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February 23, 2020

Cronyism, Casinos & Capers
Pubic-accountability legislation to increase monitoring of public funds in local governments was passed in the Indiana General Assembly in May, 2009. The legislation was pushed by Indiana Attorney general Greg Zoeller with the intent to order groups receiving money through agreements tied to casinos to produce annual public records.

The measure took effect July 1, 2009 and is the main reason why the City of Shelbyville established a separate fund for its share of racino revenue. You may recall a Shelbyville elected official recently admitted that it was difficult to track where the city's share of racino revenues were spent during the first year because the money had been deposited into the city's general fund.

Perhaps you're wondering why I'm revisiting this topic almost a year later. Well, I have three reasons.

One, Shelbyville and Shelby County currently receive millions of dollars annually in racino revenue.

Two, local government entities intend to spend up to 80 percent of the money on economic development.

Three, Indiana's public-accountability legislation came about as a direct result of controversial casino revenue allocations intended for economic development in East Chicago, Indiana.

Of course, it should also be of interest that a Shelbyville attorney represents litigants in the ongoing East Chicago controversy. Now, I would never advocate breaking the attorney-client privilege, but imagine how much general information and valuable experience an attorney can acquire in a case like that. I find it comforting that a knowledgeable, altruistic individual might be available as an advisor to our local government officials on matters involving future casino revenues and economic development allocations. Don't you?

Anyway, for those of you who enjoy stories about cronyism, colorful characters, casinos, capers, corruption, crimes and federal racketeering; here are recent news reports on efforts to settle a lawsuit involving casino money and economic development in East Chicago:

News Brief: 2/19/2010

EAST CHICAGO, IN (AP) - Casino revenues that have been paid to an East Chicago development company since 1997 would be paid directly to the city under a proposed settlement. East Chicago Mayor George Pabey announced the proposed settlement with Second Century Inc. on Thursday. Second Century attorney J. Lee McNeely confirmed the deal, which needs City Council approval.

The Indiana attorney general's office and the city sued Second Century in 2005, claiming its owners pocketed more than $16 million in casino receipts they had agreed to use for development projects within the city. McNeely wouldn't say whether the agreement would affect pre-existing revenues. The attorney general's office says its portion of the lawsuit seeking an accounting of the money by Second Century remains active.

East Chicago Casino Settlement With Second Century Needs Council Approval

EAST CHICAGO, IN - A stream of millions of casino dollars would be diverted to the city of East Chicago under a settlement between city officials and representatives of the controversial beneficiary of the casino money, the politically connected for-profit development company Second Century. East Chicago Mayor George Pabey announced the deal Thursday.

Pabey negotiated the agreement that would, pending approval by City Council members, reroute $1.5 million per year from Ameristar Casino Hotel East Chicago to the city, according to a written statement from the city. The statement from Pabey, who remains under federal indictment on charges he embezzled city funds, says the city also could take 54 percent of the contents of an escrow account for cash that pooled during a legal fight that started in 2005. City officials believe at least $8 million has accumulated in the escrow account since Pabey challenged the casino revenue deal worked out under former Mayor Robert Pastrick.

"We have fought long and hard for the opportunity for the city to control its financial destiny. This settlement is an important step in securing all future economic development payments for the city and providing a stable revenue base upon which we can support our future growth," Pabey said in the statement.

"I am excited about the new jobs and economic development these revenues can bring East Chicago."

J. Lee McNeely, a lawyer for Second Century, confirmed the city's account of the settlement. The development company, helmed by Pastrick allies Thomas Cappas and Mike Pannos, will continue to operate, but Second Century's future in East Chicago is not certain, McNeely said. Second Century representatives are working with city redevelopment officials on a potential transfer of the company's properties to the city, McNeely said, but he declined to give further details on that possible transfer.

The settlement would resolve a legal fight that germinated shortly after Lake County Democratic titan Pastrick unwillingly ceded the mayor's office to Pabey. Pastrick cut Second Century into the public development dollars generated by the casino. Under the deal signed in 1994, 3.75 percent of the casino's annual revenue goes to economic development. The city has drawn 1 percent. The two nonprofit Foundations of East Chicago have each taken a 1 percent cut, and a 0.75 percent subsidy has gone to Second Century.

