and that the casinos, quite frankly, 7 need. 8 The interpretation of Section 84(b), if 9 literally construed, would capture any entity 10 that had any piece of this loan. As I 11 mentioned, there are by the most conservative 12 estimate 187 different entities involved here. 13 Some of them hold as little as 0.04 percent of 14 this loan. I suggest to you that it doesn't 15 make any sense to have the Division investigate 16 and you decide on the qualifications of someone 17 who holds such a de minimis amount. If you 18 accept that notion that there is at least some 19 number that is too small to warrant invoking 20 the whole regulatory process, then the decision 21 in this case comes down to picking the 22 appropriate number. As I suggested, I thought 23 the two-percent rule that you did in the 24 Harrah's case would work just as well here. 25 But whatever number you come to, you need to 38 ITEM NO. 9 1 come to a specific number that recognizes that 2 those with de minimis holdings need not be 3 financial source qualifiers. 4 The Commission started down that road as 5 long ago as 1984 and the Golden Nugget 6 restructuring case at that time. You will see 7 if you review that transcript that the argument 8 was made very similar to what I'm suggesting 9 here, that the investment community needs that 10 kind of certainty. 11 In that case what they were arguing for 12 is that the note hold -- potential holders of 13 notes -- not be required to qualify. 14 Ultimately, the Commission ruled out of that 15 case and a series of cases that came after that 16 that note holders, and bond holders in 17 particular, are not required to qualify unless 18 they hold 15 percent of a given issue. One 19 could make the argument in this case that these 20 should be treated the same as bond holders. 21 I'm not going there precisely because if you 22 were to set the level at 15 percent, you would 23 capture nobody in this loan, and I don't think 24 for a moment that that's a likely result. 25 But at the same time, I don't think you 39 ITEM NO. 9 1 should be creating some additional threshold 2 figure that is entirely arbitrary and has no 3 basis either in the Act or in your prior 4 rulings. 5 With that, I'll be glad to answer any 6 questions that you may have. 7 CHAIR KASSEKERT: Ms. Kaufman? 8 MS. KAUFMAN: If you'd like to ask Mr. 9 Daly questions first, or I'll add -- 10 CHAIR KASSEKERT: Let me see what the 11 pleasure? 12 You want to have Miss Kaufman present? 13 MS. KAUFMAN: Okay. Thank you. 14 I'm in full agreement with Mr. Daly's 15 points with respect to the two percent. The 16 history in Harrah's, recognizing that in the 17 Harrah's case, you did discuss it being on a 18 case-by-case basis. 19 What I would like to offer in addition 20 to what Mr. Daly offered is that a little bit 21 more history in where we got to with the 22 current state of needing to report for the Trop 23 facility on every financial source with the 24 exception that we did not have to get prior 25 approval. 40 ITEM NO. 9 1 I came before you a few years ago right 2 before the Borgata opening and had initially 3 filed a petition actually asking for the 4 15-percent relief with respect to the private 5 credit facility on the basis that the financial 6 markets had changed and private credit 7 facilities were much more similar to public 8 debt. 9 After discussions with the Division and 10 Commission and looking at the actual trading 11 activity at that time in the Borgata facility, 12 we realized that, in fact, at that time the 13 facility did not trade as much as public debt, 14 and that there were significant differences. 15 However, the Commission and Division, keeping 16 in mind that progress had been made and it was 17 more widely distributed, you did permit the 18 financial source qualification to happen after 19 notification of a trade. 20 Now, we're fast-forwarding to this 21 credit facility, keeping in mind what you have 22 learned in the Harrah's case, also keeping in 23 mind that a distinction between this and a 24 Harrah's case is that in the Harrah's decision, 25 as you are well aware, even though you 41 ITEM NO. 9 1 considered the limited -- the two-percent 2 holders to be financial sources, they actually 3 were holders of equity. And even though, as 4 limited partners, they had limited rights, 5 we're now talking about debt holders in a 6 facility who similarly sometimes have even more 7 limited rights. 8 That being said, we now have a credit 9 facility that has, depending on what numbers 10 you look at, anywhere between a 11 nonaggravated -- a little under -- an aggegated 12 a little under 200 holders. And if we don't 13 aggregate and look at the holders, it's 500. 14 Which actually compares pretty similarly to 15 some of the public debt in casinos. 16 So what I'm saying is that I believe 17 it's a natural progression of where you 18 started. As Mr. Daly pointed out, there is 19 precedent in both the public area with the 20 15-percent rule and now with the recent 21 Harrah's decision with the two-percent rule to 22 grant us the relief we're requesting today. 23 And we are asking for the two percent. 24 Thank you. 25 CHAIR KASSEKERT: Thank you. 42 ITEM NO. 9 1 Would anyone like to question the 2 parties before we hear from Miss Flaherty? 3 Or -- 4 Mary Jo? 5 MS. FLAHERTY: Okay. Thank you. 6 Chair and Commissioners, you have our 7 report of September the 20th, and what I would 8 like to just note on the record are some other 9 matters that haven't been discussed already. 10 First, this credit facility is about 1.3 11 billion currently, and tied to it is $180 12 million revolver. And, unlike Borgata where 13 the credit facility related to the casino hotel 14 in Atlantic City, this credit facility is not 15 only on the Tropicana but relates to 16 approximately 10 or 12 other casino operations 17 that are owned and operated by the parent 18 company. So it's an overall financing 19 arrangement for their casino operations. 20 Additionally, we have a situation where 21 we're talking about financial sources. And 22 from a law enforcement standpoint, looking at 23 them in that regard, they are individuals who 24 have entered into an arrangement of loan money 25 and are solely entitled to payment of interest. 43 ITEM NO. 9 1 In the case of the limited partners, they will 2 also have the benefit of an investment and the 3 opportunity to take profits in terms of that 4 investment. 5 In light of the fact that this is a loan 6 with only interest payable, I've read the loan 7 documents, and they're set up in such a way, 8 that Credit Suisse, which is the administrative 9 agent with regard to this loan, makes all 10 decisions, makes all determinations, has the 11 power to make all discussions with the casino 12 management. And the other investors, the other 13 lenders in this case, do not have that 14 opportunity. It's only in the event of default 15 where they have any right to get involved. And 16 at that point in time an interest of a total 17 amount of 15 percent has to get together in 18 order to direct the administrative agent, which 19 in this case is Credit Suisse, to do anything 20 with regard to the loan. So at this point in 21 time, they really have no ability to influence 22 this, be involved in it. They only have a 23 right to get their interest paid to them. 24 Additionally, as I think we've said 25 before with the other counsel, I think it's 44 ITEM NO. 9 1 important to note that New Jersey is the only 2 jurisdiction that has rules governing financial 3 sources and casino enterprises are not subject 4 to those requirements in other jurisdictions. 