Criticism Shadows D.C. Slots Catalyst
Entrepreneur Failed To Obtain Licenses Amid States' Reviews
By Lori Montgomery
Washington Post Staff Writer
Monday, June 21, 2004; Page A01
A drive to legalize slot machines in the nation's capital is the brainchild of a wealthy young entrepreneur who has been denied or failed to obtain gambling licenses in five states where regulators found evidence of financial mismanagement, irregular accounting practices and hidden partnerships.
Shawn A. Scott, who launched his career in Las Vegas and now lives in the U.S. Virgin Islands, has purchased or developed more than a dozen gambling ventures over the past 10 years, including hotel casinos in Las Vegas, video poker bars in Louisiana and South Carolina, and horse-racing tracks in Louisiana, New York and Maine.
Scott and his associates later sold many of those properties, in some cases as state regulators pressed for more information about his complicated web of more than 140 privately held companies and partnerships. Racing officials said Scott's most profitable deals were the sales of tracks in Louisiana and Maine, where he enhanced the value of run-down properties by persuading voters to permit the installation of slot machines.
Over the past few months, Scott, 38, has pushed to get slots on the November ballot in Idaho and the District. In the District, which has no racetracks, the initiative would legalize 3,500 slot machines for a site at New York Avenue and Bladensburg Road NE.
Businessman Pedro Alfonso and former D.C. Council member John Ray are the public faces of the D.C. initiative, presenting it as a homegrown effort to bring jobs and economic development to a forgotten area. But in private meetings at City Hall in April, Alfonso and Ray introduced Scott as the lead investor in a $510 million entertainment complex they propose to build around the gambling parlor.
On Friday, Ray confirmed that Scott and Scott's business partner, Rob Newell, presented the idea for slot machine gambling during a meeting at Ray's downtown law office April 1. But Ray said Scott is no longer involved with the project. After doing "due diligence" on his background, Ray said, "we did not like what we saw on Shawn and thought he would not be a good partner."
Ray said he told Scott "point-blank" sometime in April "that we could not go forward with this project if he was involved." Scott agreed to step aside, Ray said, and turned the project over to Newell, who also said Scott is out of the picture. Newell said Scott pulled out because the project "got too big for him," not because of concerns about his licensing difficulties.
Newell said he is the sole owner of North Atlantic Investments LLC, which is paying for the campaign to win approval of the slots initiative. That campaign so far has cost more than $40,000, Ray said. Newell plans to spend thousands more on a petition drive to collect the signatures of 17,500 D.C. voters before a July 6 deadline. A coalition of religious and community groups plans to ask a judge today to block that drive.
Asked about the source of funds for North Atlantic and the nature of his relationship with Scott, Newell cut the conversation short: "I have a business relationship with Shawn, as I do with hundreds of people. That's all I would like to chat about at this point." He later said through a spokeswoman that Scott has no connection to North Atlantic.
A business card Newell provided to the D.C. Chamber of Commerce in May shows that North Atlantic Investments shares a St. Croix address and telephone number with Bridge Capital LLC, a firm that provides high-cost loans for risky investments, according to its Web site. Through a spokeswoman, Newell said that he is the chief operating officer of Bridge Capital and that Scott is chief financial officer. But Newell said Scott is involved in less than 2 percent of his business dealings.
Scott did not respond to messages left on his answering machine at Bridge Capital and with a woman who identified herself as his executive assistant. Alfonso did not respond to several messages left at his office and on his cell phone.
Viewed against past ventures for which Scott has sought gambling licenses, the D.C. slots development would be, by far, the most potentially lucrative, according to gambling officials who have tracked his career. According to marketing materials, the project would generate $765 million a year in slots revenue. A quarter of that amount would be paid as a tax to the D.C. government.
In meetings with community groups, Ray and Alfonso have described the development as "Disneyland in Ward 5," with shops, a bowling alley, movie theaters and a luxury hotel, said D.C. Council member Vincent B. Orange Sr., who represents the area.
Orange (D) has not taken a position on the initiative. But he said many local leaders are supporting it, in part because they see two prominent black men, Ray and Alfonso, proposing "big-league stuff."
"You have a half-billion-dollar project where the face of that project, the owners of that project, are African American. That's powerful, because there's not been an avenue open for African Americans to take that role in this city," Orange said.
Scott and Newell, who also lives in the Virgin Islands, are white. Orange said he was not aware of their involvement and would not comment on it.
Newell said he is trying to recruit local business leaders to help finance the project, "highly recognizable investors that the licensing people will pass scrutiny on."
That would stand in contrast to Scott, who in the past year has been denied racing licenses in New Mexico and New York. He also sold a Maine track after a background investigation conducted for the Maine Harness Racing Commission found that he and his associates had been the targets of numerous lawsuits and four tax liens since 1992 and had declared bankruptcy at least once.
