‘Jimmy the Hat’ files Pick Six scam class action suit

Dec 3, 2002 3:53 AM

   Autotote Systems Inc., a division of Scientific Games Inc. (SGMS), has been roundly criticized for its role in the recent Breeders’ Cup Ultra Pick Six betting scam and now faces a class action lawsuit.

   Monday, the law firm of Lisoni & Lisoni announced it was filing the suit on behalf of Jimmy “Jimmy The Hat” Allard who was described as “one of the nation’s three premiere and most successful pick-six players (over 200 pick six winners, over $20 million wagered during past 17 years).”

   A statement issued by the law firm accompanying the announcement said, “In the wake of the recent Breeders’ Cup scandal, the largest wagering fraud in North American Thoroughbred racing history, which exposed alleged gross irregularities in pick-six wagering, the Southern California law firm of Lisoni & Lisoni will file a national class action lawsuit on Dec. 4 against Autotote Systems Inc., the company which handles most of the nation’s racetrack and off-track betting.

   “An employee was among three recently arrested for allegedly masterminding a $3.1 million payoff through a pick-six betting scam during the Breeders’ Cup. The lawsuit will be filed on behalf of Jimmy “Jimmy the Hat” Allard, one of the nation’s three leading professional pick-six players. It will charge Autotote with negligence and allege that through the manipulation of the company’s software, the betting public may have been cheated out of countless millions of dollars for possibly the past eight years, with the Breeders’ Cup fraud being the first time it has been discovered.”

   The individual referred to in the statement as an employee of Autotote was Chris Harn who has admitted to federal investigators that he manipulated a B.C. pick-six ticket purchased over the telephone by a confederate, Derrick Davis, to include all six winners, thus making it the only winning ticket worth more than $3 million.

   What made the procedure successful was the method used by the totalizator company in transmitting the information regarding pick-six tickets. The amount of the wager was passed along to the host track so that it could be included in the betting handle but the actual selections were not identified until after the fourth race of the six races involved were actually official.

   This practice, it is alleged, permitted Harn, a software systems engineer, to enter the system and change Davis’ selections so that the first four winners were combined with the entire fields in both the fifth and sixth races.

   As soon as racing officials viewed the results of the wagering and discovered the unusual lineup on a $12 winning ticket, they ordered the pick-six money frozen while an investigation was initiated. On the heels of the announcement, Autotote officials said they had fired an employee who, they said, had access to the system. The individual was later identified as Harn.

   It was later determined that Harn also was responsible for manipulating other winning tickets and even re-creating uncashed winning tickets that later were cashed by Davis other another scam participant, Glen DaSilva. All three were said to have been fraternity brothers when they attended Drexell University in the mid-nineties.

   The Lisoni & Lisoni firm has scheduled a news conference at the National Press Club in Washington, D.C.,Wednesday at 12:30 p.m. at which the chief complainant, Allard, will appear. The lawyers said they will review the pick-six process and explain how alleged improprieties by Autotote occurred; discuss the effect this has had on the racing world and the economic impact, past, present and future, and discuss and provide complete details of the national class action lawsuit and its purpose.

   There was no immediate comment from officials at Autotote.

Compelling valuation

   International Game Technology Inc. (IGT) received a glowing report in a recent equity research paper issued by Jason Ader, chief gaming analyst at Bear Stearns and his associate, Christa Short.

   Its position within the field of gaming machine manufacturer and distributor was described as “undisputed market leader.”

   “With expected revenues of $2.2 billion and EBITDA (earnings before interest, taxes, depreciation and amortization) of $775 million in fiscal 2003 (ending on Sept. 30) its nearly 70% domestic market share, significant intellectual property portfolio, and an unparalleled pipeline of new gaming titles, IGT is the undisputed technology and creative leader in the gaming equipment sector,” the report read.

   The analysts said they felt that “IGT should benefit from an acceleration in the replacement cycle, as operators implement Ticket-In/Ticket-Out technology.” They also foresee new jurisdictions entering the gaming field because of an increasing number of states looking for gaming to provide additional revenues to offset budget shortfalls.

   “Given IGT’s superior market position, geographically diverse cash flows, organic growth opportunities, and its significant free cash flow, we apply the current S&P 500 multiple to our forward earnings per share estimate one year from now to arrive at our 12-month price target of $87.”

White Knight?

   Financially-troubled London Clubs has begun preliminary discussions with successful gaming operator Stanley Leisure with the possibility of a merger or takeover of the principal subject.

   Stanley Leisure said it was going public with its intentions of making a bid for London Clubs because of recent press reports linking the two companies.

   London Clubs has been attempting to restructure its debt by selling off some of its casinos. The company ran into trouble on two fronts during the past couple of years: an investment in the now bankrupt Aladdin Hotel/Casino on the Las Vegas Strip resulted in a huge loss while the London operation ran into trouble collecting markers from some of its high-roller customers.

   Stanley Leisure is building the United Kingdom’s largest casino in Birmingham, England, with 40 gaming tables and more than 200 employees. Interestingly, in its announcement, Stanley Leisure said it was holding talks with London Club’s CEO Alan Goodenough. Shortly after the Aladdin debacle, Goodenough took a leave from London Clubs while his health was threatened.

Class action denied

   MGM MIRAGE Inc. (MGG) won an initial battle in the courts last week when a Wayne County, Mich., judge denied a request by some workers at its MGM Grand Detroit Casino to lump their claims of discrimination into a class action lawsuit.

   Judge Susan Borman ruled that the claims from an estimated 350 employees were so diverse the trial with class action status would end up as “350 individual trials”¦The class would not be manageable.”

   The jurist added that the company’s liability “hinges on individual decisions by individual supervisors and the unique circumstances surrounding those decision.”

Slots hold growing

   Records being reviewed by gaming regulators in Illinois indicate that the average hold from slot machines at the state’s nine riverboats has increased from a low of $5.69% during 1999 to the current hold of 6.61%.

   Is anyone surprised?

   Earlier this year, the legislature increased gaming taxes to the highest level of any state permitting gaming. Yet, a casino official denied that the increase in hold has anything to do with the higher taxes.

   “To my knowledge,” stated Tom Swoik, executive director of the Illinois Casino Gaming Association, “no one has increased their holds because of the tax.”

   Two major changes have taken place in the past three years. The total number of slot machines has increased from 7,742 to 9,540 but the biggest increase came with so-called nickel machines.

   This, said Swoik, probably is responsible for the higher hold percentages since the lower denomination machines have a higher hold.

The Insider

   According to recent SEC filings, the MGM MIRAGE Inc. (MGG) has been aggressively buying back its own shares. During the fourth quarter of 2002, the company spent $123 million for four million shares, paying an average of about $30.75 a share.

   Despite the odds against Ohio legislators approving slots for racetracks, John Carlo, who runs Lebanon Raceway, underscored the need for the additional revenue for the track. “Every time you turn around,” he lamented, “there’s another casino boat in (nearby) Indiana, or another casino reservation in Michigan. We’re just missing out.”

   Viacom Inc. chief Sumner Redstone continues to burn up the telephone lines between his office and that of his broker. The reason is his interest in two companies: WMS Industries Inc. (WMS) and Midway Games Inc. (MWY). Last week he pushed his holdings in MWY to more than 11.3 million shares by buying 38,100 shares and his WMS holdings to better than 7.5 million shares with the addition of 13,400 shares.