The deal has generated a morass of civil litigation. The settlement announced Thursday does not apply to the city's ongoing fight over control of the Foundations' revenue share, lawyers for the city and the foundations said Thursday.

Under the settlement, lawyers for the city and Second Century would jointly ask a judge to split the escrow account city officials believe to be worth between $8 million and $10 million, according to the statement. The statement says Second Century would take 46 percent and the city would haul in the rest. This would lead to an "immediate infusion of cash for some of the city's pending economic development agreements," according to the statement. Pabey urged City Council members to approve the settlement Monday.

Thursday's statement heralds the settlement as a victory for the Pabey Administration and the city, a victory announced 15 days after the legal low-point of the administration. Pabey, 59, and city worker Jose A. Camacho, 52, were charged Feb. 3 in a federal grand jury indictment with conspiring to embezzle city money and illegally use city workers to remodel the house Pabey bought with his daughter in Gary's Miller Beach neighborhood in December 2008. Pabey has denied he committed any wrongdoing and, through Rico, said he does not plan to resign.

Indiana Attorney General Greg Zoeller also has a stake in the various legal battles surrounding Second Century, the foundations and the former Pastrick Administration. Zoeller has sought to compel Second Century to open its books for public inspection into how the company spent the casino money.

"While I have not been involved in any settlement negotiations between Mayor Pabey and Second Century, I oppose any result that would allow additional funds be given to Second Century, which has steadfastly refused any public review of how it spent more than $16 million it received over 10 years that had been meant for economic development to benefit the people of East Chicago," Zoeller said in a statement.

By Dan Hinkel - Content Copyright 2010 - Times of Northwest Indiana

Indiana Attorney General's Statement On Second Century Case:

Indianapolis, Ind. -- Indiana Attorney General Greg Zoeller today commented upon the proposed settlement of a lawsuit reached between the administration of the City of East Chicago and a for-profit development company that receives casino revenue, East Chicago Second Century Inc. The Indiana Attorney General's Office has not resolved any of its disputes with Second Century and was not involved in any settlement discussions.

"While I have not been involved in any settlement negotiations between Mayor Pabey and Second Century, I oppose any result that would allow additional funds be given to Second Century, which has steadfastly refused any public review of how it spent more than $16 million it received over 10 years that had been meant for economic development to benefit the people of East Chicago," Zoeller said.

"From the State's point of view, the major focus is not about revenue: It's about prying open the books of the for-profit entity and providing an accounting. The public needs to know how that stream of casino revenue was spent and to whom Second Century's grants were dispensed," Zoeller said. "Forward-looking disclosure is not enough; there must be disclosure going back to the founding of Second Century, created by the Pastrick organization during the period that is subject of our RICO investigation," Zoeller said.

Under current law, in communities with riverboat casinos a Local Development Agreement (LDA) must be set up in order for gaming revenue to flow directly from a casino to a for-profit or non-profit corporation. Although LDAs exist in some other riverboat communities, Second Century was the only for-profit company in Indiana to receive casino dollars under an LDA arrangement. In other communities, the LDA groups are nonprofits that receive casino revenue and redistribute it.

Zoeller supports a legislative proposal contained in Senate Bill 405 to create transparency for LDA companies and LDA nonprofits that receive casino revenue. If passed in the Legislature, the proposal would require either a for-profit LDA company or a nonprofit LDA group receiving casino dollars to publicly disclose to the State of Indiana how it spends the money and who is awarded the funding.

"Separate from what happens in this dispute, we are asking the Legislature to change state law so that any similar entities that receive funding from casino dollars will be required to publicly disclose the amounts spent," Zoeller said. The proposal was approved February 2 in the state Senate and it passed Wednesday in the House Public Policy Committee. It is now before the full Indiana House.

The Attorney General's effort seeking to require Second Century to open its books is ongoing, as part of a larger investigation into public corruption in East Chicago. Last June, in the Attorney General's separate RICO lawsuit over the $24 million "sidewalks-for-votes" fraud, a federal court entered a judgment finding that the East Chicago city government under former Mayor Robert Pastrick was a corrupt organization under federal racketeering laws. The court entered a judgment against Pastrick and former mayoral aide James Fife III on every count the state alleged. The court has not issued a decision yet as to remedies and damages.

