Stakes Grow in Battle Over Regulation of Card Clubs : Gambling: Should state set up a gaming commission? Casinos, cities, racetracks and Native Americans enter fray.

Moments before landing at Los Angeles International Airport, millions of airline passengers soon will see one of the largest neon signs in the world boldly promoting a Las Vegas-style casino.

Nearly the size of the famous Hollywood sign, the red neon lights will advertise from the rooftop of the newest card club in California--the Hollywood Park Casino.

“It will certainly be a nice beacon for the pilots,” said casino Chairman Eddie LeBaron, the former football star.

But this beacon is more than a symbol of one casino’s effort to put itself on the map. It is a sign of the dramatic growth that is transforming the state’s once-small card clubs into palatial casinos.

A battle is now raging in the Legislature about whether to establish the state’s first gaming commission to oversee an industry in which more money changes hands than in the state lottery.

California is the only state where the primary control of card clubs rests at the local level, usually with small cities that are heavily dependent on card room taxes.

Supervision by the state attorney general’s office, which runs the Gaming Registration Program, is so weak that officials call it a “toothless tiger.”

“Our Gaming Registration Act is woefully inadequate to prevent and control the potential of crime and corruption in California card rooms,” said Atty. Gen. Dan Lungren, the leading advocate for the creation of a gaming commission.

Law enforcement officials said the state has been hampered by skeletal staffing, weak oversight of cash-rich casino operations, and an inability to swiftly revoke the licenses of card clubs where criminal activity has been found.

But George Hardie, general manager of the Bicycle Club Casino in Bell Gardens, said criticism of the card club industry is overblown. “Gambling has always been a favorite whipping boy of the press and politicians,” he said.

During the last decade, some of the state’s largest card casinos have been tarnished by political corruption, profit skimming, hidden ownership interests, tax law violations and other illegal activity.

There also have been weaknesses in the state’s regulatory system, officials said.

For several years, records show, the mastermind behind the kidnaping of singer Frank Sinatra Jr. in 1963 played a key role at one of California’s biggest clubs.

In court papers, Barry Worthington Keenan said he handled various real estate and gaming ventures for the Commerce Casino.

As a consultant, a special assistant and director of development for the club from 1988 to 1992, Keenan said, he had a master passkey to the casino just off the Santa Ana Freeway.

What Keenan did not have was a state gaming registration.

A casino spokesman confirmed that until Keenan was terminated in December, 1992, he served as an assistant to the club president. But he said Keenan was an independent contractor with no direct control over gambling so he did not need to be registered.

Nor was it likely that Keenan could have been registered, state officials said, because he is an ex-felon who served four years in federal prison for kidnaping the younger Sinatra from a Lake Tahoe casino in December, 1963. Sinatra was released several days later after his father paid a $240,000 ransom.

State officials said Keenan never applied for a state gaming registration. Keenan, who settled a wrongful termination suit against the club last year, could not be reached for comment.

Hollman Cheung, operator of Asian games at the nearby Bicycle Club Casino, also was not registered.

For seven years, Cheung ran the club’s most lucrative games as a consultant until his indictment in March on federal loan sharking and extortion charges.

Officials say Cheung, who was indicted last year on federal charges related to a separate gold bullion enterprise, had been denied state registration. But he continued to operate the games.

Despite such problems, card clubs have proved increasingly attractive to some financially struggling cities that see gaming as a source of jobs and tax revenues to pay for police and other services.

In San Jose, the Bay 101 Club is poised to become one of the largest casinos in Northern California after a long fight to win state registration.

On the outskirts of San Francisco, Colma plans to build a casino to bolster the finances of a town where the residents are outnumbered by the dead in local cemeteries.

Across the bay, officials in Albany, faced with a deep budget deficit, are encouraging operators of Golden Gate Fields to add a Hollywood Park-style casino. Voters in nearby San Pablo recently endorsed plans for a major card club in their community.

