ND could owe horse-betting firm up to $25 million for improper taxes

FARGO - The owner of a North Dakota off-track horse race wagering company is in line to receive from $16 million to $25 million from the state to make up for taxes the state improperly collected.According to a court order filed in federal bankrup...
Susan Bala is seen Wednesday, Dec. 24, 2014. Special to Forum News Service
Susan Bala is seen Wednesday, Dec. 24, 2014. Special to Forum News Service

FARGO - The owner of a North Dakota off-track horse race wagering company is in line to receive from $16 million to $25 million from the state to make up for taxes the state improperly collected.

According to a court order filed in federal bankruptcy court last month, Susan Bala, owner of Racing Services Inc., is owed $13.5 million in taxes on racing bets that RSI paid to the state, plus interest that could range from $3 million to $12 million.

Bala said Tuesday, March 14, that it's in the state's interest to pay the debt as soon as possible.

She said interest figured at 6.5 percent annually is more than $70,000 per month.

"That is clocking as we sit here today," Bala said. "Nobody has told me yet when the check will be in the mail."

The money was improperly taken from RSI and so never belonged to taxpayers, Bala said. Some of the repayment from the state would also go to RSI's creditors.

"It's just giving back the company it's own property," Bala said. "They've (the state of North Dakota) had the use of it and they've had the interest on it."

Documents filed with the bankruptcy court on Feb. 14, say PW Enterprises of Nevada, a major creditor acting on behalf of the bankruptcy estate of RSI, agrees with the state of North Dakota, the North Dakota Racing Commission, and state breeders, purse and promotions funds, that taxes paid by RSI for account wagering would be figured from Aug. 1, 2001, until RSI declared bankruptcy in 2004.

The state authorized RSI's form of wagering in 2001, but the law that specifically provides for taxing those bets wasn't created until 2007, a federal appeals court ruled two years ago. At the time, the taxes owed Bala and RSI was calculated at more than $5 million. But that was just for the year leading up to the bankruptcy filing.

The interest owed is still up in the air because a judge has to rule on when it began accruing. Bala said that date should be determined by the court in the next two months.

RSI, solely owned by Bala, established a "simulcast" off-track betting system for horse racing that operated at various sites in North Dakota throughout the 1990s and early 2000s. The company was forced into receivership during the investigation of a criminal case accusing Bala and the firm of illegal betting and fraud.

Bala was convicted in July 2005 on 12 counts in the case and sentenced to serve two years and three months in a minimum-security prison in Illinois. Her convictions were later overturned by an appeals court, which said federal prosecutors had failed to interpret state law correctly. She was released from custody in March 2007 after serving about 17 months.

Bala later claimed her constitutional rights were violated when she was prosecuted and sent to prison, saying prosecutors built their case on fabricated evidence.

She sued state Attorney General Wayne Stenehjem and former U.S. Attorney Drew Wrigley, two members of the Racing Commission and an RSI employee. U.S. District Judge Daniel Hovland ruled that there was no valid claim in that case.

U.S. District Judge Ralph Erickson, who presided over her trial, refused to issue Bala a certificate declaring her innocent. The 8th Circuit Court of Appeals upheld Erickson's ruling, saying its decision to overturn Bala's conviction was not based on her innocence.

On Tuesday, Wrigley defended his decision to prosecute Bala.

Wrigley said prosecutors had proven that RSI had taken in nearly $100 million in a gambling site that hadn't been reported, was unlicensed and run by unlicensed personnel.

"It was an 'off books' site. ... And the kicker, they didn't even have a charity. Not a penny went to charity," Wrigley said. "I stand firm on what that evidence was in that case."

The convictions were overturned by the appeals court because prosecutors had not proven that Bala and RSI never had an intention to select a charity or pay taxes, Wrigley said.

"That was news to everyone in the case," said Wrigley, who said appeals can hinge on narrow legal definitions.

"We did our jobs professionally," Wrigley said.

Liz Brocker, a spokeswoman for the attorney general's office, said that there would be no comment on the case as long as it was being litigated.

Bala said it's been a long process.

"And the process continues. And we take it a step at a time," she said.