U.S. Actions at Casino Criticized in Audit

An audit of Bell Gardens’ Bicycle Club casino unveiled Wednesday concludes that the federal government’s record of running the card club should serve as “an object lesson” on how not to seize and dispose of criminal property.

The Justice Department “is in the business of fighting crime and seizing the ill-gotten gains of criminals, not in managing complicated businesses that were once owned by criminals,” department Inspector General Michael R. Bromwich said in a statement accompanying the audit.

He sharply criticized the government for what he called a poor job of planning the takeover and disposal of the casino.

“The Bicycle Club should serve as an object lesson of what happens when the department fails to follow [planning] principles,” Bromwich wrote.

The casino has realized $30 million in profits since the Justice Department seized it in 1990.

Bromwich nonetheless criticized his agency for relying on what he calls “generously salaried court-appointed trustees” who might have had “a disincentive” to make a timely sale of the casino.

During the time the government’s efforts to dispose of its interest dragged out, the card club’s estimated value “appears to have declined by about 50%,” Bromwich said. Despite that plunge, the audit said a pending sell-off of the government’s interest could bring in $19 million to $25 million.

Sale of the 30% federal interest in the casino has been pending for two years, but Bromwich said the Justice Department should have hired a broker to sell its share by November 1993.

“Throughout this period, allegations of mismanagement and criminal activity at the club have been a source of controversy for the department,” the audit said.

The current trustee, Frederick Wyle, is earning $1 million a year in salary and expenses, the document said.

Wyle was out of the country and unavailable for comment, a casino employee said.

A lengthy, unsigned rebuttal to the audit by the Justice Department’s criminal division indicated that there are sharp differences within the agency over its handling of the casino.

While saying it had not had the opportunity to review the audit in detail, the criminal division called an earlier draft “flawed,” contending that it contained “numerous errors of fact and interpretation,” not all of which were corrected in the final report.

Bromwich complained that the department did not appoint a single, high-level decision maker to control the sale of the government’s interest. Critics of the audit inside the department said “there is no evidence that such an appointment would have had any effect” on the sale.

The audit represents a new chapter in the ongoing saga of the Bicycle Club, which the Justice Department seized as a result of a money laundering investigation in Florida.

Last month, the state Fair Political Practices Commission filed a 922-count complaint against the casino, saying the card club violated California law by failing to disclose its role in election campaigns opposing potential competitors.

A former political consultant for the casino was indicted in December on charges of embezzling hundreds of thousands of dollars from the club’s political campaign war chest.

In 1996, a co-owner of the casino, George Hardie, agreed to sell his holdings and relinquish his gambling license in a settlement with the state attorney general’s office.

Seized under the Racketeer Influenced and Corrupt Organizations Act, the casino was handed over to the U.S. Marshals Service, an arm of the Justice Department. The Marshals Service requested three court-appointed trustees to manage the casino and dispose of the government’s interest.

Payments to the trustees have grown steadily since 1990, the audit said, going from $2,000 a month for the first trustee, to an average of about $21,200 a month for the second, to an uncapped $350 an hour for Wyle that has averaged $60,000 a month, plus expenses.

“In our judgment, the trustee’s compensation arrangement creates at least the appearance of a conflict because it could provide a disincentive for the trustee to sell the government’s interest in the casino,” the audit said, making clear that it had no evidence of a conflict.

One of the strongest complaints in the audit is that the government got into the complex arena of running a gambling club with little planning.

“The department’s pre-seizure planning efforts were virtually nonexistent,” said Bromwich’s report, contending that this was “the root cause” of many subsequent problems.

In response, the criminal division conceded that its planning for the casino takeover was “minimal,” but argued that it “was adequate in the circumstances of the case and certainly had not resulted in any later problems.”