In Fowler, just outside Fresno, the thirst for card club dollars is so strong that the police chief drove a casino promoter’s license application to Sacramento for processing.

But efforts to open casinos in the Orange County communities of Cypress, Stanton and Westminster have failed.

The opposition has been led by Orange County law enforcement officials and the operators of some Los Angeles County casinos.

Orange County Dist. Atty. Michael Capizzi has warned that casinos are magnets for crime because they handle huge amounts of cash. “If they’re such a good neighbor,” Capizzi said, “let’s leave them in the neighboring county.”

In Palm Springs, the City Council this week will consider placing a card club measure on the November ballot. The proposal has infuriated a local Indian tribe with plans of its own to build a casino on reservation land in the city.

Card casinos also have been proposed in the San Gabriel Valley cities of Pomona, South El Monte, Irwindale and Monterey Park.

The growth of the clubs in the 1980s mirrors an influx of Asian immigrants, especially in Southern California and the Bay Area, where the Asian games of pai gow and super pan nine attract crowds around the clock.

Industry and law enforcement officials also say the growth of card casinos is being spurred by a widespread belief that full-scale gambling, including slot machines and other illegal games of chance, someday will come to California cities. Casinos on Indian reservations are running slots and video gambling machines, although their legality is being contested in court.

The attorney general’s office has been flooded with applications for licensing more than 20 new casinos. “It’s a fast freight train out of control,” said Debbie Wiley, manager of the gaming registration program.

There are more than 265 card rooms, the vast majority with only a few tables. But from humble beginnings in the smoky back rooms of bars and pool halls, a number of card clubs have grown into latter-day poker palaces that look and feel like Nevada’s casinos. The Commerce Casino has 200 gaming tables.

Industry sources estimate that as much as $7.5 billion is wagered in California clubs each year, more than three times the betting on the California lottery. But hard numbers are difficult to come by.

Unlike Nevada, players in California card clubs do not play against the house, which is illegal here.

The clubs earn their money by renting seats or charging players a fee for each hand played. The largest now collect more than $90 million a year.

By far the biggest casinos are in Los Angeles County, where more than 40% of the state’s 1,715 gaming tables can be found. The clubs have taken root in unlikely places--small cities such as Gardena and Huntington Park.

It is the prospect of millions of tax dollars that has sparked the interest of cities hard hit by recession and declining state support.

After the 1992 riots, Inglewood officials embraced the prospect of a glitzy casino adjoining the Hollywood Park grandstand.

Promises of more than 2,000 jobs, up to $10 million a year in casino taxes and a site for a new police headquarters proved irresistible.

The $25-million Art Deco casino is the nation’s only card club at a racetrack. Owing to its unique location, bets on certain horse races can be placed legally from the casino’s 150 gaming tables.

A 300-seat sports lounge with a vast bank of TV screens beckons fans, but not sports betting, which is illegal. Players can partake in a health club, massage room, barber shop and beauty parlor.

The highest-stakes games are played in exclusive rooms off the main floor. The cashier offers players safe deposit boxes and club bank accounts to reduce the risk of follow-home robberies that officials say have occasionally occurred at some clubs.

Before a club can be established, a vote of the community is required by the state’s 1984 Gaming Registration Act, unless the city had a gaming ordinance prior to passage of the law.

In recent years, card club interests have spent millions of dollars waging hard-fought political campaigns for and against casino proposals. Most have gone down in defeat.

Inglewood was an exception. Hollywood Park spent more than $480,000 in 1992 to convince voters that the casino would benefit the city, records show. The track’s campaign contributions to Inglewood politicians also climbed.

By narrowly approving the casino, Inglewood voters rejected warnings that the club would worsen problems with drugs, gangs and prostitution. Ironically, those warnings were spread by rival casinos, particularly the Bicycle Club, which spent more than $80,000 on an ill-fated effort to prevent establishment of a competitor.