That investigation also found that Hoolae Paoa, a Hawaiian man involved in the operations of Scott's tracks, had a 21-year criminal history, including charges of assault and felony theft.
Assistant Maine Attorney General Jack Richards, who led the investigation, said he found "many people behind the scenes" and was left "with a lot of unanswered questions."
"We felt like we were dealing with a company that moved all the time, so that you could never tell who you were dealing with," Richards said.
Shawn Andre Scott was born in California. He considered going to medical school but joined his family's real estate business.
According to news reports and public records, particularly 36 pages of findings from the Maine investigation released to the public in September over Scott's objections, his gambling career began in 1994 with a casino in Henderson, Nev. First granted a restricted gambling license, he later sought a full license but withdrew the application in 1997 after a member of the Nevada Gaming Control Board characterized his accounting practices as "smoke and mirrors."
In 1999, Scott paid $10 million for Delta Downs, a struggling racetrack in rural Louisiana. Within months, he persuaded local voters to approve the installation of slot machines. But as he began building a casino, the Louisiana Racing Commission asked questions about his finances.
Scott never answered those questions. He sold Delta Downs in 2001 for $130 million, a financial turnaround that racing officials say catapulted him onto the national racing scene.
Stan Bergstein, executive vice president of Harness Tracks of America, described Scott as "a clever, smart, skillful opportunist" who grasped early on that "distressed racing properties could be converted into total successes if they have slot machines."
In 2002, Scott obtained a controlling interest in another troubled track, Vernon Downs in Upstate New York, where a new law permitted slots. But the New York State Racing and Wagering Board forbade Scott to operate the track after a background check found that an associate exercised hidden influence over his affairs, board spokeswoman Stacy Clifford said.
Scott is appealing the decision, but he sold his interest in Vernon Downs in April.
Also in 2002, Scott paid $1 million for the right to operate a tiny harness track in Bangor, Maine. In accordance with promises to Bangor officials, he immediately launched a $1.5 million campaign to legalize slot machines, winning a statewide vote in November.
The Maine Harness Racing Commission dispatched its executive director, Henry Jackson, and two assistant attorneys general to conduct a background check. They gathered 40,000 documents from authorities in four states and hired a certified public accountant to scrutinize Scott's finances.
Investigators had "a heck of a time" getting information from Scott, Jackson said. After six weeks, the CPA still couldn't verify his claims of net worth. Nor could Jackson lay hands on Scott's tax returns for 1998, 1999 and 2000. "They've all been extended," he said.
Jackson said he was ready to recommend that the commission deny Scott's license. But in the midst of licensing hearings in January, Scott sold his interest in the Bangor track for $30 million, Jackson said.
"The guy is quite an entrepreneur," Jackson said. "But nobody can trace where his money comes from."
This year, Scott launched a drive to add slots to rural racetracks in Idaho. Last month, the initiative failed to gather enough signatures to make the November ballot.
Since then, election clerks in three Idaho counties have found evidence of forged signatures, authorities said. Names appeared to have been copied from voter registration rolls in one county and directly from the telephone book in another.
Meeting D.C. Officials
In April, Scott came to the District, and Ray got to work. He negotiated a memorandum of understanding to purchase 14 acres on New York Avenue, recruited Alfonso and escorted Scott to meetings at City Hall to announce their plans.
Council member Jack Evans (D-Ward 2) said his session with Alfonso, Scott and another man, whose name he can't recall, was brief. Alfonso did most of the talking, introducing Scott and the other man simply as "my investors."
Eric W. Price, the District's deputy mayor for economic development, described a similar meeting with Ray, Alfonso and Scott on April 21. Price and Evans both had to check their calendars to come up with Scott's name. "I just knew them as the gambling guys," Evans said. Neither he nor Price recalls meeting Newell.
Ray said he can't remember the exact date when he cut Scott out of the picture. On May 27 or 28, Ray and Alfonso introduced Newell as their lead investor in a meeting with D.C. Chamber of Commerce President Barbara B. Lang.
Newell declined at the time to provide much information about himself. On June 9, he told a reporter only that he had "a broad background in lending, hotel operations and projects like this around the country."
On Friday, through a spokeswoman, he supplied a little more: He played football at Idaho State University. He once owned a Las Vegas hotel with a vacant casino. And he is the sole investor in North Atlantic Investments.
Ray said North Atlantic "was set up to make sure that there was a separate entity to raise the money and create and find investors" for the D.C. slots development after Scott's departure. "We had to have a separate and new entity," he said.
If D.C. voters approve the slots initiative, Ray said North Atlantic, or its successor, would incorporate in the District and "operate locally, with the best local folks that we can find."
Staff researcher Bobbye Pratt contributed to this report.
© 2004 The Washington Post Company