About Those Questionable Documents G-Tech Provided To The TLC ...

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Posted - Friday, July 21, 2006
Revised -

My Opinion ... Will G-Tech keep Texas?

I predict nothing will come of the DPS Report that was given during the commission meeting Wednesday, July 19, 2006. It won't matter if G-Tech is guilty or not, nothing will come of it here in Texas.

Here's JUST one reason ... Below is a quick summary of something G-Tech did for the TLC with NO repercussions. So when I'm asked if anything will come of the July 20, 2006 Dallas Morning News story "Lottery firm under suspicion," (shown below my editorial) you can understand why I feel this way - if G-Tech can get away with this, then they can get away with anything. Read on ...

Aug 1999 - TLC proposes new rule to add 4 balls to LottoTexas game. (Matrix change)

Oct 1999 - TLC withdraws proposed rule due to public opposition.

Feb or March 2000 - TLC re-groups and re-proposes another rule to add 4 balls to Lotto Texas. (Matrix change)

April 13, 2000 - TLC Commission Meeting -
Testimony from Rick Johnson supporting rule change, however, on May 12, 2000, Mr. Johnson retracted this testimony ...

MR. JOHNSON: "For the record, my name is Rick Johnson. I am the president of Texas Food Industry Association and the Texas Association of Lottery Retailers. When we first heard about the proposed changes, we sent a survey out to our members and to our nonmembers also, retailers that sell lottery products, explaining the thinking behind the changing of the matrix and trying to get their opinion on what they thought. We got back 3,973 surveys. Of those surveys, 3,505 said yes, they were in favor of the change, 468 said they were against the change. Which works out to 88 percent were in favor and 12 percent were against the change. Just as kind of a personal note, I think this is probably an opportunity to try to breathe a little new life back into the lottery. Since the sales started dropping a couple of years ago, I have noticed that a lot of retailers have lost their enthusiasm to sell lottery products and they just kind of leave it out there as something if somebody wants it, they can come and get it, but they really -- they are really not real enthused about selling it. And I think maybe this will generate some interest to get the sales back up to where they were and also will give us an opportunity to work on some other issues that we had began talking with Linda and the other staff here about. That kind of just been put on hold since the sales started dropping. That's pretty much all I have got to say. Anybody have any questions?" Click here to read all testimony given.

April 2000 -
In light of Mr. Johnson's testimony, lottoreport.com obtains (purchases) approx 550 copies of the surveys in question. Two highly qualified forensic experts were hired to analyze the handwriting. Both experts determine they are "questionable." The use of the term "questionable" was used because we did not have the original documents.

To read the forensic reports, examiner qualifications and to review samples of the surveys that G-Tech provided to the Texas Lottery to support the matrix change, click here.

The documents (surveys) obtained by lottoreport.com had NOT been stamped as received by the TLC - as required by law - but were immediately stamped when the TLC found out what lottoreport.com was doing.

May 12, 2000 - Commission meeting -
With full knowledge of what I (lottoreport.com) plan to report during this meeting, Rick Johnson is first on the agenda where he re-clarifies his April testimony. Mr. Johnson admits that G-Tech actually provided the vast majority of the surveys to him. (Mr. Johnson told lottoreport.com that Texas Food Industry actually received roughly 150 surveys from his retailers.)

After Mr. Johnson's testimony, I then submit TWO forensic reports to the commissioners. These reports, in essence, question the validity of the comment provided by G-Tech. I expressed my concerns and stated the results should not be considered as public comment. Just one "fake" survey disqualifies all surveys.

The Commissioners then asked Larry King, President of Texas G-Tech, to explain.

Larry King admitted that ONE G-Tech employee had confessed to signing more than one survey and he had been fired. Read the actual testimony, click here.

After hearing testimony from all three of us, the Commissioners proceeded to adopt the rule based on King and Johnson's explanations. The TLC NEVER investigated my allegations.

For legislative reasons (to support the rule change), roughly 4000 names were listed in the Texas Register as being in favor of the rule change and roughly 250 names were shown as opposed to the rule change. Click here to see the TLC's summary of comment.