5 In light of that, the regulators have always 6 been open to these discussions in terms of the 7 markets and encouraging investments, and some 8 of your prior decisions have been set forth. 9 And I think here it's true that there is an 10 evolution in the market in terms of the private 11 equity investment and the way even the lending 12 is done. 13 And in terms of this loan arrangement, 14 the term interests here are, in fact, widely 15 held and freely traded, and that's to a degree 16 unlike and to an extent that we've previously 17 experienced. 18 So when we were looking at the question, 19 we asked, you know, is there a floor? What is 20 the floor? Should every holding require 21 qualification? Should it be the two percent? 22 And wouldn't it be sufficient at this point in 23 time with no default to come to a percentage 24 amount such as two percent that would provide 25 comfort to the regulators from our standpoint 45 ITEM NO. 9 1 but not require that every person need to be 2 investigated as a financial source and reported 3 upon? And, of course, things would 4 dramatically change if and when there was any 5 default, and our position at that time would be 6 different, and we would come in and tell you 7 that we would think whoever was involved in 8 influencing or trying to speak with management 9 about any problems would be someone that we 10 would want to review and report to you about. 11 And, of course, whatever your decision 12 is we will investigate and report to you with 13 regard to the financial sources. We know that 14 that's our responsibility, and we will gladly 15 undertake it. 16 You have our report. You have our 17 positions, and we would not object to the two 18 percent as long as all the other persons 19 involved in the loan arrangement would 20 cooperate and provide information to us as 21 requested. 22 And I would be glad to answer any 23 questions you may have. 24 CHAIR KASSEKERT: Thank you. 25 Questions? 46 ITEM NO. 9 1 Commissioner Epps? 2 COMMISSIONER EPPS: I have a few. 3 Mr. Daly, you started off your comments 4 by saying that this matter comes before us as a 5 result of a resolution that we approved last 6 November setting forth the very process that 7 you're seeking relief from. But at the time of 8 the approval as is normal language before we 9 pass a resolution, all counsel stood up and 10 said we've read the resolution, and we're 11 satisfied with this language, and we urge your 12 approval of it. And from what I understand, 13 even though Credit Suisse was not a party to 14 the matter necessarily, their approval or input 15 was sought. And everybody agreed, okay, this 16 is fine. Here we are 11 months later, 17 exploding this whole thing that we kind of did 18 for the people involved in the-- in the matter. 19 That's somewhat troubling. 20 MR. DALY: In response to that, 21 Commissioner, I suggest to you that I don't 22 think anybody anticipated the volume of trading 23 that's involved in this matter. Perhaps people 24 at Credit Suisse hoped to get that, but I don't 25 know that they anticipated it. Certainly, they 47 ITEM NO. 9 1 didn't anticipate it in the sense that they 2 would have realized they would have to provide 3 notice of the volume of trades that would 4 require them to be in contact -- constant 5 contact with the regulators, which is precisely 6 what the situation is if -- and even if they 7 could provide five-day advance notice. I think 8 it's something that simply wasn't adequately 9 considered at the time that your approval was 10 first given. 11 We realized that in a relatively short 12 period of time that the initial petition 13 seeking relief from this order was filed back 14 in February. Since that time there have been 15 ongoing discussions between Credit Suisse, the 16 casino licensee, Commission staff, and, of 17 course, the Division of Gaming Enforcement. 18 Those discussions culminated -- or at least 19 that we thought that they culminated in a 20 meeting that was conducted in early June, I 21 believe, in the offices of the Division at 22 which we thought we had an understanding. When 23 I say "we," I know I speak for my co-counsel, 24 of which there were two others present at the 25 meeting. And I believe the two representatives 48 ITEM NO. 9 1 from the Division of Gaming Enforcement as well 2 all thought we left that meeting with an 3 understanding that unless the Commission raised 4 some significant concern that this two-percent 5 rule that was applied in the previous case 6 would obtain in this one as well. And we only 7 learned that that was not the situation two 8 days before the first time this matter was 9 actually scheduled for your consideration, 10 which was back on October 3rd. 11 COMMISSIONER EPPS: Okay. I'm glad we 12 went to that next step. The two-percent rule. 13 I cringe at the use of that phrase because 14 there is no two-percent rule. Two percent was 15 a number used in a specific case previously 16 before us. But it was a $6 billion case, and 17 two percent was an amount derived to be a 18 manageable number in that specific case. There 19 is no two-percent rule. Because if this was a 20 $10 dollar loan, and we use two percent, the 21 numbers would be skewed. Or if it was a $40 22 billion case, and we use two percent, the 23 numbers would be skewed. So you can't set a 24 number when the underlying amount of the loan 25 is always a shifting target. I don't think 49 ITEM NO. 9 1 that's safe or fair for -- to hold against us 2 or for us to do. That creates a difficulty 3 with the number of participants and the level 4 at which we get to look at financial sources in 5 a given transaction. So I think that's a 6 dangerous approach for us to take. And I don't 7 want the Commission to be backed into a corner 8 based on a prior decision as a bright line rule 9 at two percent because a savvy set of lenders, 10 smarter than me clearly, could structure a loan 11 such that no one gets looked at because you put 12 in enough money and set it at two percent -- 13 higher or lower than two percent, and you never 14 get anybody. So then we have to come back and 15 say we want to shift that down to .75 percent, 16 and we're going to end up in the situation 17 where you just allude to do where it's always a 18 moving target, and the industry doesn't know 19 where the number is. And I understand your 20 concern that the market has to know or at least 21 has to have some idea what the number is. But, 22 unfortunately, I can't sit you here and tell 23 was that number is. But I can tell you that 24 you it doesn't necessarily have to be two 25 percent because it always varies based on the 50 ITEM NO. 9 1 situation. 2 In this particular matter, if I 3 understand it correctly, we're talking about 4 the term loan, which is not even the 1.735 5 billion. It's 180 million? 6 MS. FLAHERTY: Yup. 7 COMMISSIONER EPPS: That's a 8 significantly lower number than $6.4 billion 9 that was the Harrah's case that generated the 10 two-percent rule. That also gives me pause. 