D.C. online gambling deal dead; questions buried

City officials reluctant to talk

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Within weeks of an inspector general’s report that criticized a bid by the D.C. Lottery to launch a first-in-the-nation online gambling program, the deal was dead.

Yet despite the inspector general’s findings about the misrepresentations and lack of qualifications of a local subcontractor on the $38 million contract, city officials refuse to condemn or defend a 51 percent share that went to a Maryland businessman who had no gambling experience, who operated out of his mother’s duplex in Southeast D.C., and who was added as a “disadvantaged” subcontractor after the bid had been competitively awarded.

The implosion of online gambling, known as iGaming, and the lingering concerns about the questionable lottery deal with businessman Emmanuel S. Bailey come as city officials face multiple criminal investigations and labor to restore public faith in government.

But the inspector general’s findings and the deflection of responsibility by D.C. officials suggests that the lottery deal — the city’s largest contract, awarded in 2009 to Greek company Intralot — remains a political hot potato almost two years after irregularities were exposed.

“The inspector general raises serious issues,” said council member Jack Evans, the Ward 2 Democrat who oversees the lottery as chairman of the Committee on Finance and Revenue. “The question is, who needs to look into it? The council has proven time and again to be not up to the task of conducting investigations.”

In his report on oversight hearings that he conducted, Mr. Evans questioned the process by which the original Intralot contract was adopted. Last week, he said he has had conversations with D.C. Attorney General Irvin B. Nathan, but he would not elaborate.

“Are we supposed to refer it to the U.S. attorney?” he added. “You know how that goes. We’ll get a response in about a hundred years.”

Asked to confirm whether Mr. Evans referred the matter, a spokesman for Mr. Nathan said, “We have determined it would not be prudent to comment when this matter is in its current state of flux.”

Despite statements before last week’s repeal of iGaming that suggested he might move to scrap the lottery deal, Mr. Evans revised his position on the advice of the council’s attorney, who said the council“cannot unilaterally cancel a contract executed by the chief financial officer.”

General counsel David Zvenyach would not comment on his advice to Mr. Evans, but told The Washington Times in an email: “I have a responsibility to the institution to maintain my independence, [and] not involve myself [in] what are essentially political matters.”

Political silence

The corrosive effect of pay-to-play politics in light of the council’s role in approving contracts and the misuse, if not abuse, of requirements for hiring businesses classified as disadvantaged are at the forefront of civic debate.

The lottery contract — with a tortured history of generational rivalries and backroom maneuverings — embodies the issue.

Of the council members who voted to approve the 51 percent arrangement, few responded to questions last week.

Yvette M. Alexander, Ward 7 Democrat and the beneficiary of a fundraiser and direct political contributions from the subcontractor, closed her door Thursday in the face of a reporter asking about the deal. Muriel Bowser, Ward 4 Democrat and another beneficiary of political contributions from the subcontractor, did not return calls or emails or respond to a visit to her office.

The award of the lottery contract was borne of a period of turmoil during which Vincent C. Gray, then chairman of the D.C. Council, and others objected to the award to Intralot and a local partner with ties to Adrian M. Fenty, who was mayor at the time. Peter J. Nickles, who was serving as attorney general, warned Mr. Gray, now the mayor, that nullifying a contract award would be destructive. But the contract was rebid, with Chief Financial Officer Natwar M. Gandhi choosing Intralot alone.

In November 2009, after the contract was awarded, a new company controlled by Mr. Bailey and located in his mother’s house in Southeast, was presented to the council. Mr. Bailey and his company, Veterans Services Corp. (VSC), signed an agreement with Intralot the previous day giving him a 51 percent controlling interest in the lottery.

Mr. Gandhi’s office insisted that nothing was wrong with the arrangement and that the office could direct Intralot to fire VSC if its was not satisfied with its work.

Pedro Ribeiro, a spokesman for Mr. Gray, deferred questions to the council and Mr. Gandhi’s office to decide whether D.C. officials were satisfied with the arrangement.

Mr. Gray, still chairman of the council when Mr. Bailey was presented as a partner in the lottery deal, said at a hearing that he was “mightily impressed” with VSC, which had hired a former lottery executive from Florida. The mayor, who was never interviewed for the inspector general’s report, has never said what he found impressive about the Bailey portion of the Intralot team.

He later abstained from the lottery vote, his spokesman said, because he objected to the way in which a personal friend had been disqualified from the bidding and because another personal friend had played a “minor role” in the failed bid.

Like Mr. Evans, Mr. Gray said Tuesday that he was willing to rebid the lottery deal if iGaming reared its head. Days later, he declined to comment when asked about the part of the deal he tacitly endorsed. Instead, Mr. Gray, through his spokesman, reiterated his efforts to distance himself from the outcome.