It is important to note that the TLC had roughly 3500 comments of public opposition to the rule change. However, the TLC rejected all public comments from players unless the comments came in on "company letterheads." I have copies of all comments the TLC "really" received.

It is also important to note that a few days prior to this meeting, Larry King had invited me to take a tour of G-Tech Austin. After this meeting, I asked to take the tour and Mr. King told me that I could never come to their facilities!

Shortly thereafter, Larry King, was relocated out of Texas by G-Tech with no reason given and Ramone Riveria replaced him.

I have never visited the G-Tech offices.

Lottery firm under suspicion
State investigators say Gtech lied during background probe

The Dallas Morning News
July 20, 2006

Texas DPS Report: http://www.dallasnews.com/s/dws/img/07-06/dpsreport.pdf

AUSTIN State police on Tuesday accused lottery operator Gtech of lying to investigators during a probe of the company, prompting the Texas Lottery Commission to target it for greater scrutiny.

Department of Public Safety officials briefed the lottery board on a series of questionable transactions by Gtech Corp. around the world. The inquiry was part of the agency's background check on the sale of the company to Italian firm Lottomatica.

"Gtech is a very aggressive business entity that has a past history of protecting its contracts by lawsuit or threat of lawsuit and of pursuing new contracts with sometimes questionable actions," said DPS Lt. Mark Riordan

Gtech's 10-year contract to run the Texas Lottery expires in 2011.

In an eight-page, single-space document, DPS outlined instances over the last six years in which Gtech has fallen under suspicion of using kickbacks, padded consulting contracts and ill-advised loans to win or keep business in Brazil, Trinidad, Poland and the Czech Republic.

A Gtech spokesman said later that the company has instituted rigorous ethics training and controls to prevent any illegal or questionable activity.

"We have a very strict ethics policy," said Robert K. Vincent, Gtech vice president for communications.

The DPS study was a snapshot that didn't completely reflect the complexities of the cases mentioned, he said.

The DPS officers said Gtech officials initially told them that no documents existed from a private law firm's probe of its operations in Brazil. But corporate minutes showed otherwise, they said.

The company conceded the existence of the documents when challenged but has failed to produce them despite numerous promises to do so, investigators said.

Mr. Vincent, the Gtech spokesman, said the company has cooperated fully, leaving him confused about the DPS accusations of duplicity.

Lt. Riordan said the investigation showed questionable payments as recently as February, when Gtech paid $380,000 to a Brazilian company identified as a vehicle for illegal political contributions and run by a known criminal.

After hearing the report, Lottery Commission members worried aloud that the culture of Gtech is too tolerant of marginal behavior, especially after DPS officials said the Italian takeover would leave Gtech management in control.

Chairman C. Tom Clowe Jr. said, "I thought we had been assured by [Gtech CEO Bruce] Turner in 2002 that things like this [have] not happened on his watch. They've happened."

Lawyers advising the commission noted that none of the activities outlined by DPS resulted in criminal charges or convictions. Still, they suggested that Texas authorities require Gtech to outline specific measures designed to eliminate suspect activities.

And, they said, the company should be told that the state will not tolerate even the appearance of impropriety.

Lottomatica has agreed to purchase Gtech for $4.65 billion in cash, creating one of the world's largest gaming technology operators.

Gtech, based in West Greenwich, R.I., provides lottery systems to 25 states in all.

Texas lottery raises concerns over GTECH's practices, ethics
The lottery giant's merger with Lottomatica requires that Texas
agree to keep its contract with the company.

Providence Journal - BY ANDREA L. STAPE
Friday, July 21, 2006

GTECH Holding Corp.'s stock plummeted as much as 14 percent yesterday morning before rebounding after the Texas Lottery Commission and the Texas Department of Public Safety raised concerns about the company's business practices and ethical integrity.

Investors, anticipating that Texas might adversely impact GTECH's pending $4.8-billion acquisition by Italy's Lottomatica SpA, sold off so many of GTECH's shares yesterday morning that trading in the stock was briefly halted. Over 18 million shares of GTECH's stock traded hands yesterday, nearly 30 times the average number of GTECH shares that trade on a daily basis.