11 And I don't -- I don't begin to tell you I have 12 the answer or the solution to the problem, but 13 I certainly see that there's a problem. And 14 two percent, I don't think, gets it for me. 15 The other -- not question a question, 16 but thing I wanted to discuss is that it seems 17 to me -- and maybe I'm wrong and you can help 18 me -- breaking loans up into such small pieces 19 for a $180 million term loan seems a novel 20 concept. And trading it fast and furiously or 21 such a small portion, that's -- and maybe 22 that's the trend, and that's where the industry 23 is going or the financial institutions are 24 going and breaking up and trading fast and 25 furious. Maybe that's something that we have 51 ITEM NO. 9 1 to wrap our arms around and figure out how to 2 handle. But I don't know that today we have 3 that answer. And I know that that's not 4 satisfactory to Credit Suisse, necessarily. 5 But it's something that has to be determined, 6 but it has to be determined in a sound and 7 thought-out process so that it can be applied 8 fairly going forward. 9 But to say that we're going to hold back 10 the industry from being able to borrow money 11 is-- is -- is somewhat comparable to 12 the-sky-is-falling type of scenario where we're 13 being forced to do something because we're 14 threatened with the potential of ruining the 15 industry somehow. I think that we have to 16 proceed with caution in these areas because 17 we've got to figure out how to handle it in the 18 matter that is most sound, and it gives -- that 19 gives -- that does, in fact, give the financial 20 market some certainty, but we've got to know 21 how -- how to proceed in this area. It's a 22 slippery slope. And we've got to be careful on 23 the precipice as we go down as to how we 24 proceed. 25 And the last thing that I wanted to 52 ITEM NO. 9 1 speak to that you made reference to, in the 2 1984 case, if I understand the history 3 correctly, the distinction in that case was 4 note and bond holders are subject to other 5 rules that precluded the Commission from 6 imposing our regulations at the risk of them 7 being superseded by rules of the SEC, I guess, 8 or the federal government that caused us some 9 pause in pursuing avenues that we may have 10 wanted to put in place at the time. 11 I know I've said a lot. None of it was 12 a question, but you can respond to any or off 13 all of it. 14 MR. DALY: Any of it? 15 Well, I would like speak briefly to the 16 point you made about financial markets out 17 there. Yes, they are evolving. Back in 1984 18 and for a long time while this industry was 19 growing up in New Jersey, the only sources of 20 capital were banks and institutional investors. 21 It is much -- it's a much different scene out 22 there today. You've seen it in the context of 23 private equity. You've seen all of these 24 sources of capital that have come into play and 25 these various loans that the casinos are 53 ITEM NO. 9 1 involved in, whether it's restructuring of 2 existing debt or the new facilities as they 3 come on board. They've got a lot more 4 financial sources that they look to than was 5 true in the past. And you're absolutely right. 6 You need to come to grips with that new way of 7 financing things. 8 And I'm sorry. I did not mean to come 9 off as Chicken Little saying that there won't 10 be any availability for casinos to get credit 11 out there. That's not my point at all. Simply 12 that you would be restricting the avenues that 13 they could go to in this -- in this brave new 14 world of financial markets out there, if you 15 were to strictly interpret Section 84(b) 16 requiring financial source qualification for 17 all. 18 I took from your remarks, Commissioner, 19 that you did at least accept the concept that 20 it's impractical to do them all. But at what 21 level, where you draw the line, is the issue 22 that you still have trouble with. And I'm 23 certainly no brighter than you in terms of 24 figuring out where that line ought to be. I 25 suggested the two percent simply because it's 54 ITEM NO. 9 1 one that's out there, and it's recent. You 2 could go to the 15 percent. I'd be very 3 thrilled about that. 4 COMMISSIONER EPPS: Well, you have to 5 agree with me, don't you, that two percent of 6 180 and two percent of 180 million and two 7 percent of six billion are vast -- there's -- 8 they're way far apart. 9 MR. DALY: Certainly. 10 COMMISSIONER EPPS: And so the problem 11 that we have here is applying the two-percent 12 rule across the board just doesn't work because 13 two percent of six billion compared to two 14 percent of 180, the math doesn't add up. So, 15 granted, we don't -- I can't tell you what the 16 number is, and I can't just pull one out of the 17 sky because that's not fair. But two percent 18 doesn't work. 19 MR. DALY: Okay. Then look at the 20 equity side. The statute gives you a figure of 21 five percent. The suggestion has already been 22 made that the people that you are dealing with 23 in the Harrah's case were equity holders. You 24 deemed them financial sources for purposes of 25 casino regulation, and you picked the figure 55 ITEM NO. 9 1 two percent. The statutory figure is five 2 percent. If you want to go five percent -- I 3 don't know, either, what the right number is. 4 As I said, any number that you pick would be 5 somewhat arbitrary. By definition that number 6 is arbitrary. 7 COMMISSIONER EPPS: See, part of the 8 problem is in however the number came about, I 9 suspect that it wasn't a percentage as much as 10 it was a value of holding that gave us the 11 comfort level that we captured a significant 12 portion of the loan. Not so much a percentage 13 of the loan. 14 MR. DALY: I'm not sure. I think in the 15 case, if we look back to those bond holders 16 that we talked about, for example, 15 percent, 17 you don't capture any of those in most -- any 18 case that I ever saw, there was never anybody 19 that had more than 15 percent of a particular 20 debt issue. It could happen, but it didn't. 21 And, therefore, you had nobody as a financial 22 source qualifier in conjunction with that 23 particular debt issue. 24 COMMISSIONER EPPS: Well -- 25 MR. DALY: No harm there. 56 ITEM NO. 9 1 COMMISSIONER EPPS: In my scenario I'm 2 speaking of the Harrah's situation that created 3 the two-percent rule. 4 MR. DALY: Right. 5 MS. KAUFMAN: Commissioner Epps, may I 6 just say that I believe that when the loan was 7 being placed -- it is -- I know we are asking 8 for relief with respect to the revolving 9 facility lenders. But the -- we were asking 10 the relief for those lenders with the 11 understanding that we are not asking for the 12 relief for the term lenders who, right now, 13 they are exempt as banks, but if they were not 14 banks they -- 15 MR. DALY: It's the other way around. 16 MS. KAUFMAN: Oh, the other way around. 17 Okay. All right. I'm messing up the argument. 18 But we are not asking for the relief for 19 the larger portion. 20 MR. DALY: The revolver. 21 MS. KAUFMAN: The revolver. So you are 22 capturing those lenders. It happens that those 23 lenders are banks and so they do not need to be 24 qualified. However, they are falling under 25 your regulations as being qualified. 57 ITEM NO. 9 1 So the 180 number -- I would just ask 2 you not to just strictly look at it as $180 3 million loan. 4 With respect to what Dennis said with 5 note holders, for example, on the note holding 6 side of the Tropicana, on the recently 7 registered public debt when we just recently 8 ran the bond holder list, I believe that we so 9 far have come up with one bond holder in excess 10 of 15 percent, which is a bank, which will not 11 be qualifying but will be sending a letter of 12 representation or something to that effect, so. 13 And I'd also like to add that while we 14 modeled the two percent after Harrah's, and 15 while we realize that Harrah's was on a 16 case-by-case basis, when we looked at the 17 numbers, we did take into account that we 18 wanted to be sure that we weren't providing you 19 with a number where you would capture no one. 20 You know, if you do adopt the two percent with 21 respect to this, you will be capturing a 22 percentage of the lenders. 