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Stake in Casino Gives U.S. an Unusual Hand to Play : Gambling: Seized in a drug case, Bicycle Club makes millions for feds. But criminal probe complicates issue.

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TIMES STAFF WRITER

The U.S. government owns a controlling interest in a neon-splashed casino hard by the Long Beach Freeway that has reaped an estimated $25 million in gambling profits for federal agencies--and a wealth of embarrassment.

After seizing the Bicycle Club Casino four years ago in a drug money laundering case, the government quickly found itself investigating alleged criminal activity inside a business it partially owned.

While one arm of the U.S. Justice Department oversaw the club’s operations, another indicted the head of the casino’s lucrative Asian games for allegedly engaging in loan sharking and extortion of some of the club’s customers.

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The Bell Gardens casino also has run afoul of the Internal Revenue Service, forcing the Justice Department to pay its share of hundreds of thousands of dollars in fines.

And to protect the government’s interest in the gambling concern, officials approved use of casino revenues to finance a political campaign against plans for a rival card club in Orange County.

By all accounts, the government’s intimate role in the Bicycle Club--billed as California’s Premier Gambling Palace--is unique.

The club was the largest single asset forfeited under racketeering laws when it was seized in April, 1990. The government’s protracted involvement with the casino runs counter to the intent of a system designed to quickly dispose of assets seized from criminal enterprises.

“We don’t want to run the Bicycle Club,” said Robert Sharp, acting director of the Justice Department’s Asset Forfeiture Office in Washington. “It’s the opposite of what the government wants to do. . . . Our business is not to run card casinos.”

But disposing of the property has proved to be difficult because litigation over precisely what share the government owns took years. “Just because we want to (sell) doesn’t mean it’s possible,” Sharp said.

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Sources estimate that the government’s share of the casino could fetch more than $30 million. In the meantime, records and interviews show, the Justice Department has been receiving about $500,000 a month in profits from the cavernous casino about 10 miles southeast of Downtown Los Angeles.

To safeguard its interests, the government now pays a former Las Vegas casino executive and his staff up to $500,000 a year as trustee.

The government’s primary partner and the casino’s longtime day-to-day manager is George Hardie, an ardent opponent of state legislation to impose tough regulation on California card clubs.

He and Uncle Sam are “strange bedfellows,” Hardie said. “The problem with the government is (that) this is a new thing. Nobody has ever had an asset like this. Usually you get an airplane (or) somebody’s house and they sell it. . . . Here they have an asset that’s pretty unclear what to do with.”

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The government entanglement with the Bicycle Club dates to the drug heyday of the late 1980s.

Even by South Florida standards, the case was notorious. Entire barges and shipping containers of marijuana had been smuggled boldly into New York, New Orleans and San Francisco.

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Later, while the alleged kingpin, champion speedboat racer Benjamin Barry Kramer, awaited trial, there was a daring escape attempt. A helicopter plucked the burly prisoner from the exercise yard of a Miami detention center, but could not haul him high enough and crashed into a fence.

It took years, but the government established that $12 million of the smugglers’ profits were invested in construction of the Bicycle Club, then touted as the world’s largest poker parlor. Michael Gilbert, the son of UCLA booster and prominent developer Sam Gilbert, was charged with funneling the drug money into the casino through banks and businesses. Sam Gilbert died three days before he, too, was indicted.

In 1990, after Kramer, his father and Michael Gilbert were convicted, the government seized the entire casino. Several months later, the government relinquished its claim to a partnership headed by Hardie that held 35% of the casino because a federal judge determined he was not involved in the money laundering.

But the government pressed its claim against some other Bicycle Club investors who allegedly knew that drug money was used to help build the casino.

By last November, the federal government had won a controlling 36% interest in the club, including majority ownership of a second partnership, LCP Associates Ltd.

For the law enforcement officials in the U.S. attorney’s office and the U.S. Marshals Service, ownership of a high-profile establishment in a controversial industry was at the very least a voyage into uncharted waters.

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“There is a level of discomfort,” said Chief Assistant U.S. Atty. Steven E. Zipperstein in Los Angeles. “That is not the type of activity that law enforcement agencies are best suited to conduct.”

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The Bicycle Club is no back-room poker parlor. With valet parking and nearly 2,000 employees, it looks like a bit of Nevada plunked behind a sound wall on the I-710. Below billows of cigarette smoke, the nearly 200 green felt-covered gaming tables bustle around the clock. Restaurants that cater to the club’s heavily Asian American clientele lie just beyond Asian game tables, the most profitable part of the casino.

