< Back to Previous Page

Digan: Emerald Casino Proposal Seeks To Ensure Integrity In Illinois Gaming Industry; $20.6 Million Forfeiture Is Double Largest Punishment Ever Imposed In Nation Related To Gaming

Chicago – Seeking to ensure integrity in Illinois’ gaming industry, Attorney General Lisa Madigan today announced she has reached a settlement with Emerald Casino representatives which she will recommend to the Illinois Gaming Board (IGB) and which Emerald will file in federal bankruptcy court as part of a proposed Plan of Reorganization (the “Plan”).

The IGB and the bankruptcy court’s approval of the proposed Plan would pave the way for Illinois’ 10th river boat gambling license to become operational after years of litigation and controversy stemming from allegations of wrongdoing.

Importantly, (i) if the Plan is modified by the bankruptcy court, Madigan can return to a revocation hearing; (ii) if the bid procedures are modified, she can return to a revocation hearing; (iii) if Emerald gets relief in any court cases, Madigan can return to a revocation hearing; and (iv) if the bankruptcy court estimates the Rosemont claims for more than $45 million, she can return to a revocation hearing.

Madigan and attorneys in her office negotiated with the now-bankrupt Emerald Casino over the last several months in an effort to craft the proposed Plan. Throughout the negotiations, Madigan’s office provided the IGB staff with updated drafts of all Plan documents. Most significantly, the Plan requires the Flynn family – accused of wrongdoing in disciplinary
hearings – to surrender $20.6 million: $10.09 million in original Emerald stock investment will be surrendered to the state; $10.5 million in interest on a 1996 loan the family made to recapitalize the ailing casino will be distributed to charities and organizations, including many that focus on problem gambling. The IGB will determine the charities and organizations to receive these funds. The $20.6 million forfeiture is more than double the largest known gaming punishment in the nation (Players International was ordered to forfeit $10.2 million in Louisiana).

Under this Plan, the Flynns will recover (i) the $17,155,538 principal of the 1996 loan based on the fact that, at that time, the IGB insisted that a loan be made to keep Emerald from going bankrupt and, as part of the efforts to draft a Plan, the IGB has requested that the Flynns recover the amount of this loan; and (ii) their $5 million debtor in possession financing loan made to pay the expenses of the bankruptcy proceedings.

Additionally, the proposed Plan calls for other investors accused of wrongdoing to forfeit their investments plus any accrued interest. Under this provision, Joseph McQuaid, an Emerald official, will forfeit approximately $73,500 plus all accrued interest; two other investors, Joseph Salamone and the Sherry Boscarino Trust, accused of associating with organized crime, will forfeit an investment of more than $1.8 million plus all accrued interest.

The Plan also provides that members of the Flynn family will be prohibited in the future from participating in the Illinois gaming industry.

“This proposed Plan makes very clear that if you attempt to break gaming laws in Illinois, not only will you lose your money, you will be punished,” Madigan said at a news conference.
“If the Gaming Board and the bankruptcy court approve this Plan, the Flynn family will pay double the largest punishment ever imposed in the nation related to gaming. This punishment will serve as a strong deterrent to anyone considering thwarting our state’s gaming laws.”

Other details of the proposed Plan address specific concerns Madigan raised regarding a Plan of Reorganization proposed on May 20, 2003 (the “May 20th Plan”) and approved by the IGB. Madigan rejected the May 20th Plan. Those details include:

Under the new Plan, the IGB is significantly involved in a public bidding process and auction in which the IGB chooses and closely scrutinizes the winning bidder and the three finalists using criteria set forth in the Illinois Riverboat Gambling Act. When presented with previous proposals, Madigan expressed concern that those proposals did not provide the IGB with sufficient authority and discretion to oversee all aspects of the process, thus ensuring that regulatory concerns would take precedence over financial concerns when selecting a winning bidder. To address these issues, the current Plan provides for the following procedure:

A court appointed investment banker, Rothschild Inc., will solicit bids, open the bids in a public forum and disclose the names, venture partners (if any) and locations of the proposed sites. The IGB will receive a copy of each proposal. Within six business days, Rothschild will deliver to the IGB and Emerald a summary analysis of each proposal that can be publicly disclosed. The IGB will then select three final bidders who will make public presentations to the IGB at an open meeting. The IGB must select the three finalists using the criteria that appear in the Riverboat Gambling Act, including the character, reputation and financial integrity of the applicants and the amount of the bid.