Source: Office of Indiana Attorney General Greg Zoeller

East Chicago Council Rejects Casino Cash Settlement

EAST CHICAGO, IN - A desire to open the books on a hidden decade in the city's history trumped plans for a quick infusion of much-needed cash Monday night, as a divided East Chicago City Council rejected a proposed settlement with a private company that once received millions of dollars from the city's lakefront casino.

Mayor George Pabey hoped to end several lawsuits seeking accountability for $16 million paid to East Chicago Second Century Inc., a for-profit company, and split with the firm some $8 million that has accumulated in a court-ordered escrow fund.

But Indiana Attorney General Greg Zoeller, whose office has partnered with the city on the lawsuits since 2006, appeared in person Monday to argue against the settlement. He said it would let Second Century off the hook in explaining how the $16 million, ostensibly for economic development, has been spent over the past 15 years.

The council resolution supporting the settlement with Second Century principals Michael Pannos and Thomas Cappas, both close associates of former Mayor Robert Pastrick, failed to earn a majority of votes, ending in a 4-4 vote.

"I know you need the money," Zoeller said, as state-mandated property tax caps have reduced the city's 2010 budget by $6 million from last year. "But to take a short-term gain without that accountability sends a wrong message to the city."

The deal would have brought the city about $1.5 million a year in payments from Ameristar Casino that had been going to Second Century, a politically connected for-profit development corporation.

"This settlement is an important step in securing all future economic development payments for the city and providing a stable revenue base upon which we can support our future growth," Pabey said Thursday.

In exchange, Second Century would have received 46 percent of the estimated $8 million in escrow.

"People elected to public service have an obligation," Zoeller said. "When you have $16 million supposed to go for the public welfare, you have a responsibility for accounting as to where that money was spent."

East Chicago Corporation Counsel Carmen Fernandez urged council members to approve the settlement because litigation against Second Century already has cost the city about $450,000, she said, and likely could drag on for another two or three years.

"The courts have been spinning their wheels," said Council President Richard Medina, D-at large, "and we are criticized for spending hundreds of thousands of dollars which have so far not produced a nickel for the city."

Councilwoman Gilda Orange, D-6th, wanted to know when the city stopped wanting Second Century to open its books and be transparent. Orange voted against the resolution along with council members Adrian Santos, D-1st; Myrna Maldonado, D-at large; and Juda Parks, D-at large.

"We have 16 million reasons not to support this settlement," Santos said.

The council's stand was important, Zoeller, a Republican, said after the meeting. He argued it could represent a first step in closing a long, sad phase in East Chicago's history, a period in which the city was ruled to be a corrupt enterprise in a federal civil racketeering lawsuit.

"People need to stand up and say, 'It's time for reform,' " Zoeller said.

By Steve Zabroski - Content Copyright 2010 - Times of Northwest Indiana

East Chicago Votes Down Casino Settlement

EAST CHICAGO, IN (3/3/2010) - The East Chicago City Council voted 5-4 Wednesday to defeat a resolution to approve a settlement between the city and Second Century Inc. Agreeing to the deal would have ended a court case that originated in 2005 over a deal, signed by former Mayor Robert Pastrick, that directed 0.75 percent, or more than $1 million, of the annual gross revenues of the city's casino boat to the for-profit Second Century.

In the agreement, Second Century will no longer get a share of the casino money and the city will get 54 percent of funds remaining in an escrow account set up at the start of the lawsuit.

On Feb. 23, with Indiana Attorney General Greg Zoeller in the audience, the Council deadlocked at 4-4 on a similar vote. That night, Councilman Lenny Fanciski was absent. Then, Jimmy Ventura, Christine Vasquez, Robert Garcia and Richard Medina voted in favor of the settlement, while Adrian Santos, Gilda Orange, Juda S. Parks and Myrna Maldonado voted against it.

With all nine members present at a special meeting Wednesday, Ventura changed his vote to no, providing the margin of victory for council members critical of the settlement brokered by Mayor George Pabey. Zoeller has lobbied the Council to not accept the agreement, saying he was disappointed that Second City would not have to disclose how it spent $16 million received from the East Chicago casino.The original agreement has been in place since 1994, two years before the city's casino boat opened.

"Up until this point, the city of East Chicago has sided with the state in terms of opening the books of Second Century Inc.," Zoeller said on Feb. 22. "We're pursuing the accounting of $16 million that's supposed to be for the economic benefit for the people of East Chicago."