23 MS. FLAHERTY: Can I just say for the 24 record, my understanding of the relief that's 25 requested is everyone that's involved in the 58 ITEM NO. 9 1 $180 million revolver will come forward for 2 financial source qualification. The two- 3 percent ruling that's requested relates to the 4 $1.3 billion -- 5 MS. KAUFMAN: Right. 6 MS. FLAHERTY: -- other arrangement. 7 And in conjunction with that, based on the list 8 that we currently have now, the number of 9 people that we would be qualifying with regard 10 to this arrangement would be more than the 11 number that would need to qualify under the 12 Texas Pacific/Apollo situation. Just in terms 13 of financial sources. 14 CHAIR KASSEKERT: I guess that's part of 15 my confusion, too. Because that number seems 16 to be changing. It was changing as late as 17 last night when another list was submitted. 18 MS. FLAHERTY: Exactly. The part of the 19 Texas Pacific/Appolo decision is the limited 20 partnership investments are unchanging. You 21 commit your money. You're in the deal for five 22 to seven years. In terms of this, they can 23 change every day. So there is a big difference 24 in that regard. 25 CHAIR KASSEKERT: Commissioner Fedorko? 59 ITEM NO. 9 1 VICE CHAIR FEDORKO: Mr. Daly, how do we 2 know -- and I asked this question in the 3 Harrah's case. How do we know that some of 4 these people who are not going to be 5 investigated are somebody who shouldn't get 6 involved in this? 7 MR. DALY: Well, the short, direct 8 answer is you don't know. But then you have to 9 ask yourself, do you really need to know? Do 10 you know, for example, who owns four percent of 11 any of the publicly traded casino licensees 12 that you have out there? No, you don't. You 13 get lists of people that hold them, hold the 14 stock for the beneficial owners, but you don't 15 know who those beneficial owners are. It's 16 simply a matter of practicality. There are 17 some things you cannot know. As wise as this 18 panel is, there's some things even beyond your 19 reach. 20 And I would suggest to you that de 21 minimis holders, wherever we draw that line, 22 are the kinds of people that, yeah, you don't 23 know who they are, but neither do you care 24 about them from a regulatory perspective 25 because they can do no harm. They cannot 60 ITEM NO. 9 1 control anything. They do not influence 2 anything. And that's what you really have. 3 That's what this whole apparatus is designed to 4 do. 5 COMMISSIONER EPPS: I guess part of my 6 problem is, don't we create -- don't we run the 7 risk of creating a broader universe of people 8 for whom we don't get to know who they are? 9 The further we expand this, the more we open it 10 up to that universe of people for whom we will 11 never know about. It seems to me -- 12 MR. DALY: That -- 13 MS. FLAHERTY: From the Division 14 standpoint, I would just like to say that my 15 understanding is that we will get full and 16 complete lists of all these individuals. We 17 will be able to review these lists. These 18 people will be under a duty to cooperate and 19 provide information. And the fact that any 20 amount of number is set does not limit our 21 investigation and certainly does not limit the 22 Commission to pull individuals in. 23 If we find that there's someone on the 24 list that we're concerned about, if they're 25 under indictment, that has problems, we will 61 ITEM NO. 9 1 let you know that, and we will say even if it's 2 a de minimis holding, maybe as little as .01 3 percent, we need that person to be designated 4 as a qualifier because of that concern. We 5 will report to you, and if it rises to the 6 level that they should not be participating, if 7 they should not be gaining any kind of money 8 from the casino operation, then they would be 9 disqualified and removed. And its only under 10 those circumstances that we would go along with 11 this type of procedure. 12 VICE CHAIR FEDORKO: Well, I'm a little 13 confused now. Are you going to look at 14 everybody? 15 MS. FLAHERTY: We will look at their 16 names. We will see who's on the list. We will 17 see if there's something that raises a concern 18 to us. We will not investigate them as a 19 financial source and report to you. 20 VICE CHAIR FEDORKO: Okay. 21 MS. FLAHERTY: Unless they are 22 designated as a financial source. 23 VICE CHAIR FEDORKO: And I don't mean to 24 put you on the spot, but what would -- 25 MS. FLAHERTY: Uh-huh. 62 ITEM NO. 9 1 VICE CHAIR FEDORKO: -- looking at the 2 names tell you? 3 MS. FLAHERTY: Well, we're familiar with 4 people. We would not do the investigation into 5 the actual operations, but if there is a -- a 6 red flag, someone -- and it's happened 7 before -- it's unusual, but there have been 8 financial sources where even if there is a 9 little bit of money loaned that they are under 10 indictment, there's a major problem with the 11 person, and it's well-known because of 12 publicity, then we can bring that to you, and 13 we wouldn't have to suffer the problem of 14 having that person be involved in one of our 15 casino arrangements. 16 VICE CHAIR FEDORKO: Other than looking 17 at the names, do you do anything else? 18 MS. FLAHERTY: On the list? 19 VICE CHAIR FEDORKO: Yeah. 20 MS. FLAHERTY: Unless there's they're 21 designated as a financial source, no, we 22 probably wouldn't. But we would be able to 23 look at newspaper information, that kind of 24 thing. 25 MS. KAUFMAN: Mr. Daly can speak to this 63 ITEM NO. 9 1 more, but in order to make the list in terms of 2 being able to be eligible for the credit 3 facility, there are certain standards that 4 certainly are not the exact same standards as 5 financial source qualification, but there is a 6 process and vetting that has to happen first. 7 I'm sure Mr. Daly can speak to that a 8 bit. 9 MR. DALY: Well, I think you're getting 10 to the point that I did want to finish up on in 11 response to your question, Commissioner 12 Fedorko, that -- but I know that this doesn't 13 carry a lot of weight with the Commission. It 14 never has. 15 But there is -- I think you can take 16 some small comfort that the industry, the 17 investment community protects -- somewhat 18 guards itself. A Credit Suisse -- or take any 19 of these fund managers -- are not interesting 20 in doing business with anybody who is going to 21 bring disrepute on them. They don't deal with 22 bad people. They deal with companies that have 23 established track records. Now, to be sure, 24 something could change. Things go wrong. But, 25 for the most part, there is a level of concern. 64 ITEM NO. 9 1 These people do some measure of due diligence. 