In elections and city council hearings throughout Southern California, the case of card club opponents was bolstered by the history of corruption at some casinos.

The Bicycle Club was built in part with $12 million in laundered drug money from Florida. The U.S. government seized the club in April, 1990, and still owns a controlling interest.

In City of Commerce and Bell, city officials were sentenced to federal prison a decade ago for awarding city licenses to clubs in which they had hidden interests.

In 1989, during a state investigation of profit skimming, the California Bell Club in Bell closed.

Its successor, the Regency Card Club and Casino shut down in 1992 during a state investigation into the ownership and management. The club’s owner fled the country, and the city was forced into a financial crisis that caused layoffs.

The owners of the largest club in Northern California, the Garden City Club in San Jose, were forced to give up control last year after pleading guilty to 59 felony charges, including skimming, tax evasion and illegal campaign contributions. The owners agreed to pay a $5-million fine.

In the East Bay town of Emeryville, the wife of a proposed owner of the King Midas Club was arrested in December, 1990, after paying a $20,000 bribe to a state agent to expedite a gaming registration. She pleaded guilty, and her husband fled to Hong Kong, according to an attorney general’s report.

To many law enforcement officials, this history underscores the importance of tightening state regulation of casinos.

The existing system is flawed, Atty. Gen. Lungren said, because communities may have a built-in conflict of interest when it comes to controlling card clubs.

“I don’t question the . . . honesty or the integrity of local jurisdictions,” Lungren said. “I’m just saying that it’s a pretty heavy thing to require them to . . . try to police and regulate an operation that may be . . . the lifeblood of their community.”

But local officials defend their regulatory efforts.

“The last thing I’m going to tolerate is illegal operations in the club,” Bell Gardens City Manager Charles G. Gomez said. “I don’t want to ruin that little pot of gold we have there that is feeding us money every month.”

For this community on the Long Beach Freeway, the casino means survival. Bell Gardens received more than $10.3 million from the Bicycle Club in the last fiscal year, amounting to 60% of the city’s general fund.

Gomez said the city audits the casino and checks the background of its employees. “Our police chief meets every week with security people in the club,” he said.

Commerce City Administrator Lou Shepard defends his city’s regulation of its biggest taxpayer, the Commerce Casino.

The city collects more than $12.1 million, nearly 40% of its general fund, from the casino. Audits ensure that the city is getting its full share of gambling revenues.

“If local government doesn’t have the resources and ability to regulate this industry, then local government doesn’t have the ability to regulate anything,” Shepard said.

He acknowledged the conviction of the four City of Commerce officials on corruption charges in 1984 was “very much a black mark in the city’s history.” Since then, he said, the city has put a comprehensive system of regulation in place.

The card club business is not the only industry that has suffered from corruption, Shepard said, noting that savings and loan institutions, banks and the securities industry all have experienced scandal. “There is not one industry that has not been subject to illegal acts of individuals,” he said.

For two years, Lungren has been attempting to win approval of a bill to establish a state gaming commission, patterned after Nevada’s.

Lungren said state law is too weak to ensure that clubs remain free from criminal activity. And other law enforcement agencies have echoed his concern.

The U.S. Treasury Department warned in a confidential March, 1993, report that Asian organized crime groups are using card clubs to facilitate criminal activities, including money laundering, narcotics trafficking and loan sharking.

“Lacking a gaming commission, and with minimal law enforcement resources assigned to the problem, the state of California is unable to monitor and regulate the activities of card clubs,” said the report by the department’s Financial Crimes Enforcement Network. “Without increased regulation of the card clubs, the criminal activities will likely continue to grow.”

The agency urged that consideration be given to strengthening licensing requirements, conducting more thorough background investigations of owners and employees, and imposing strict record- keeping requirements to guard against money laundering.

“Whenever you have such huge sums of money flowing through such an organization, you have to be very vigilant to guard against illegal activity,” said former U.S. Atty. Terree A. Bowers in Los Angeles. California needs “appropriate supervision and monitoring to ensure all of these new enterprises remain untainted by criminal activity.”

