The Indiana Gaming Commission imposed an emergency 90-day suspension of the occupational license of former Spectacle Gaming CEO Rod Ratcliff among a series of moves that could potentially delay the targeted springtime opening of the Hard Rock Casino Northern Indiana in Gary.
The IGC also ordered Ratcliff last Wednesday to turn over his entire stake in Spectacle Gaming to a trustee by Jan. 8 and endorsed halting any movement of gaming equipment from the Majestic Star Casino to the Gary property, where ground was broken in January for the $300 million casino. The state regulatory agency, which ordered Ratcliff to relinquish all control of Spectacle when he resigned as chairman and CEO in June, has been investigating Spectacle Gaming since January on the heels of a federal campaign finance probe.
Former Spectacle Vice President John Keeler’s occupational license was suspended in September after he was indicted on three counts of federal charges of violating campaign finance laws along with former state legislator Darryl Waltz. On Wednesday, Keeler was ordered to sell his stake in the company by Jan. 15.
“The present Spectacle Entertainment leadership team will continue to fully cooperate with the Indiana Gaming Commission,” the company said in a statement. “We believe it is in the best interest of all parties involved, including the state of Indiana, our employees, community, and Hard Rock partners, that a timely resolution of the matters discussed at the Commission meeting today be reached. We are optimistic the Hard Rock Northern Indiana project will proceed as planned with minimal delay.”
Offers in all directions; neither side wants a trustee
Hard Rock International Executive Vice President and Chief Legal Officer Ilkin Hincer noted his company reached out to Spectacle co-owner Greg Gibson “to try and figure out a path that honored the spirit and the letter of the project and of the various contracts everyone negotiated and bargained for a couple of years ago.”
That included making two offers for Ratcliff’s stake, even agreeing to pay Ratcliff a higher amount following his rejection of an initial offer “despite the fact that we didn’t necessarily agree with the valuation that was being presented to us.”
Hard Rock’s counsel had also noted during the hearing its offer to Ratcliff was a “superior proposal for the benefit of the company’s stakeholders to diminish any potential influence that Mr. Ratcliff may have in the future.”
Hincer explained Hard Rock had no issue paying the money but that talks broke down when Ratcliff wanted the existing contracts amended, something Hincer’s side strenuously objected to because “we will not agree to give up rights that we bargained for years ago, holistically. … The contracts were robust enough to contemplate dealing with these scenarios.”
Ratcliff also proposed an offer in which Gibson would buy him out using funds borrowed by Ratcliff, but the IGC said it would only consider that offer if Ratcliff permanently surrendered his gaming license. The regulatory body noted Ratcliff twice declined an offer to be interviewed, the second time coming earlier this month, and IGC Chairman Michael McManis described that “as a troubling fact to me.”
That came in response to a comment from Steve Grimes, Ratcliff’s counsel, contending the emergency suspension would put “the penalty before the process in a situation where Mr. Ratcliff has zero control over any gaming authority in Indiana [and] would be a violation of Indiana law.”
Hard Rock objects to Ratcliff proposal
Hard Rock objected to Ratcliff’s proposal, in which his shares would be placed in a trust in the interim pending regulatory and shareholder approval. It contended that by allowing Gibson to buy out his stake via promissory note, Ratcliff “would in fact remain a significant stakeholder in the project. In fact, he would become its largest individual creditor potentially.”
Further, IGC Executive Director Sara Tait said what she heard “didn’t give me an extreme level of comfort, especially given the tardiness of the submission of the documents and the fact that as indicated by all counsel, they’re not final since Hard Rock has not given consent.” She explained to the board they made a cursory review of the proposal but could not make a determination the escrow adequately covers the trust, based on the compressed timeline.
Both sides were against the IGC designating a trustee-in-waiting. Tait noted the board had asked the sides to voluntarily consider a trustee on a temporary basis on three occasions, but Nick Casiello, whose law firm Fox Rothschild serves as outside regulatory counsel to Hard Rock, pointed out multiple issues with such a move.
He cited contractual, operational, and reputational concerns, most notably that with relation to the credit agreement “the appointment of a trustee results in an automatic event of default for which no notice is required and which results in the acceleration of the entire principle amount due immediately.” Casiello also said the “imposition of a trustee would have a detrimental impact” on its reputation and that he had received inquiries from other regulators regarding this case.
Kay Fleming, counsel for Spectacle Gaming, echoed Casiello’s concerns about the credit agreement. She also noted Ratcliff has not had “any involvement with the company for some time,” adding his computer and office access had been cut off and his lone connection with the company was ownership through a revocable trust.
Multiple commissioners and the chairman voiced their concerns about the existing Majestic Star Casino in Gary, with Tait noting it is “profitable, providing jobs to Northwest Indiana, it is providing local revenues.” The executive director said her staff would not allow machines to be relocated to the new facility as a means of “protecting the state and the local community” and was given the oversight to do so at a previous meeting covering the agreement.
Unanimous vote to suspend Ratcliff’s license on an emergency basis
In bringing the vote before the commission, IGC General Counsel Greg Small noted Ratcliff is believed to be the only Level 1 licensee to refuse to appear for an interview in the agency’s history. He also stated Ratcliff failed to update the IGC on what it labeled “significant changes to his trust agreement” and also “failed to report to the IGC he made equity transfers in Majestic Star to various individuals.”
Lastly, Small said Ratcliff, despite his termination from a financial advisor and investor relations position, “continues to exert control over the casino owner’s licensee by acting as if he is still in that role.”
The board voted unanimously to suspend Ratcliff’s license for 90 days, after which time the IGC could seek to revoke the license. That emergency action taken then allowed the commission to execute an administrative action to replace Ratcliff as trustee of the revocable trust agreement as well as prevent him from exercising any duties or responsibilities on behalf of Spectacle Gaming.
There were also conditions attached regarding the approval of that trustee, who must be independent from Spectacle Gaming and Ratcliff and cannot have a “current or past interest in Spectacle-related entities or affiliates thereof.” Additionally, Ratcliff’s voting rights “must be vested in the commission-approved trustee.”
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