2 I cannot tell you specifically what the rules 3 are that they apply with regard to these 4 investors in this particular loan, but if you 5 just look at these companies, we now have lists 6 of all the companies that have ever 7 participated in this. It's -- it's big to us, 8 a list of 750 people. But in the world of the 9 big banks like Credit Suisse and stuff, this is 10 a manageable universe. They know who these 11 people are, and they know the ones they want to 12 deal with, and they avoid the ones that they 13 don't. 14 VICE CHAIR FEDORKO: So it's Credit 15 Suisse that does this investigation or whatever 16 and not -- 17 MR. DALY: Yeah. I can't call it an 18 "investigation," but they are familiar with the 19 people that they allow into this loan. 20 VICE CHAIR FEDORKO: So Tropicana or 21 Adamar is relying totally on Credit Suisse. 22 MR. DALY: Credit Suisse as the 23 administrator is the one that controls this. 24 And that's why you need Credit Suisse -- you 25 need to exercise your control over Credit 65 ITEM NO. 9 1 Suisse, the administrator, whoever that is, in 2 this case, Credit Suisse. And that -- that 3 gives you your hook. That's where you get to 4 be assured that this term loan is not being 5 distributed to, you know, unsavory characters. 6 VICE CHAIR FEDORKO: Let me ask Miss 7 Flaherty. 8 Then do you -- does the Division talk to 9 Credit Suisse and find out what they do? 10 MS. FLAHERTY: We have had conversations 11 with Credit Suisse at different points in time. 12 But as to this particular point, I can't really 13 say that we can -- I can say right now what 14 they've done. 15 MR. DALY: If it would be helpful, I'll 16 be glad to submit after the fact the -- 17 whatever mechanisms they actually go through. 18 I'll find that out. 19 VICE CHAIR FEDORKO: I'd like to know. 20 That this is coming up more and more, and I 21 think this is something we need to know, just 22 for a comfort level. I would like to know. 23 MR. DALY: Okay. I'll be glad to get 24 that. 25 VICE CHAIR FEDORKO: Okay. Thank you. 66 ITEM NO. 9 1 CHAIR KASSEKERT: Ralph? Do you have -- 2 Commissioner Sommeling? 3 COMMISSIONER SOMMELING: Mr. Daly, if 4 subsequent after a lender is -- is approved to 5 get into by Credit Suisse, and then it's 6 subsequently found out that there's a reason to 7 sever that company, there is a process that 8 they guarantee that this will happen, and how 9 do are we notified or how is the Division 10 notified? 11 MR. DALY: I'm not sure exactly what the 12 mechanical steps are that they take. I don't 13 know that that situation has ever arisen where 14 they've had a reason to force anybody out. And 15 I think that is the case because they're very 16 careful upfront who they allow into the 17 process. But I'll provide that information to 18 you as well. 19 MS. KAUFMAN: And the document -- the 20 credit facility documents have provisions for 21 disqualified lenders or lenders that fail to be 22 financially source qualified. 23 COMMISSIONER EPPS: Excuse my ignorance, 24 but didn't we hear earlier that because of the 25 nature and the fast and furious nature of the 67 ITEM NO. 9 1 trades, Credit Suisse doesn't even know for 2 some time who's doing its trades so they can't 3 do due diligence ahead of time -- 4 MR. DALY: Credit Suisse doesn't know 5 those trades occur among people who have 6 already been in the universe. Okay? If an 7 outsider is -- if an outside company that has 8 not previously been involved in this term loan 9 comes in, Credit Suisse has advance knowledge 10 of that. But it's only those trades that occur 11 among -- pick any two here. Say Aberdeen Asset 12 Management, who has been in it from the 13 beginning, decides to sell X number of units to 14 MSD Capital, Michael Dell Capital, which has 15 also been in it from the beginning, that trade 16 occurs. Credit Suisse learns about it after 17 the fact. Could be the same day. Could be as 18 much as 28 days later. I don't think that 19 happens very often, by the way. But it could 20 be much as 28 days later. 21 COMMISSIONER EPPS: Now, let's go with 22 that scenario. Just help me get through it. 23 Could one of those groups be someone that we 24 have not captured? So meaning that it's 25 someone who's in the group that we've captured. 68 ITEM NO. 9 1 Let's say you use your two-percent rule. 2 MR. DALY: Okay. 3 COMMISSIONER EPPS: And there's a group 4 in that two percent, and there's a group 5 outside of two percent, and they trade with 6 each other. Because of the group outside of 7 two percent, we never looked at them. They're 8 going to get some interest, and we'll still 9 never get to look at them. 10 MR. DALY: I'm not so sure that you 11 never look at them, because, again, we've 12 shared the lists all along the process. So the 13 Division has -- 14 COMMISSIONER EPPS: Looked at by name 15 but not investigated. 16 MR. DALY: Correct. They're not going 17 to do a full-fledged investigation, as far as I 18 know. 19 COMMISSIONER EPPS: So we're talking 20 about a potential trade with a company that is 21 above the bright line and a company below the 22 bright line, and the company below the bright 23 line never gets looked at. But now they are in 24 the trade, and we won't know for 28 days. Is 25 that the type of scenario -- 69 ITEM NO. 9 1 MR. DALY: It could be as late as 28 2 days, but that's the extreme outside. That's 3 not the norm. But, yeah, it could be that 4 long. 5 COMMISSIONER EPPS: But what you're 6 saying is if, whatever company you pick wanted 7 to trade with Dennis Daly, Inc., who was never 8 in the deal, Dennis Daly, Inc., coming into the 9 deal would get looked at? 10 MR. DALY: Well, they'd be looked at by 11 Credit Suisse. 12 COMMISSIONER EPPS: Before the trade 13 happened? 14 MR. DALY: Certainly. 15 COMMISSIONER EPPS: And that's because 16 of the rules within the agreement that says you 17 can't trade with someone outside -- 18 MR. DALY: It's the way they administer 19 the loan. 20 COMMISSIONER EPPS: So there's language 21 in the loan documents that says -- 22 MR. DALY: I can't point to the exact 23 language, but, yeah. 24 COMMISSIONER EPPS: Credit Suisse does 25 due diligence at the outside companies before a 70 ITEM NO. 9 1 trade will be made with them? 2 MR. DALY: I'm not sure it is good quite 3 that specific, but that's the way it operates. 4 Correct. 5 COMMISSIONER EPPS: I'm just not exactly 6 sure. I mean, it would give me comfort to know 7 how that process works. Because how do they -- 8 how do we -- why would they know and do due 9 diligence to stop that trade, and they would 10 have enough time to check those people to 11 prevent an instantaneous trade, but they 12 wouldn't stop a trade within the group? 13 There's some disconnect there for me. Or maybe 14 I'm missing something. 15 MR. DALY: I think you might be. 16 COMMISSIONER EPPS: But if I'm in the 17 group, and you're out, I can't trade with you 18 until Credit Suisse okays you. But if you and 19 I are both in the group, we can trade, and 20 Credit Suisse wouldn't know our trades until 21 some time later. 22 MR. DALY: Correct. 23 COMMISSIONER EPPS: What's the 24 difference between the trade within the group 25 and the trade with someone outside, and why is 71 ITEM NO. 9 1 it able be held up enough time for Credit 2 Suisse to take a look at them, but it can't be 3 held up enough time for Credit Suisse to give 4 us an okay that that deal fits within our 5 purview. 6 MR. DALY: People within the group have 7 previously been vetted. 8 COMMISSIONER EPPS: Not necessarily. 9 CHAIR KASSEKERT: By Credit Suisse. 10 MR. DALY: They haven't been found as 11 financial source qualified, of course not. But 12 they've been vetted by Credit Suisse. 13 COMMISSIONER EPPS: So that everybody 14 who is vetted by Credit Suisse, and what you're 15 saying is just the opposite, you just rely on 16 Credit Suisse to do due diligence. 