The IGB then will identify one final bidder as the leading proposal among the three finalists. An auction will begin among the three finalists, with the IGB monitoring the process

and negotiations. At the auction’s close, Rothschild will recommend the winning bidder; the IGB will make the final selection. If the IGB fails to choose the highest bidder, it will state its reasons in writing, but ultimately the IGB makes the final choice. If the proceeds of the winning proposal are not sufficient to cover all of Emerald’s claims and interests, the Plan provides that Emerald can cancel the sale. The IGB also will conduct a suitability review pursuant to the Riverboat Gambling Act.

Under the procedures proposed in the May 20th Plan, Emerald would have selected the three finalists and the winning bidder after consulting with creditors and the IGB. The IGB would not have participated in the auction and negotiations, and the Riverboat Gambling Act criteria would not have applied when selecting the three finalists.

Under the new Plan, an Estate Representative answers to the people, not Emerald. Madigan expressed concerns that the May 20th Plan did not ensure the selection of an Estate Representative who could independently review all unresolved claims against the Emerald Estate, such as claims for professional fees, and appear in the bankruptcy court to raise objections to claims when necessary. Under this new Plan, Madigan and the IGB have selected Ronald Barliant, a retired bankruptcy judge, as the Estate Representative who will act to protect the interests of the people of the state in issues arising in the bankruptcy court. As the Estate Representative, he will independently review all creditor claims against Emerald that are not resolved in the settlement agreement and contest them if appropriate. The Plan further provides that the Estate Representative’s conduct is not controlled by Emerald or the Creditors’ Committee.
Under the new Plan, the Village of Rosemont’s claims as a creditor will be litigated in bankruptcy court by the Estate Representative. The May 20th Plan included a provision under which Emerald would have paid $45 million to the Village of Rosemont for a parking garage the village built, even though the IGB did not approve construction of such a facility. Additionally, Rosemont would have received another $6 million if it were not ultimately chosen through the auction process as the site of the 10th casino. Finally, the May 20th Plan also called for the state to continue paying to lease the land beneath the parking garage if Rosemont were not selected as the new casino site. Madigan objected to these provisions in the May 20th Plan.

Under the new proposal, the Estate Representative will contest Rosemont’s claim in a proceeding before the bankruptcy court. Based on this proceeding, the bankruptcy court will determine the amount, if any, that Rosemont is entitled to receive. The Plan also provides that the parties cannot settle Rosemont’s claim without Madigan’s approval.

Under the new Plan, the winning bidder for the 10th casino license will not have to pay for any future lawsuits brought against the Flynns. Previous Plans provided that the new casino license holder would have to indemnify Flynn family members from lawsuits filed by other shareholders or creditors. This provision is not included in the new proposed Plan. Should such lawsuits have occurred, this indemnification would have diverted money from the payment of creditors and the state’s resulting share of the purchase price.

Madigan explained the Plan provides that the bidding process and the bankruptcy court proceeding should move along at the same time in an effort to speed up the process. She added that all minority shareholders – with the exception of the Boscarino Trust – would either receive their original investment back plus interest at the federal rate or have the opportunity to invest in the new casino.

“Illinois is in dire financial straits, but from the start of my Administration, I have made very clear that the guiding factor in any Plan of Reorganization would be to ensure credibility and integrity in our state’s gaming industry,” Madigan said. “The bottom line throughout this process has been preserving the integrity of the gaming industry, not settling for a quick payoff. At the end of the day, we want the 10th license to be purchased by the best bidder, not necessarily the highest bidder.”

Review Your Case With A Bankruptcy Lawyer Now Get your bankruptcy legal questions answered. Contact our Bankruptcy lawyer in your area. You have legal rights. Protect & find out the laws for your assets and money.