N.D. investigates racing wagers

BISMARCK -- State officials said Monday they are investigating Racing Services Inc. for under-reporting the amount of money bet on simulcast horse races in North Dakota.

State Racing Director Paul Bowlinger turned information over to the attorney general in April after he suspected RSI, a Fargo horse-race simulcast company, had under-reported "handles" -- meaning total amounts bet.

"The (state) Racing Commission became aware of things that are very concerning and turned this over to the attorney general," Bowlinger said.

Attorney General Wayne Stenehjem confirmed Monday that his Gaming Division has an auditor working on RSI records.

"We're moving along as quick as we can," Stenehjem said.

The state's auditors are welcome, said RSI's Ken Maloney, who started Monday as the new president and chief operating officer. Susan Bala, who had been president, continues as chief executive officer. He responded to questions because Bala was in meetings Monday, he said.

The state can "take a look at everything, anything they choose to look at," Maloney said. "They can look at state issues. They can look at federal issues."

RSI operates all 10 simulcast sites in North Dakota, where bettors can play the horses in races run at out-of-state tracks.

The amounts of money wagered are reported to the state, and RSI pays 2 percent to 2.5 percent in state taxes.

Bowlinger said Monday that RSI has missed a deadline for paying betting taxes due for May races. He said he may recommend the Racing Commission take action against RSI's license.

On July 2, the commission ordered RSI to get current with February, March and April special fund taxes -- nearly $1.5 million -- by Aug. 15 and abide by a 30-day deadline for subsequent months.

Commissioners reminded RSI that they also have the power to assess penalties.

Special fund taxes go to the racing commission's purse fund, breeders' fund and promotion fund. It is the promotion fund that has provided most of the cash -- $2.5 million -- to build the new Fargo race track that opens next month.

RSI's May taxes that were due July 1 haven't been paid, Bowlinger said in a letter Friday to Bala, with copies to the Racing Commission.

Bowlinger noted that, unlike previous months' arrearages, this time RSI also has failed to pay taxes due to the state's general fund.

"This letter is to demand an immediate written response regarding this issue," Bowlinger wrote. "My advice to the commission will have to be to take some action regarding RSI's licensure on this non-payment issue alone, unless this matter can be addressed immediately."

The combination of late taxes and underreported handles is serious, Bowlinger said. It led to his statement to commissioners July 2 that he was "beginning to get uncomfortable" with the situation. Commissioners immediately voted to demand RSI get caught up.

Bowlinger told commissioners he expects to continue to receive amended handle reports for past months and that the amounts will be "substantial.''

The racing commission has its own auditors looking into RSI, too.

"We have our own auditor going down to RSI as part of our own investigation," Bowlinger said. "But it's secondary to what we have turned over to the attorney general."

Maloney said he studied RSI extensively before getting involved. The company started as a result of a 1989 state law that legalized parimutuel betting on simulcast horse races.

The law included the establishment of the Racing Commission and a mandate that state taxes collected from the betting be used to promote horse racing in North Dakota, including the construction of a track.

RSI is the only such company in the state. With its simulcast license, RSI provides services to 10 betting sites in North Dakota, including four in Fargo -- The Bowler, Winners Circle, Turf Club and Green Room.

Some of its other sites in the state include Capital Lanes in Bismarck, Rumors bar in Grand Forks and the El Rancho Club in Williston. Proceeds go to charities such as Team Makers and the Fort Abraham Lincoln Foundation.

It also operates in several states and internationally, including Mexico.

Maloney said his concerns about the investigations were "is it criminal or is it a mistake?''

"As far as I'm concerned,'' he said, "there have been mistakes."

Maloney said it may take the company some time to pay an estimated $1.7 million due in state tax arrearages -- February through May.

"Our job is to sit down and assess our situation and come up with a realistic, acceptable plan," he said, not just a "pie-in-the-sky" promise.

The plan has to be one that does not cause long-term damage to the company, he said.

He said Bala's letter to the Racing Commission last week promised "continued cooperation and transparency."

Maloney said the IRS has already looked at the company books and was satisfied.

"About a month ago, the IRS came in and said there's nothing to be concerned about, and they left," he said.

The IRS mainly concerns itself with whether bettors' earnings have taxes withheld and paid to the federal government, he said.

Maloney has lived in Fargo for 20 years and has owned his own business consulting firm. He said he got involved in RSI at the suggestion of his attorney, John Boulger, who is also Bala's attorney.

Boulger told him RSI was looking to restructure and go international. Maloney said his business experience involves international work. He said his joining RSI is due to the company growth and strategy.

"There is not a shakeup."

Readers can reach Forum reporter Janell Cole at (701) 224-0830