“There’s nothing new to say,” Mr. Ribeiro said.

Inspector general report

The recently released inspector general’s report sheds new light on VSC and the CFO’s “responsibility assessment” of the firm.

In July 2010, Mr. Nickles and then-Chief Procurement Officer David P. Gragan called for Inspector General Charles J. Willoughby to investigate, saying, “VSC was unknown to the contracting officer when the lottery proposals were being evaluated, unknown to the mayor when he submitted the contract package to the council, and the details of its agreement with Intralot were unknown to the council when it considered and then approved the contract.”

The inspector general found that when Intralot won the procurement, council member Marion Barry, Ward 8 Democrat, and a representative of the CFO’s office informed an Intralot representative that they would need a local partner to gain council approval, according to the report.

The report shows that after an August 2009 site visit, city officials concluded that VSC was “not qualified” for the standardized procurement codes it was claiming, and “did not satisfy the requirements” for certification as a local business enterprise. Officials noted that they found “no evidence of bookkeeping and other record keeping, payroll maintenance, business telephones, payment of telephone services by VSC, or VSC stationery bearing the District address.”

Yet officials approved VSC’s certification as a local business enterprise, based on the fact that Mr. Bailey’s father, a building maintenance specialist, and his mother, a human-resources professional, were majority owners who lived in the District.

The report also said the CFO’s office, even though not required, “vetted” VSC in early 2010 after it became aware that Intralot “had partnered” with it to form a company called DC09 “with the intention of subcontracting the lottery work to DC09.”

That vetting consisted merely of a criminal-background check of Mr. Bailey and a check to see whether VSC had been barred from government work. But VSC had never done any work of any kind, so there wasn’t much to see.

“Because VSC was a newly formed business, it had no previous record of performance to assess,” the report states, noting that despite failing to meet local business requirements, D.C. officials had certified the company as a local business.

Lottery experience was similarly impossible to assess, according to the report.

“Neither VSC nor [Mr. Bailey] had experience in the lottery industry,” the report states. “Because DC09 was created to perform the lottery contract, it had no history of previous performance for the CFO to review.”

The inspector general, the report states, could not even determine whether the CFO’s “responsibility assessment” would have turned out differently if it “had been aware of the discrepancies surrounding” VSC’s local business certification.

Investigators also confirmed a series of articles in The Washington Times, beginning in July 2010, that showed Mr. Bailey’s firm “misrepresented its previous work experience on its website.” Yet the inspector general could not determine whether the bogus claims were posted during the CFO’s vetting of VSC. Mr. Gandhi had determined by late June in a letter to Mr. Nickles that no further vetting was necessary.

Still, the inspector general acknowledged that the CFO could have “exercised its continuous right to approve or reject any subcontractor by rejecting VSC, DC09, or any key employee.”

Recommendations

While finding that neither the council nor the CFO’s office was required to clean up the subcontract, the inspector general nevertheless recommended that the council clearly define its role in modifying contracts, including whether it should be “nullifying the results of the competitive bid process” and to decide whether it needs a revised code of ethics.

The inspector general also recommends that city officials clean up the local business certification process, “especially where the final determination contravenes the compliance specialists’ findings.”

David A. Catania, at-large independent, agreed with the findings, saying current certification requirements erode the value of being a true local business.

“The shell game that some businesses are able to get away with under current law is unacceptable and does a disservice to the integrity of our certification program,” he said through a spokesman.

Mr. Catania and Vincent B. Orange, at-large Democrat, have introduced separate bills aimed at reforming the District’s local — or minority — business requirements.

As for the lottery deal, Mr. Nickles, the former attorney general who led the call for an investigation, said last week that he disagrees with the limited findings of the inspector general. He said a court would invalidate the contract approval because it tied Mr. Bailey’s firm to a contract without fully presenting it for scrutiny by the CFO, the council or the mayor at the time.

“I went head to head with Gandhi about this,” Mr. Nickles said. “You can’t go through a procurement based on an independent assessment on the merits, then substitute what amounts to a majority partner when the city doesn’t know about it. And you can’t hide behind the claim that it is a subcontract and Intralot remains primarily responsible.”

Though he doubts the council possesses the political will to ask Mr. Nathan to investigate, Mr. Nickles said, he saw one clear course that would begin to clean up the lottery:

“They’d have to reopen the bid, and bring Intralot back to run it without Bailey until they have a new team. It’s the only practical way. They’d have to say, ‘We see significant legal defects and the CFO has not done his job.’

“I mean 20 percent would be bad enough, but 51 percent?” He asked. “The credibility of the city is at stake.”

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