Because of the complexity of those fast-paced games, the Bicycle Club contracted in 1985 with a businessman, Hollman Cheung, now 42, to run them. It was a big job with an income to match--about $6 million a year, according to court records filed last year.

But investigators got a glimmer in 1991 that Cheung may have been conducting more than pai gow a nd super pan nine poker.

An associate, Tony Wong, now 40, had been arrested by Los Angeles County sheriff’s deputies after threatening a Bicycle Club gambler who had borrowed money from Cheung and had not repaid the debt and interest, according to court records.

In Wong’s car, deputies found a loaded handgun, two sets of brass knuckles, an envelope containing copies of 20 checks, and a notebook with information on 37 people. Prosecutors alleged that the majority were Bicycle Club gamblers, employees or loan shark victims.

Wong pleaded guilty to three extortion charges and was sentenced in July, 1991, to a year in jail and three years probation.

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Using information from the Wong case, the U.S. Organized Crime Strike Force convened a grand jury investigation of Cheung and Wong.

A secret indictment, unsealed this past March, charged them with 10 counts of extortion and conspiracy to “loan money at usurious rates to people gambling at the Bicycle Club” and “use threats of force and violence to collect the loan payments.”

Two additional counts were filed against Wong for allegedly using and carrying a 9-millimeter handgun in the collection of a loan by extortionate means.

Some victims were charged 10% interest every three to five days, prosecutors said in court papers. One man was allegedly threatened over a $16,000 debt and forced to deed his home to Cheung until the money could be repaid.

Cheung’s attorney, Charles R. English, said his client has pleaded not guilty. The trial is set for next month and English declined to comment on specific charges against Cheung. “The plea speaks for itself,” he said.

Prosecutors said co-defendant Wong is believed to have fled the country.

After Assistant U.S. Atty. Marc R. Greenberg in Los Angeles argued that Cheung was a flight risk and might threaten or intimidate witnesses, a federal judge denied him bail. Cheung and his associates were barred from having any contact with those who had borrowed money.

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Cheung had been free on $500,000 bail for a separate New York indictment on conspiracy and racketeering charges related to gold bullion businesses that allegedly looted the investment accounts of customers. Assistant U.S. Atty. Jonathan Gerson said Cheung pleaded not guilty.

The government recently added a new count alleging that Cheung and an associate tried to burn down a rival bullion business in Monterey Park. Another of Cheung’s co-defendants is a onetime Bicycle Club worker convicted recently of possessing an illegal machine gun.

Cheung’s last contract to operate the Bicycle Club’s Asian games was terminated in March “due to his jail status,” trustee records show.

He had been under investigation since 1991 and was first indicted secretly in May, 1993, but he continued to occupy a vital position in a business partially owned by the government.

“I find that to be unusual and unique,” English said, “that Hollman Cheung was making his living under the auspices of the U.S. government.”

Zipperstein of the U.S. attorney’s office said, in response to a question, that the profitability of the club was not a factor in delaying Cheung’s removal from the casino.

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“I am satisfied that no one in the federal government turned a blind eye to alleged wrongdoing for the sake of protecting the flow of cash,” Zipperstein said. “I am satisfied that the government has reconciled all the various obligations thrust upon it.”

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The alleged criminal activity took place from about April, 1987, to about December, 1992--including the first 2 1/2 years of the government’s involvement in the casino.

At the time, the government’s interest in the casino was overseen on a part-time basis by David A. Bass, the finance director for the city of Bell Gardens. Bass had been appointed by a federal judge in Florida to participate in major casino decisions and co-sign any checks of more than $25,000.

Along with financial information on the casino’s performance, Bass reported significant events to the court and the U.S. Marshals Service each month.

The Times has sought for several months to obtain the trustee reports prepared by Bass, but government attorneys have refused to provide the material, saying the reports contain proprietary information that could be useful to competitors.

The reports, Bass said in an interview, reflected various issues, including a $4.6 million fine levied by the IRS for failure to properly report large cash transactions involving more than $10,000. The reporting requirements are designed to detect and deter money laundering.

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“There is certainly no question that IRS has been investigating them,” Bass said.

Later, a knowledgeable source said, the fine was reduced to about $700,000 under a confidential settlement.

Government officials refuse to discuss the settlement. But Hardie said: “Sure they paid their share.”