17 MR. DALY: Well, I'm saying -- yeah. 18 That's a part. I know you're not going to hand 19 over your regulatory responsibilities to a 20 private entity like Credit Suisse and say, if 21 it's good enough for you, it's good enough for 22 me. I'm not saying that. It does give you 23 some measure of comfort. I would suggest to 24 you, that you should take some measure of 25 comfort from the fact that they only want to 72 ITEM NO. 9 1 deal with good companies, too. 2 And it's not a whole regulatory process, 3 but what's the flip side? If you don't go down 4 that road, what are you looking at? You're 5 looking at qualifying 500 entities in one loan. 6 COMMISSIONER EPPS: I understand that. 7 But I guess it kind of to me is almost like 8 saying casino companies will never deal with 9 bad people, so you don't have to look at them, 10 either. Invariably, every once in a while, a 11 bad person comes in, and because of what we do 12 what we do, we're pretty good at stopping that 13 from happening. 14 MR. DALY: And I think the Division is 15 pretty good in ferreting out when that 16 situation occurs and coming to you, and you 17 have all kinds of powers under this Act that 18 you can get them out, and you can preserve and 19 protect the industry. 20 But to do it all in a prophylactic 21 measure by making all of the people that are 22 going to hold some piece of this loan, however 23 small, get qualified -- financial source 24 qualified from the outset is, I suggest to you, 25 totally impractical and, from a regulatory 73 ITEM NO. 9 1 perspective, unnecessary. 2 CHAIR KASSEKERT: Any other questions? 3 COMMISSIONER SOMMELING: No other 4 question, Madame Chair. 5 CHAIR KASSEKERT: Mary Jo? 6 MS. FLAHERTY: No other questions, 7 Chair. 8 CHAIR KASSEKERT: Thank you. 9 I think we'll take a recess. 10 MR. DiGIACOMO: Madame Chair -- 11 CHAIR KASSEKERT: Yeah. 12 MR. DiGIACOMO: May I, through you, 13 questions for counsel. 14 CHAIR KASSEKERT: Sure. 15 MR. DiGIACOMO: I believe Ms. Flaherty 16 twice referred to the outstanding balance of 17 the loan as $1.3 billion. But I think Mr. Daly 18 in defining the relief that he was seeking 19 referred to it as the entire loan commitment. 20 Is the percentage to be computed on the loan 21 commitment or the outstanding balance? 22 MS. FLAHERTY: Well, right -- 23 MR. DiGIACOMO: Are you considering them 24 to be the same? 25 MS. FLAHERTY: Well, right now the 74 ITEM NO. 9 1 outstanding balance of the term loan is 2 approximately 1.3 billion. It had originally 3 been 1.5 billion, but it was paid down because 4 the casino investment in Illinois did not occur 5 so -- 6 MR. DiGIACOMO: All right. 7 MS. FLAHERTY: So at this point that 8 would be the amount. 9 MR. DiGIACOMO: Okay. And, Mr. Daly, 10 you would agree that that's -- 11 MR. DALY: What she said. 12 MR. DiGIACOMO: Referring to as the loan 13 commitment. 14 MR. DALY: And it will always go down as 15 they pay it off in small increments, but it's 16 always a descending value. 17 MR. DiGIACOMO: And, again, Chair, 18 through you, in terms of the post-notice 19 requirement -- post-trade notice requirement, 20 help the Commission understand what you are 21 looking for by way of that number? I know the 22 Division has recommended three days. 23 MR. DALY: Thank you. I think I 24 neglected to get to that point in the course of 25 my original remarks. 75 ITEM NO. 9 1 I have had further discussions with the 2 people at Credit Suisse and with both your 3 counsel, Mr. DiGiacomo, and Mary Jo with regard 4 to what they can do in this regard. And what 5 has come out of it is a suggestion, and I would 6 ask that you consider this as the modification 7 to your prior resolution to require their 8 casino -- or excuse me -- Credit Suisse to 9 provide notice of all those entities who were 10 involved in trades on a quarterly basis and 11 that the Division would then look at them from 12 a historical perspective. Because it's, quite 13 frankly, the only practical way you can deal 14 with this thing. Any given snapshot that we 15 have here, any given listing of the lenders is 16 nothing more than a snapshot that is valid on 17 the day that it is taken, and it's inaccurate 18 in some regard on the next 24-hour period and 19 will be inaccurate every day thereafter. 20 That's just the way it works with volatile 21 markets like this. And that is why -- I keep 22 wanting to come back and beating this dead 23 horse -- but that is why you have to set some 24 kind of a threshold and only look at those that 25 are significant players in this loan and may 76 ITEM NO. 9 1 have some measure of influence or control over 2 the casino licensee. Short of that, it's -- 3 you're wrestling with the wind. 4 COMMISSIONER EPPS: Two questions in 5 wrestling with the wind. 6 We can only get a quarter -- we couldn't 7 even get it monthly? 8 MR. DALY: Yeah. I'm not -- 9 COMMISSIONER EPPS: Quarterly seems -- 10 MR. DALY: I'm not going to sit here and 11 say you couldn't do it. 12 COMMISSIONER EPPS: Quarterly seems way 13 broad. 14 And the second thing is, how do you deal 15 with companies that slide in and out of that 16 two-percent number? 17 MR. DALY: They will be captured. They 18 will we captured on the list. They will show 19 as zero holdings at the time, but that would 20 indicate -- in other words, everybody on this 21 list has some kind of percentage figure after 22 their name. But they will provide for us those 23 with zero holdings, meaning they were in at 24 some point in the beginning, and are not in. 25 They hold nothing at the time of the snapshot. 77 ITEM NO. 9 1 COMMISSIONER EPPS: "Zero" means nothing 2 or less than the -- whatever -- 3 MR. DALY: I originally thought it meant 4 something so small they couldn't carry the 5 decimals out that far. But after -- and I just 6 learned this two days ago. After talking with 7 Credit Suisse, those they report at zero are 8 those that are not presently holding anything. 9 They were in the game before. They got out 10 before the snapshot. 11 COMMISSIONER EPPS: But I guess what I'm 12 asking you is if you give us -- let's say you 13 went with your idea and went with a quarterly 14 number, and went with your idea to use the 15 two-percent rule; okay? Would the report that 16 you gave us on a quarterly basis show those 17 companies who within the quarter fell above and 18 below the margin? 19 MR. DALY: It would show you everyone. 20 Yes. 21 MS. KAUFMAN: Yes. 22 COMMISSIONER EPPS: So it would show us 23 everyone for the quarter and their rise and 24 fall? Would we see their delta? 25 MR. DALY: I think so. I think you will 78 ITEM NO. 9 1 by comparing that snapshot with the previous 2 one. 3 COMMISSIONER EPPS: Wouldn't we need a 4 report that has a column that shows delta up or 5 down? 6 MR. DALY: If you want it, I'm sure we 7 can get it. 8 COMMISSIONER EPPS: I mean -- it seems 9 to me that just giving me a list of names, they 10 came in and went out, doesn't really tell us 11 anything. 12 MR. DALY: Well, it's that plus the 13 level of their investment at the time and the 14 percentage that that reflects of the whole over 15 the outstanding term loan. 16 COMMISSIONER EPPS: Well, let me just -- 17 Ms. Flaherty, do quarterly reports do anything 18 for you? 19 MS. FLAHERTY: Well, Mr. Daly approached 20 me with regard to the practicalities of the 21 situation, and the discussions we had were 22 premised upon having the information with 23 regard to the interim trades set forth on the 24 list. It would not be our preference, but if 25 that's what can be provided and is the most 79 ITEM NO. 9 1 practical, we can work with that. Especially 2 if it has the delta information which you've 3 mentioned. 