California Card Rooms Push Back Against Charges of Insufficient Regulations

sealofCaliforniaTribal gaming operators in California are questioning the effectiveness of and integrity of the complicated regulatory system overseeing the state’s licensed card rooms.

The most stinging allegations came in a recent Global Gaming Business column by Dave Palermo. Palermo spoke with a number of key individuals in the California gaming industry (some on and some off the record) who questioned the effectiveness of the bifurcated regulatory system currently in place.

These concerns are being voiced amid the backdrop of an investigation into former California Bureau of Gambling Control chief Robert Lytle, who, according to the December 23 complaint filed by the California Attorney General, has been accused of undermining an investigation into Casino M8trix by divulging confidential information.

I recently spoke with two individuals on the other side of the coin to get their thoughts on the charges being leveled against the card room industry:

  • Kyle Kirkland, an owner of Club One Casino in Fresno and the President of the California Gaming Association, a trade group that represents dozens of California’s card rooms
  • David Fried, a San Francisco based attorney specializing in the gaming industry

California’s bifurcated system

The  regulatory system overseeing California’s card rooms is complex.

There are two regulatory bodies, the California Gambling Control Commission and the California Bureau of Gambling Control, which is by itself not uncommon in states with gaming industries. Where it starts to get messy is the former answers to the Governor’s office, and the latter falls under the umbrella of the Attorney General’s office. Further muddying the waters is, as Fried explained, “In a bifurcated structure, the investigator and judge are separate.” According to Fried this allows for a fair, impartial hearing, but also means neither regulatory body has complete control over the process.

“The California Gambling Control Commission is independent and gives everyone a fair hearing without rote deference to the Bureau’s position,” Fried stated. “Yet, being removed from the investigation means that the Commission sometimes lacks the information the Bureau has and cannot control how investigations proceed.”

Kirkland agreed with most of the respondents in the GGB article, that the bifurcated system is unwieldy, adding he would be in favor of consolidating the Commission and the Bureau: “I think it would improve communication and coordination of staff members, speed investigations and decision-making and lower costs for both the regulators and card rooms.”

While he agreed with the assessment that the bifurcated system could be improved, Kirkland disagreed with some of the conclusions drawn from this, namely that card room regulators were somehow tainted or untrained, “I think the staff members on both the Bureau and Commission are well-intentioned but the friction between the bodies is evident to anyone who attends Commission meetings.”

Fried also agreed that the system could be improved, but offered up some alternative solutions to blowing it up and consolidating the two bodies, such as better communication, prioritizing its workload, and more efficient practices.

“The challenges,” Fried said, “are whether both agencies can agree on how they work together and whether each has the tools they need.”

Card room regulations vs. Tribal regulations

Kirkland completely disagreed with the article’s other takeaway, which implied tribal gaming has effective regulations in place whereas it’s lacking in card rooms. Kirkland not only disagreed, he voiced his own grievances against tribal gaming’s lack of transparency.

“I don’t think this is a fair or accurate portrayal of card room regulation at all,” Kirkland said of the GGB article. “Mr. Palermo’s claim that the card room industry is the “wild, wild west” and that “internal controls are nil” resonates with his tribal audience but comes up short with fact checkers.”

Fried generally concurred, “Non tribal gaming is highly regulated and by independent state agencies that have meaningful investigatory and regulatory powers,” but Fried did say the Commission is currently revising the regulations regarding third party players (players who act as the house in blackjack, pai gow, and other typically house banked card games) to “bring the same level of scrutiny” to this relatively new aspect of card room gambling. It should be noted that tribal gaming  does not feel card rooms should be able to offer what are historically house banked games.

Listing the internal controls created by the CGCC – responsible gambling, security and surveillance, cage and count room procedures and casino floor operations – Kirkland added, “These so-called “minimum internal controls” exceed independent controls imposed on tribal casinos by a wide margin.”

“As for the tribal casinos being well-regulated,” Kirkland said “it’s impossible for someone to make that claim.  The majority of tribal casino oversight occurs outside of the public view.”

The CGA expanded on this topic in an op-ed that appeared in the SacBee this weekend:

“While the Commission has some jurisdiction over tribal operations, much of their governance and compliance is hidden from public view.  In contrast, card rooms operate pursuant to published state and local regulations, are required to comply with all local, state and federal laws and are judged in public, bi-monthly Commission meetings.”

Is the Lytle investigation systemic?

When asked about the ongoing investigation of Robert Lytle, both Fried and Kirkland stated the case needs to play out before people jump to conclusions of guilt or innocence. “To judge an individual on an accusation alone is grossly unfair,” Kirkland said.

Fried added that, “Even if the allegations are proven true after a proper hearing, the allegations are one-off relating to a few persons and one card room. That is hardly an endemic problem.”

“I do not think the investigation of Mr. Lytle and Casino M8trix is a reflection on regulators or the industry in general,” Kirkland noted. “Drawing conclusions based on an accusation is like assuming the armed takeover of the Chukchansi Casino and Resort by a rival tribal faction panicking customers and prompting the Attorney General to ask a Federal judge to close that casino are common among California tribal casinos.”

Disclaimer by Kyle Kirkland:  “Mr. Lytle provides policy and procedure reviews and Title 31/Bank Secrecy Act training to my card rooms.”

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