The casino grosses almost $100 million a year. Yet trustee reports show that a government-commissioned audit in 1992 found “unsophisticated cash management” and other problems at the casino. Hardie disputed the audit, which recommended greater oversight of the club.

When Bass resigned in 1993 to take another job, a judge named a full-time trustee, former Caesars Palace official Harry J. Richard of Las Vegas, “to safeguard the interests of the United States.”

This year, Richard’s budget is $500,000, including a $200,000 annual salary for himself, plus expenses for legal counsel, and accounting and clerical help. On advice of his lawyer, Richard declined to be interviewed.

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As the government’s on-scene representative, Richard has become involved in major decision making, mundane matters and the minutiae that are important to maintain a profitable gambling concern.

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His monthly reports, covering everything from cosmetic changes to the casino’s market share in Southern California, are routed to federal officials monitoring the club from Los Angeles, Miami and Washington.

Through his reports, they learned to the penny how much could be saved by eliminating complimentary shrimp in the high-stakes Gold Room, dropping the casino’s name from sugar packets, eliminating fresh flowers in the restaurant and changing from Coke to Pepsi.

The reports also show that the casino was making hundreds of thousands of dollars in charitable and political contributions. The trustee reported last July that the casino’s political donations in the first half of the year more than doubled as several communities, including Cypress and West Hollywood, voted on whether to allow card clubs that would compete with the Bicycle Club.

“These increases relate to efforts by the club to oppose the start-up of additional card clubs,” Richard wrote.

Political contributions are expenses of the casino, and as such reduce the club’s profits, including the government’s share.

The former trustee, Bass, said that in previous years he approved making political contributions with the knowledge of government officials. “My view was (they were) a necessary operating expense for the club,” he said.

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Justice Department officials refused to discuss the political contributions. “I don’t want to comment on that issue. Period,” Zipperstein said.

But in one case, government lawyers were forced to defend the practice in court.

During a heated 1993 campaign over a plan to construct a rival card club in Cypress, owners of the Los Alamitos racetrack sued to stop the government and the Bicycle Club from contributing to the campaign against them.

U.S. attorneys objected to the government being named in the lawsuit. “Any owner of a business is obviously entitled to contribute for or against a measure on a ballot,” they argued.

An injunction sought by the racetrack to bar the government’s practice was not granted, and the lawsuit was dropped after Cypress voters overwhelmingly defeated the card club proposal.

While government officials refuse to discuss the government’s total take during the past four years, they acknowledge that the casino has been profitable.

The government has been receiving nearly $500,000 a month, according to Bass and recent trustee reports.

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Hardie, the casino manager, said: “They’ve already got over $25 million in distributions from the club, plus whatever they get from the sale. It’s been very beneficial to the government.”

The money goes into the Asset Forfeiture Fund, which finances law enforcement programs and pays operating expenses for the trustee.

During the years of ownership, federal officials said, they have had to walk a fine line, ever mindful of the impact of their actions on their partners, club employees and the city of Bell Gardens, which receives more than half its budget from casino taxes.

Yet another concern has been negative publicity, which one official said they feared could damage the card club itself, the value of the business--and the sale price.

Spurred by the Cheung indictment, officials said the time has come for the federal government to get out of the card club business.

“The fact that the government apparently has been making a profit is no justification for the government’s continued ownership interest in the club,” Zipperstein said.

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Timothy Miller, a supervising deputy with the U.S. Marshals Service in Los Angeles, said: “We would like to dispose of it as soon as possible. It’s time-consuming on my part and a lot of people’s part.”

Although about one-sixth of the government’s interest remains in dispute, officials have devised a plan to put the rest of the government’s share of the casino up for sale. The plan is awaiting approval from a federal judge in Ft. Lauderdale, Fla.

“There is a method,” Miller said. “A proposal for disposal.”

Uncle Sam in the Casino Business

More than four years ago, the U.S. government seized a major interest in the Bicycle Club after the casino was found to have been built in part with laundered drug money. Since then, the government has received an estimated $25 million in profits.

* Location: Bell Gardens

* Slogan: California’s Premier Gambling Palace

* Employees: About 2,000

* Gaming tables: Nearly 200

* Revenues: $96.2 million for 1993

* Total profit: $23.1 million for 1993

* Government share: The United States claims a 55.6% controlling interest in LCP Associates Ltd., the larger of two partnerships that own the Bicycle Club. This gives the government a controlling 36.2% share of the entire casino.

Sources: Federal trustee reports, court documents

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