Around and Around

Shannon Green

Corporate Counsel

2012-07-01 00:00:00.0

The New York Racing Association has been galloping on a sloppy track. It had no sooner fired its chief executive and general counsel after its latest scandal, and hired an acting GC to ride in on a white horse and clean up the mess, than the beleaguered racing group found itself taken over by politicians.

In May New York Governor Andrew Cuomo and state lawmakers swooped in and negotiated a deal with NYRA to place its board under public control for the next three years. Just weeks earlier the agency hired Kenneth Handal, who has helped other companies recover from similar challenges. At press time it was unclear what his role will be going forward. Neither Handal nor a NYRA spokesperson would comment on how the state's involvement will affect his responsibilities.

What's more predictable is the magnitude of the task ahead. One of the first steps will be replacing NYRA's 25-member board. A new board will be made up of 17 members—12 of them state-appointed. In a press conference, Cuomo said it would be up to the not-for-profit corporation to determine which five of its current trustees will keep their seats.

This isn't the first time NYRA has struck a deal with the state in order to stay in business. Legislation enacted in 2008 awarded the association a 25-year franchise to continue operating the Saratoga Race Course, Belmont Park, and Aqueduct Racetrack. NYRA was emerging from bankruptcy, and it received state funds and debt forgiveness in the agreement. The state, in turn, gained enhanced oversight power.

Under the latest agreement, a search for a new GC and CEO is to begin as soon as the board is in place. NYRA ousted top lawyer Patrick Kehoe and CEO Charles Hayward after a New York State Racing and Wagering Board report said it unlawfully withheld more than $8.5 million from bettors.

A 2008 state law increased the amount of a bettor's winnings the association could keep on exotic bets to 26 percent. But when the law expired in September 2010, the "takeout rate" reverted to 25 percent. Yet, NYRA failed to adjust the amount until state auditors caught the error 15 months later. The association corrected what it claimed had been a "mistake" and reimbursed many of the affected bettors. But according to the report, executives knowingly ignored the rate's expiration.

Days before Handal started work on May 14, equine industry publication BloodHorse.com reported that Cuomo met with NYRA's board to discuss a "reform package." Sources indicated that public control was already being contemplated at that time.

Ahead of the governor's announcement, Handal spoke with Corporate Counsel about his appointment. The duration of his stay had yet to be determined, but he said, "There are a lot of issues that need to be dealt with." Handal noted that the racing association had survived critical periods before. "I'm hoping we can do the same here," he said.

From 2003 to 2005, NYRA operated under a deferred prosecution agreement over charges of fraud and aiding and abetting the filing of false tax returns. Those charges are separate from, but similar to, the allegations it now faces. CEO Hayward and GC Kehoe stayed through the period of scrutiny after six former employees—including two department heads—were indicted.

Court-appointed monitor Getnick & Getnick issued a lengthy public report on the association at the close of the DPA. In it, firm partner Neil Getnick wrote: "When people look back on this experience, we hope they say this was the time that NYRA found itself again." He declined to comment on the latest ­developments.

The association now has another chance to get back on track, this time with Handal's help. The 40-year legal veteran has cleaned up corporate messes before. He was general counsel of CA Inc. (formerly Computer Associates) for two years after most of its top executives were indicted for fraud. Handal helped negotiate—and lead the company through—its own deferred prosecution agreement. "To get through something like a DPA," he said, "you have to have a strong GC and a strong law department."

Then-chairman Lewis Renieri gave Handal the freedom he needed to turn the department and company around. "He had the foresight to know how to deal with this," said Handal, "and he gave me free rein to do something about it." As GC, and later as head of global risk and compliance, Handal helped preserve the company and its 15,000 jobs. "I've always thrived in that kind of situation," he said, "where I can put my own stamp on something from a legal and compliance point of view."