4 CHAIR KASSEKERT: I guess my certain 5 concern is, we went from 186 yesterday to over 6 500 today, so how trustworthy, you know, is 7 this information? How -- 8 MS. FLAHERTY: Well, I think -- I think 9 it stayed pretty much in the same numbers from 10 the October 3rd list to the recent list from 11 last evening. And the 500 numbers are every 12 individual holder of any interest. 13 CHAIR KASSEKERT: Uh-huh. 14 MS. FLAHERTY: The number that's about 15 180 to 200 are the ones when you accumulate 16 interests that are held by associated groups. 17 So sometimes you have an individual holder, but 18 sometimes there are five holdings that are put 19 together because they're affiliated with each 20 other, and that's how you get 186, 187 number. 21 I think it stayed relatively consistent 22 between the two days. It's just the way you 23 look at it. And since we like to aggregate, we 24 are looking more towards that 180, 200 number. 25 But within that, if there's any holder that's 80 ITEM NO. 9 1 designated as someone who has to identify as a 2 financial source, if that's composed of -- if 3 that group is composed of five -- you know, 4 different holdings, we will look at whatever 5 number of holdings within that group that we 6 need to report to you about that financial 7 source. 8 So let's say we have, you know, 10 or 20 9 people who are over the two percent, that 10 really may be 60 or 80 holdings, and we may 11 need to look at all of those to report to you. 12 CHAIR KASSEKERT: Anything else, Mr. -- 13 Commissioner Epps? 14 COMMISSIONER EPPS: If that's the 15 case -- 16 MS. FLAHERTY: Uh-huh. 17 COMMISSIONER EPPS: -- then that almost 18 gets us back to taking you above -- I mean, the 19 two-percent line doesn't really make a 20 difference, because once you look at the 21 aggregate, if you look at a company in the 22 aggregate, it goes above, and you have to look 23 at everything below them, you're looking at 24 them anyway. 25 MS. FLAHERTY: Well, it's within that -- 81 ITEM NO. 9 1 COMMISSIONER EPPS: So now you have, 2 instead of 180, you're going above 180, which 3 are not going to file, you're at 360, because 4 you still have to look at all of the companies 5 within the aggregate at the two-percent number 6 and anything within their group, so you're 7 still going to be expand that thing out. But 8 180 is not a real number. 9 MS. FLAHERTY: Well, 180 is everybody 10 from, you know, whatever percent down to zero. 11 It's just that it's shown with aggregated 12 groups. 13 COMMISSIONER EPPS: Right. But, I guess 14 what I'm saying is, if you're looking at 15 aggregate groups, and what you said is true 16 that in aggregate groups that you have to look 17 at that fall above the number -- 18 MS. FLAHERTY: Uh-hum. 19 COMMISSIONER EPPS: -- once they're 20 aggregated, you have to look at everything 21 that's in their aggregate. 22 MS. FLAHERTY: Potentially. 23 COMMISSIONER EPPS: That just expands 24 your -- it's like an accordion. It starts to 25 expand. And that 180 number is not really a 82 ITEM NO. 9 1 number because within that 180 there's 17 2 groups that you have to look at their 3 aggregates. It becomes 300 quickly. 4 MR. DALY: Now, wait, if I may. 5 MS. FLAHERTY: Okay. 6 MR. DALY: The number that you're 7 looking at when you aggregate -- and let's say 8 you have the two-percent figure in place here, 9 whatever the term is -- if you use two percent, 10 you get down to -- with aggregated entities, 11 you get down to five, six, or seven over the 12 course of this loan who are real financial 13 sources. Okay? So it's only that universe, 14 not the whole 187 the Division may look at and 15 then have to look at subsets, if you want to 16 call them that. You know, the entities that 17 are aggregated under them. It really doesn't 18 expand it quite that much. 19 COMMISSIONER EPPS: All right. 20 MS. FLAHERTY: Plus we would be doing 21 everyone under the revolver loan, and that's 12 22 financial sources there, which are mostly 23 banking institutions. 24 CHAIR KASSEKERT: Mr. DiGiacomo? 25 Anything else? 83 ITEM NO. 9 1 MR. DiGIACOMO: Nothing further, Madame 2 Chair. 3 (Conferring.) 4 CHAIR KASSEKERT: Take a recess. 5 Thank you. 6 (Conferring.) 7 CHAIR KASSEKERT: We're going to hold 8 this matter and reconvene at 4:00 this 9 afternoon because we have a prehearing 10 conference at 1:00, so. 11 Can we let the trooper go? Are we all 12 safe and tidy? 13 Yeah. We can let the trooper go. 14 15 (The meeting was suspended from 12:41 to 16 4:01 p.m.) 17 18 CHAIR KASSEKERT: Thank you. We'll go 19 back on the record. 20 Let me ask if any of the Commissioners 21 have any additional questions? Of counsel? 22 COMMISSIONER SOMMELING: No questions, 23 Madame Chair. 24 CHAIR KASSEKERT: Let me ask if counsel 25 has anything they'd like to add at this point? 84 ITEM NO. 9 1 MR. DALY: No. 2 MS. FLAHERTY: No, Chair. 3 CHAIR KASSEKERT: All righty. Well, 4 thank you for coming back. 5 By this petition Credit Suisse joins 6 Tropicana in seeking relief from certain 7 conditions that the Commission imposed last 8 November when it granted interim casino 9 authorization to Wimar Tahoe Corporation, which 10 is now known as Tropicana Casinos and Resorts. 11 The conditions bear upon the term loan portion 12 of the Commission-approved financing 13 arrangement that provided Wimar with some of 14 the capital that it used to purchase Tropicana 15 and its affiliates. 16 Since 2003, the Commission has typically 17 imposed the conditions challenged here whenever 18 these types of term loans are presented for 19 approval. Thus, it came as no surprise that 20 Wimar asked the Commission, to presumably with 21 Credit Suisse's input, to approve the loan 22 subject to those conditions, which we did. 23 In any event, it is indisputable that 24 the parties to the financing transaction did 25 not raise at the time we granted ICA the 85 ITEM NO. 9 1 concerns that they bring to us today, 2 essentially on the eve of our consideration of 3 Wimar's plenary qualification. 4 Consistent with Section 84(b) of the 5 Casino Control Act, the conditions at issue 6 essentially require all lenders on the term 7 loan to qualify as financial sources unless 8 they are exempt banks or institutional 9 investors waived from qualification under 10 Section 85(f) of the Act. Although the 11 petition asserts that there are approximately 12 180 lenders that might need to face such 13 scrutiny, we have heard today that 14 approximately 500 lenders might be involved. 15 Thus, the Petitioners seek a "two-percent rule" 16 whereby all lenders that hold less than two 17 percent of the outstanding balance of the term 18 loan would be deemed not to bear a relation to 19 the Tropicana for the purposes of Section 84(b) 20 and, thereby, avoid qualification as financial 21 sources. The Division endorses the so-called 22 two-percent rule, in part because of our 23 decision from early August involving Hamlet 24 Holdings' proposed acquisition of Harrah's 25 Entertainment. And although the petition which 86 ITEM NO. 9 1 was filed preHamlet necessarily does not refer 2 to that matter, clearly Petitioners today urge 3 us to apply the same standard here. 4 In my view, the Harrah's ruling which 5 arose from the private equity context does not 6 control the outcome here where debt 7 specifically secured by the casino licensee is 8 involved. Although counsel argues that 9 imposing stricter standards here would run 10 counter to the seemingly more lenient approach 11 taken with the equity-like investment with the 12 limited partners in the Harrah's case, control 13 is not the dispositive issue in identifying 14 financial sources. Consideration must also be 15 given to such factors as assuring that persons 16 seeking the financial backing for casino 17 projects do not turn to unsuitable sources, 18 that unsuitable persons do not profit from 19 casinos, and that the public image of the 20 industry is not damaged. 