Content Copyright 2010 - Gary Post-Tribune

Attorney General Declares Victory in RICO Case Against Former Mayor Pastrick:

INDIANAPOLIS (3/11/2010) - Today a federal court ordered East Chicago political figures including former Mayor Robert Pastrick, former mayoral aide James Fife III and former city councilman Frank Kollintzas to pay more than $108 million in damages in the history-making federal racketeering lawsuit filed by the State of Indiana over the 1999 "sidewalks-for-votes" scheme.

Indiana Attorney General Greg Zoeller issues this statement about the ruling in the East Chicago Racketeer-Influenced Corrupt Organizations (RICO) case:

"This is a victory for the State of Indiana. I am enormously pleased that the federal judge awarded triple damages against former Mayor Pastrick and the other remaining defendants as a symbol of how brazen and shameless the public corruption was in the municipal government of East Chicago during the Pastrick regime," said Zoeller, who has continued to litigate the RICO case originally filed by former Attorney General Steve Carter in 2004. "This case is historic; never before has a city government been adjudged a corrupt organization under federal racketeering laws," Zoeller said. 

"We will diligently pursue public corruption in Lake County; we will fight it on all fronts," added Zoeller, who today discussed the East Chicago RICO case with officials of the U.S. Department of Justice. That was a follow-up to meetings he held last week with United States Attorney General Eric Holder in Washington D.C., where he discussed the cooperation between the Department of Justice and the State of Indiana in investigating public corruption in Northwest Indiana.

"In my recent appearance before the East Chicago City Council where I encouraged council members to reject a bad settlement deal with the Pastrick-created entity Second Century Inc., it was clear to me that many residents have grown weary of their city's reputation for crooked cronyism, bloated government payrolls and waste. They deserve better; and as the State's lawyer whose office brought this RICO lawsuit on their behalf, I am committed to dismantling the corrupt organization," the Attorney General said.

Now that the U.S. District Court has ordered the defendants to pay $108,007,584.33 in damages to the City, the Attorney General's Office will dedicate all necessary efforts to collect that judgment.

Reader Comments

Posted: Friday, April 2, 2010
Article comment by: Minoru

Why didn't the Shelbyville News cover the facts about McNeely representing those crooks up in Lake County?

Did he not want to publicize the case unless he won?

If he had won, would he have framed cash or casino chips say like you would a major department store shopping bag?

Could it be that he was representing Democrats and he did not want his fellow pachyderms to know that he had stooped so low?

Does an attorney charge the same hefty fee when they lose the case as badly as he did?

Is it ironic how Second Century refused to open their books for public inspection? Does this issue sound familiar to anyone in Shelbyville?

Does anyone wonder how our tax money has been spent at the Intelliplex High Tech Park?

Does anyone worry where all our Racino money will be spent in the good name of Economic Development?

Will our officials throw more money at the Intelliplex in the good name of Economic Development?

Will the marketing director of the Intelliplex redesign the logo and sign once again to attract new tenants or will he just commission another healing garden for the other side of the park? Will they call this Economic Development and use Racino funds?

Maybe we should organize a tea party with Sara Palin as special guest? She could come to Shelbyville and 'Go Rogue' at the Intelliplex like she did in Alaska with the corrupt Good Ol’ Boy's network. Could we pay her expenses under the guise of Economic Development? We could always throw in a book signing on the public square to sweeten the deal.

Indiana Attorney General Greg Zoeller was quoted as having said “People elected to public service have an obligation” and “When you have $16 million supposed to go for the public welfare, you have a responsibility for accounting as to where that money was spent.” Do these same rules apply in Shelby County or just Lake County?

Maybe we should all be on the look out, for the times – well they seem to be a changing. If the State will actually go up to Lake County (the armpit of Indiana) to start cleaning up correction, well maybe just maybe, there is hope for Shelby County.

Even if the State never investigates, the thought that they could show up one day will hopefully be in the backs of our officials minds.

As a local taxpayer, Do I hope you think long and hard on how to spend our Racino money? You Betcha! Spend wisely.

Posted: Wednesday, March 31, 2010
Article comment by: Elijah

This is nothing unique with casinos nationally. Indiana's love affair with casino money is going to eventually eat this state
up.Including this county.

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