In response to concerns raised by a high-profile applicant for a downtown Baltimore slots casino, Maryland officials have relaxed a rule designed to keep people with past gambling transgressions from winning licenses to operate such facilities.

The action, taken the day before bids were due this fall, appears to have removed a significant hurdle for Dan Gilbert, the majority owner of the Cleveland Cavaliers basketball team and chairman of Rock Gaming, to participate in the project.

Gilbert — part of a group vying to win state approval to build and operate a Harrah’s-brand casino — was arrested in 1981, while a student at Michigan State University, in connection with an alleged sports bookmaking operation that reportedly threatened violence against some who had gambling debts. Gilbert was not convicted and his record was expunged, but according to published reports, he was fined, put on probation and given community service.

Even though Gilbert does not have a conviction, the incident could have disqualified his group from obtaining a license under regulations that took effect in 2009, when Maryland launched its slots program.

In late September, the State Lottery Commission voted to change those rules. Now, a gambling-related offense that took place out of state and did not result in a conviction is only disqualifying if it occurred in the past 10 years.

A rendering of the Harrah's casino proposed for Baltimore. (Courtesy of Friedmutter Group)

Gilbert’s group, which includes Caesars Entertainment, was the only qualified applicant for the project after bids closed. The license could be awarded early next year if a separate state panel determines the bid is in Maryland’s best interest.

State lottery officials, who are responsible for crafting rules governing Maryland’s slots program, acknowledged the change was made after Gilbert’s group sought clarification of state rules prior to its bid.

But they said the previous regulation was open to interpretation and argued that the rules are now clearer, more fair and still among the strictest in the nation.

“Clearly, in certain respects, we relaxed the provisions,” said J. Kirby Fowler Jr., chairman of the Lottery Commission, who was appointed to the panel in 2009 by Gov. Martin O’Malley (D). “But, still, Maryland is one of the most stringent states.”

Fowler said the change made sense on its merits. In fact, he said that most commission members were not aware that Rock Gaming had raised the issue or of Gilbert’s circumstances.

Most discussion of the matter appears to have taken place between lawyers for the commission and for Rock Gaming, according to representatives of both parties.

Robert T. Fontaine, a lawyer for the commission, said he was asked at one point for assurances that any expunged records would not be held against an applicant. That was something he was unwilling to do as a matter of law, he said.

Cleveland Cavaliers owner Dan Gilbert smiles after his team won first place during the 2011 NBA basketball draft lottery May 17. He was arrested in 1981 in connection with a sports bookmaking operation. (Julio Cortez/The Associated Press)

“My job isn’t to provide anything a company wants,” said Fontaine, who is assigned to the Lottery Commission by the state Attorney General’s Office.

For some, the episode raises questions about how accommodating state agencies should be to the businesses they regulate.

Amid the economic downturn, Maryland has struggled to lure qualified applicants for the Baltimore site, one of five authorized by state voters. It is envisioned as the second-largest casino in the state’s fledgling slots program.

A previous round of bidding, in 2009, attracted only one bidder for the Baltimore site. And that application was later rejected by a state panel because of concerns about financing.

In Maryland, a panel of legislators serves as a check against state agencies when they make rule changes and has the power to slow the process if lawmakers have questions. Last month, that panel agreed to grant “emergency status” to the Lottery Commission’s change, making it effective immediately.

The panel’s co-chairman, Sen. Paul G. Pinsky (D-Prince George’s), said no one told him Rock Gaming’s concerns had prompted the change.

“I would have liked to have known that,” Pinsky said. “They apparently sat on the information for the purpose of getting this bidder in.”

Lottery officials said they complied with standard procedures in submitting the regulation to Pinsky’s panel.

Jennifer Kulczycki, a spokeswoman for Rock Gaming, said the company was concerned about some ambiguity in Maryland’s rules. While she declined to discuss specifics of what the company wanted, Kulczycki said the issue “was resolved, and we were able to move forward.”

Gilbert was not made available for an interview.

Kulczycki declined to comment on Gilbert’s 1981 arrest, saying the company is subject to ongoing background checks in both Maryland and Ohio, where a similar partnership between Rock Gaming and Caesars plans two new casinos.

In past interviews, Gilbert, the founder of online retail mortgage lender Quicken Loans, has played down the seriousness of the arrest. He has noted it was 30 years ago and has said no money was exchanged — an account at odds with law enforcement officials.

Dueling versions of events that emerged two years ago during a campaign over an Ohio ballot measure on gaming remain on YouTube.

In one video, a retired Michigan state trooper who says he was involved in Gilbert’s arrest explains how he posed as the father of a student who claimed to have more than $1,000 in gambling debt and said he had been threatened by Gilbert’s ring. The retired trooper, John Fiedler, says Gilbert was arrested after Fiedler paid off his “son’s” debt.

Gilbert can be seen at a public forum, acknowledging his arrest and saying the matter was later dropped. In response to a question, Gilbert says gaming licenses should be denied for “probably murder, rape, extortion of funds, larceny, you know, things like that.”

Stephen Martino, director of the Maryland State Lottery Agency, said his office first heard Rock Gaming’s concerns this summer, a time when media accounts suggested several groups were considering applying for the Baltimore license but none was certain to bid.

“It’s fair to say there was probably some discussion and some urgency in resolving this to clarify whether they were willing or able to bid and build the Baltimore casino,” Martino said.

Martino said it is not unusual for his agency to hear from parties it regulates. He said the agency has an “open-door policy” and has been willing to change regulations if businesses suggest “an approach that still meets our high standards but puts less of a burden on them.”

Fontaine said he was first approached by Lloyd D. Levenson, an Atlantic City-based lawyer. Fontaine said his recollection is that Levenson at first asked about existing regulations on behalf of a potential bidder whom he did not identify. Gilbert’s name and situation did not come up until later, Fontaine said.

Levenson, whose clients include Rock Gaming, referred a call about the matter to Kul­czycki.

The regulation on past offenses had been in place since early 2009 and was used by a separate state panel to evaluate the bids of three applicants who have been awarded slots licenses, including the company building Maryland’s largest casino at Arundel Mills mall.

When first adopted, Maryland’s regulations were modeled upon New Jersey law. That state’s law explicitly disqualifies applicants for slots licenses if they have past gambling offenses, even if an offense was not prosecuted. The New Jersey law makes no distinction regarding where the offense took place.

A Sept. 15 memo prepared by Fontaine for commissioners acknowledged there was “ambiguity” in the Maryland regulation regarding offenses that take place outside the state and don’t result in a conviction.

Because of different wording in that section, Fontaine concluded that Maryland’s regulation could be interpreted more narrowly and be challenged by an unsuccessful applicant. He suggested some options for clarification.

The 10-year “look-back” period adopted a week later by the commission for out-of-state offenses was not among those. Fowler said that language was adopted after he sought information on rules in other states, several of which have similar “look-back” provisions.

Fontaine said the commission’s action does not prevent regulators from considering incidents that took place out of state more than 10 years ago — but, unless there has been a conviction, such actions do not automatically disqualify a bidder.