21 In that regard, Petitioners directed us 22 to a 1984 decision involving Golden Nugget 23 where the Commission confronted whether casino 24 licensees and their holding companies could 25 access the traditional well-established public 87 ITEM NO. 9 1 debt market without the need for each holder of 2 that debt to qualify as a financial source. An 3 adverse ruling based upon the strict 4 interpretation of Section 84b essentially would 5 have eliminated casino related companies from 6 using such traditional public funding sources, 7 thereby, forcing them to use bank loans as 8 their exclusive and potentially more expensive 9 means of raising legitimate debt capital. In 10 examining whether Golden Nugget's public debt 11 security with relation to the casino, the 12 Commission was satisfied that those securities 13 though the registration with the Securities and 14 Exchange Commission and sale of the recognized 15 and regulated public market would be widely 16 distributed and freely traded to anyone. 17 Moreover, the note holders would have no rights 18 other than to receive interest and principal 19 payments and to obtain on default certain 20 remedies that the trustee would pursue. 21 Further, the notes would not be concentrated in 22 the hands of any one holder with a 15-percent 23 benchmark in the Golden Nugget case, and they 24 would not be a vehicle for funneling casino 25 profits to unqualified persons, and their 88 ITEM NO. 9 1 issuance would not be in any way -- would not 2 in any way tarnish the public image of the 3 casino industry in the regulatory process. 4 By contrast, the term loan here is a 5 different type of financing in the Atlantic 6 City casino context compared to the 7 longstanding public debt market the Commission 8 faced in 1984. They are not public securities 9 in any true sense of the term nor do the loans 10 have an indentured trustee that is regulated 11 under the Federal Trust Indentured Act of 1939. 12 Because the term loans are not registered with 13 the SEC, they cannot be sold to the general 14 public but only be traded amongst highly 15 sophisticated investors that presumably are 16 sufficiently sophisticated financially as to 17 not to need the SEC public disclosure 18 protections. 19 Conversely, the lack of SEC registration 20 potentially allows Credit Suisse to sell 21 portions of the loans to individuals or 22 entities that might not be subject to federal 23 taxation or other regulatory oversights. 24 Further, more traditional and not necessarily 25 more expensive capital formation opportunities 89 ITEM NO. 9 1 still are available to casino licensees and 2 their holdings companies. 3 Thus, I am satisfied that the term loan 4 here is not analogous to the public bonds and 5 notes we considered in 1984. Essentially, 6 whether to impose a two-percent or other 7 threshold requirement is left on our sound 8 discretion, which should be approached 9 judiciously here, especially in the absence of 10 specific legislative guidance in favor of 11 Petitioners' expansive review of Section 84(b). 12 Simply put, I am not persuaded from the 13 materials presented that the Commission should 14 accept Petitioners' invitation to establish a 15 two-percent rule in this case. 16 Petitioners also seek relief from the 17 condition requiring the delivery of written 18 notice five business days prior to a trade in 19 the term loan. Although in its report the 20 Division recommends a three-day post trade 21 notice as sufficient to preserve regulatory 22 purposes, the Petitioners now suggest that 23 compliance with such a requirement appears 24 impractical. Instead they offer a periodic 25 reckoning that would include all the lenders 90 ITEM NO. 9 1 that have had or had an interest in the term 2 loan and show the change in position over time. 3 For me, such a list produced monthly would 4 suffice. 5 Thus, to that limited extent, I move 6 that the Commission grant so much of the 7 petition as would provide such relief, and 8 given the recentness of the Petitioners' 9 proposal delegate as Chair or my designee the 10 authority to approve any refinements in the 11 design of the report as may be necessary. 12 In all other respects, I would deny the 13 petition, and in so moving I would make it 14 clear that if the Commission adopts my 15 recommendation, it would be without prejudice 16 to the Division's successfully prosecuting any 17 complaint, whether pending or subsequently 18 filed, regarding any alleged violations of the 19 provisions of the ICA resolution or any related 20 provisions to the Casino Control Act or the 21 Commission's regulations. 22 Is there a second to my motion? 23 COMMISSIONER SOMMELING: Second. 24 CHAIR KASSEKERT: Motion has been made 25 and seconded. This is a roll call vote. 91 ITEM NO. 9 1 MR. NANCE: Commissioner Sommeling? 2 COMMISSIONER SOMMELING: Yes. 3 MR. NANCE: Commissioner Epps? 4 COMMISSIONER EPPS: Yes. 5 MR. NANCE: Commissioner Frulio? 6 COMMISSIONER FRULIO: Yes. 7 MR. NANCE: Vice Chair Fedorko? 8 VICE CHAIR FEDORKO: Yes. 9 MR. NANCE: Chair Kassekert? 10 CHAIR KASSEKERT: Yes. 11 MR. NANCE: The record will reflect that 12 the motion is unanimous. 13 CHAIR KASSEKERT: Thank you. 14 MR. DiGIACOMO: Thank you, 15 Commissioners. 16 MS. FLAHERTY: Thank you. 17 MR. NANCE: In accordance with 18 Resolution No. 06-12-13-20, the next closed 19 session of the Commission shall be held on 20 Wednesday, November 21st, 2007, at 9:15 a.m. in 21 the Commission offices. 22 It is now time for the public 23 participation portion of the meeting. 24 CHAIR KASSEKERT: Is there anything from 25 the public that wishes to be heard? 92 1 (No response.) 2 CHAIR KASSEKERT: Seeing no one, I'll 3 declare this portion of the meeting closed and 4 entertain a motion to adjourn. 5 COMMISSIONER SOMMELING: Motion to 6 adjourn Fedorko. 7 COMMISSIONER FRULIO: Second. 8 CHAIR KASSEKERT: The motion has been 9 made and seconded. All in favor? 10 (Ayes.) 11 CHAIR KASSEKERT: Opposed? 12 (No response.) 13 CHAIR KASSEKERT: Motion carries. 14 Thank you. 15 (Public Meeting 07-10-31 was adjourned 16 at 4:09 p.m.) 17 18 19 20 21 22 23 24 25 93 1 2 C E R T I F I C A T E 3 4 5 I, DARLENE SILLITOE, a Certified Court 6 Reporter and Notary Public of the State of New 7 Jersey, certify that the foregoing is a true 8 and accurate transcript of the proceedings. 9 10 11 I further certify that I am neither 12 attorney, of counsel for, nor related to or 13 employed by any of the parties to the action; 14 further that I am not a relative or employee of 15 any attorney or counsel employed in this case; 16 nor am I financially interested in the action. 17 18 19 DARLENE SILLITOE CCR 20 License No XI01023 21 22 Dated: November 4, 2007 23 My Commission Expires on July 10, 2009 24 ID No 2062871 25