The West Greenwich-based company's stock resumed trading before noon and ended up rebounding to close at $33.29 a share, down 4.37 percent.

During a Texas Lottery Commission meeting Wednesday, according to minutes of the meeting posted on the lottery commission's Web site and an eight-page report issued by the state police, state police investigators said:

GTECH has not been forthcoming with information about legal problems in Brazil.

Paid questionable amounts of money to consultants in countries where it was trying to win lottery business.

And financed a sports stadium in the Czech Republic, where it was negotiating a lottery contract.

The Texas Department of Public Safety has been conducting a background investigation of GTECH, as part of the company's proposed acquisition by Lottomatica, an Italian lottery operator. GTECH, the world's largest provider of lottery systems and services, has a contract to run the Texas lottery until 2011.

The GTECH and Lottomatica merger agreement requires that the Texas lottery agree that it will not cancel its lottery contract with GTECH as a result of the deal.

Robert Vincent, a spokesman for GTECH, said yesterday that the company was surprised by the report and that the "characterization" of GTECH's business practices was "unfair."

"We are concerned and frankly surprised that that would be the reaction," said Vincent. "There are a number of inaccuracies in the report and conclusions that we don't agree with."

He also said that the company has been open with the Texas investigators and investors.

Last month, W. Bruce Turner, GTECH's chief executive officer, said publicly that "Texas already came out and said they had no objections" to the $4.8-billion acquisition.

However, the investigators said Wednesday that questionable activity had taken place during Turner's tenure as CEO, even though Turner had assured the lottery that the company had new and rigorous ethics policies in place.

Consequently, the commission did not take a formal position on the sale or on the continuation of its lottery contract with GTECH.

"No such assurance has yet been given," said Texas Lottery spokesman Robert Heith.

Vincent said the company publicly reported that in 2004 the Brazilian government filed a $650-million civil lawsuit against GTECH, claiming that the company had illegally entered into contracts with the Brazilian lottery in 1997 and again in 2000. The company has said publicly that it was the victim of an extortion attempt as it tried to win contracts for lottery extensions in Brazil and that the U.S. Securities and Exchange Commission had launched a formal investigation into the matter.

"We've cooperated fully with them. The information they have highlighted is information we have made public," said Vincent.

Despite being the current lottery provider for Texas, GTECH does have a checkered past with the state. Texas has previously questioned whether it was paying GTECH too much to run its lottery, and Texas' first executive director was fired after it was discovered that one of her close friends had been employed as a GTECH consultant.

However, prior to this week's commission meeting, the investigation process in Texas appeared to be moving forward smoothly.

Transcripts of meetings of the Texas Lottery Commission show that on both May 17 and June 7, investigators indicated they had no problems with the Italian firms involved in the GTECH deal, Lottomatica and its controlling company, De Agostini SpA.

State police and state and private lawyers assured the panel that there were no problems with the Italian firms, but that the background check on GTECH would continue. The GTECH component was important, they said, because the merged companies would be controlled by current GTECH management.

On both dates, the commission members instructed the lawyers to negotiate an agreement with GTECH to ensure that Texas would be kept informed of corporate dealings, even after GTECH moves outside the jurisdiction -- and the disclosure requirements -- of the Securities and Exchange Commission.

But Texas lottery spokesman Heith said the commission never formally approved any part of the GTECH sale; that decision will be made at some later date for which no timetable or deadline has been set.

Rhode Island, which has a 20-year lottery contract with GTECH, is expected to release its investigative background report on the merger and hold a public forum on the issue next week. It is another one of a handful of GTECH customers that must sign off on the deal.

According to the purchase agreement, the sale must be completed by Oct. 10.

Vincent said the company is "confident that we can satisfy the concerns raised in Texas," and that they won't derail the acquisition.

With reports from Dallas Morning News staff writer Pete Slover.

Related Stories
G-Tech, Bush and Texas Lottery in Hustler Magazine

G-Tech VS Brazil - March 2004

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