Feds eye RSI

BISMARCK -- U.S. Attorney Drew Wrigley confirmed Wednesday that Fargo simulcast company Racing Services Inc. is under federal investigation.

"We are now and have been for some time conducting a federal investigation which includes, but is not limited to, several matters publicly reported," Wrigley said. The "matters publicly reported" refers to The Forum's recent stories about RSI's back taxes and underreporting of bets.

Wrigley would not specify which federal agencies are investigating or who may be specifically targeted. He would not say when the federal investigation started.

"There are multiple agencies involved, federal and state," he said.

Wrigley also declined to say what methods or procedures have been used as tools in the investigation, such as search warrants or a grand jury.

RSI's new president, Ken Maloney, responded to Wrigley's announcement late Wednesday by saying people shouldn't jump to conclusions.

"Whatever the results are, they will come forth," he said, and predicted the results for RSI will be favorable, just as seven previous examinations the company has been subjected to in its 15 year history ended favorably.

The pari-mutuel industry is highly regulated and is under special scrutiny in recent months due to a national scandal known as the Pick Six affair.

Meanwhile, during the investigation, "I'm available and the company is open to any scrutiny," Maloney said. RSI is letting the investigators do their jobs.

"I and everyone need to respect the process," he said. "I assure you it is my professional opinion and that of those who work with me that this investigation is in our best interest."

Asked whether people from RSI have been called before a federal grand jury, Maloney said only, "We were told by the federal agency that this is strictly a fact-finding mission process to assure federal requirements are met."

Normally, federal investigators and prosecutors are barred by a Department of Justice rule from either confirming or denying existence of ongoing investigations.

But Wrigley said there are a few exceptions to the rule and the RSI case meets all of them -- when a matter has received substantial recent publicity, when the public needs to be reassured that the proper law enforcement authorities are investigating an incident and to protect the public interest or welfare.

Wrigley said recent comments from Maloney played a role in his rare acknowledgement of an ongoing investigation.

"An inference has been raised that there isn't a federal investigation," Wrigley said.

Maloney, asked Monday if there is an IRS investigation of the company, responded, "About a month ago, the IRS came in and said there's nothing to be concerned about and left." Maloney also said the IRS's main concern is whether the company is properly withholding income taxes from bettors' winnings.

Earlier this week, state Racing Director Paul Bowlinger and Attorney General Wayne Stenehjem acknowledged that there is a state investigation of RSI, saying the matter became public when it was discussed earlier this month by the Racing Commission, whose meetings and records are public.

Bowlinger says the case stems from his own suspicions ---starting in January -- that RSI was under-reporting its "handle" or total bets placed. He passed along his suspicions --- which he won't detail -- to Stenehjem's office in early April. Federal authorities were subsequently notified. On June 5, RSI sent Bowlinger's office amended handle reports showing it had under-reported bets by $98.9 million in 2002 and the first four months of 2003.

State and federal authorities admit they are troubled by Maloney's comment in The Forum on Wednesday that the under-reported handles came to light at RSI's own volition and the company disclosed the problem on its own.

Bowlinger believes it is no coincidence that RSI sent amended reports several weeks after the attorney general's investigation would have begun. He also said RSI never indicated to his office before June that it had discovered under-reported handles and would be submitting amendments.

But Maloney bristled at Bowlinger's timeline and said again Wednesday that the truth is the company spotted the problem itself and voluntarily prepared amended reports, "regardless as to someone's perception of timing."

He said former president Susan Bala, who continues as chief executive officer, had been away for much of two years while working on expanding the company overseas.

"When Susan came back, she recognized the under-reporting and was as shocked as anyone else," he said. She immediately began to get amended reports prepared, he said.

Maloney became president Monday. He said he studied the company before getting involved and was at RSI's offices for about a month a half before he took over.

He said Bala was completely open with him about the company's "challenges," as he called them, and is comfortable joining the firm.

Maloney also said Wednesday that the recent departure of RSI's chief financial officer, Gary L. Storm, has nothing to do with the amended reports or the investigation. He said Storm had been commuting from the Twin Cities while working for RSI and wanted to get back to his family. He said Storm opened his own practice.

RSI provides service to 10 simulcast horse racing betting sites in North Dakota, including three locations in Fargo. It has been in business since the 1989 Legislature legalized pari-mutuel wagering in the state.

When the Racing Commission was informed about the company's amended handle reports, it ordered the company on July 2 to get current with overdue state taxes that go to special racing industry funds managed by the commission. RSI has been running consistently about 60 days behind the commission's normal 30-day tax payment deadline since being granted an extension in October 2001. The company now owes just under $1.5 million in special fund taxes for February through May.

Bowlinger said this week that RSI also is delinquent on the portion of betting taxes that go to the state general fund for the month of May. And, he said, "If the amended reports are accurate, they are not current" on taxes owed on the $98 million.

Readers can reach Forum reporter

Janell Cole at (701) 224-0830