The gaming commission legislation by Assemblyman Phillip Isenberg (D-Sacramento) is the focal point of a lobbying battle among local governments, Nevada casinos, California card clubs, racetracks and Native American tribes operating casinos on reservations.

Assembly Speaker Willie Brown (D-San Francisco) has voiced opposition to the legislation, saying it is unnecessary and would make Lungren the “gambling czar of the state of California.”

After the legislation passed the Assembly by one vote last month, Brown ally John Burton (D-San Francisco) invoked a procedure to have the bill reconsidered.

The measure would create a seven-member California Gaming Control Commission with three members appointed by the governor, two by the Assembly Speaker, and two by the Senate Rules Committee. The commission would license casinos.

In addition, the attorney general’s office would have the power to investigate and license owners and other key officials, as well as to monitor gambling operations.

For the first time, publicly traded corporations such as some Nevada casinos would be allowed to operate card rooms in the state.

The state program would be financed by a fee on each gaming table, depending on the size of the club. Local governments would continue to have the option of adopting their own regulations and imposing their own casino taxes.

Nevertheless, Inglewood City Manager Paul D. Eckles expressed concern that the state might usurp the city’s ability to collect casino taxes in the future. “We’re a little bit wary about the state sticking its nose in our tent,” he said.

The state’s major card clubs agree on the need for more regulation and a gaming commission of some description, said Hollywood Park Casino general manager Tom Bowling Jr.

“Our industry believes in regulation. Our industry historically has shown that regulation is healthy. We are a cash-flow business,” said Bowling, a former executive director of the California Card Club Assn. “We want to be a respected, clean form of the entertainment complex of the state of California.”

But, Bowling said, there are “very valid, differing opinions as far as what form that regulation or regulating body should take.”

A Growing Business

Here are the 10 biggest card casinos in California. There are about 1,715 gaming tables statewide, with 42% of the tables in Los Angeles County. Although the amount that card clubs contribute varies widely, some casinos are the largest taxpayers in their communities.

INCOME % OF CARD CLUB LOCATION TABLES TO CITY BUDGET Commerce Casino Commerce 200 $12.2 million 40% Bicycle Club Bell Gardens 180 $10.3 million 60% Hollywood Park Casino Inglewood 150 Opened July 1 N/A Normandie Club Gardena 80 $5.6 million 20% El Dorado Club Gardena 42 ** ** Huntington Park Casino Hunt. Park 70 $263,400 2% Garden City Card Club San Jose 40 $5.1 million 1.1% Lake Elsinore Casino Lake Elsinore 39 $26,000 .3% Artichoke Joe’s San Bruno 35 $210,000 1.5% Oaks Card Club Emeryville 35 $978,700 7.7%

** With Normandie

Sources: California Attorney General, local governments

Note: Budget figures are for fiscal 1993-94. Percentages are of general fund budget. Gardena city officials released combined revenue figures for their two clubs, but would not provide a breakdown.

Rules of the Game (BullDog Edition, A24)

Betting on card and dice games has been a part of California history since the Gold Rush days. By the turn of the century, a dozen games had been outlawed, including 21, roulette, fan-tan and hokey-pokey. Nearly a hundred years later, the state’s gambling law remains basically intact.

* What’s legal: Since California prohibits only specific games of chance, this allowed the introduction in the 1980s of the Asian games of Pai Gow and Super Pan 9, which resembles baccarat. A new variation of blackjack called California Aces or 22 also is legal.

* Card clubs: Players in California card clubs can bet only against each other, not against the house. Card clubs make their money by charging players a fee per hand or renting seats at poker tables.

* Neighbor state: In Nevada, all gambling is illegal, except for certain games played in licensed casinos. Slot machines, video gambling devices, blackjack, craps, and a number of games prohibited in California card clubs are hallmarks of Silver State casinos.