Nevada Gaming Licensing Process Imgl2

Nevada Gaming Licensing Process

Implications For Public Companies

Anthony N. CabotLewis and RocaLas Vegas, [email protected]

Nevada Regulatory Structure

Nevada has a two-tiered structure. State Gaming Control Board

Three members appointed by the Governor. Full-time agency. Has seven divisions including Investigations and

Corporate Securities. Investigations Division investigates all gaming

license and key employee applicants. Corporate Securities Division investigates and

processes applications filed by publicly traded corporations.

Nevada Regulatory Structure

Nevada Gaming Commission Part-time administrative body . Five members appointed by the Governor. May accept, deny, or modify the recommendation

of the Board on a license application. Final administrative authority. No judicial appeal from decision of Nevada

Gaming Commission on licensing matters.

Publicly Traded Corporations

Defined as a corporation that: Has one or more classes of securities registered

pursuant to section 12 of the Securities Exchange Act of 1934, as amended; or

Is an issuer subject to section 15(d) of the Securities Exchange Act of 1934; or

Has one or more classes of securities exempted from registration requirements solely by reason of certain exemptions.

Publicly Traded Corporations Have Special Licensing Requirements Mandatory Licensing for Shareholders

If a shareholder, individually or in association with others, directly or indirectly, acquires beneficial ownership of more than 10 percent of any class of voting securities.

Stock of the publicly traded corporation may be freely traded without restrictions, unless a person “acquires control” of the public company.

Acquisition of control requires prior approval.

Institutional Investor Exceptions Qualified Institutional Investors may own not more than

15 % of the common stock for investment purposes without having to obtain a license.

Investment purposes means acquiring shares to be held in the ordinary course of business and not to cause, directly or indirectly, the election of a majority of the members of the board of directors of the public company, any change in the corporate charter, bylaws, management, policies or operations of it or any of its gaming affiliates.

Qualified Institutional Investors must apply for a waiver.

Institutional Investor Defined A bank - Section 3(a)(6) of the Federal Securities Exchange Act. An insurance company - Section 2(a)(17) of the Investment

Company Act of 1940. An investment company - Section 8 of the Investment Company

Act of 1940. An investment advisor - Section 203 of the Investment Advisors

Act of 1940. Collective trust funds - Section 3(c)(11) of the Investment

Company Act of 1940. An employee benefit plan or pension fund - Employee

Retirement Income Security Act of 1974, excluding an employee benefit plan or pension fund sponsored by a publicly traded corporation registered with the Commission.

A state or federal government pension plan A group comprised entirely of persons specified in (a) through (g) Such other persons as the Commission may determine for reasons

consistent with the state policies.

Officers Subject To Mandatory Licensing

Each officer involved in gaming who is also a director of the company,

The president, Any person performing the function of chief

operating officer or chief executive officer, The chief financial officer or other principal

accounting officer, and The secretary.

Directors Subject To Mandatory Licensing Chairman of the Board of Directors, Directors owning more than 1% of any class of

voting securities of the registered publicly traded corporation for which he/she serves as a director,

Directors voting on the executive committee or any comparable committee with the authority of the board of directors to govern the activities of a corporate licensee, and

Directors who are also gaming employees.

Qualifications for Licensing By Individuals

Criteria under which an applicant may be found unsuitable:− Conviction of a felony or misdemeanor involving violence, gambling, or moral turpitude.− Unexplained pattern of arrests showing a lack of due regard for the law− Failure to prove good character, honesty, and integrity.− Association or membership in organized crime.− Association with unsuitable persons.− Prior unsuitable operation of a casino or gaming company.− Conduct that threatens the public health, safety, morals, good order, and general welfare of the state of Nevada and the gaming industry or reflects discredit upon the state or the gaming industry.

Licensing Process

Begins with the filing of a complete application, including: Application Form Multi Jurisdictional Personal History Disclosure

Form and Nevada Supplement Release and Indemnity of All Claims Form Request to Release Information Form Affidavit of Full Disclosure Fingerprint Cards

The Investigation

Agents involved: Supervisor has direct responsibility for the daily

activities of the agents involved in the investigation, provides guidance to the agents, and formulates the investigative strategy.

Financial agents are responsible for investigating the applicant’s current financial status, past financial activities, general business probity, and the financial status of the proposed gaming operation.

Background agents are responsible for investigating the applicant’s background, general reputation, and personal and business associates.

The Initial Interview

Simply a line-by-line review of the application.

All Interviews are usually taped. Other issues may be addressed as the result

of initially research. Typically conducted at the Board’s offices in

Las Vegas or Carson City.

Initial Document Requests Includes five to ten years records of the following:

Federal and State individual income tax returns, Bank/brokerage account records including canceled

checks/deposit slips, Note payable and receivable agreements, Escrow documents for the purchase and/or sale of all

real estate, Financial statements, general ledgers, cash receipt

and disbursement journals, and tax returns for the non-passive businesses,

Credit card statements, and Wills, estate plans, IRAs, life insurance policies, etc…

The Background Investigation Primary purposes of fieldwork are to verify the

information provided by the applicant and to uncover information that the applicant may not have revealed

Types of records searched Police records. All civil and criminal litigation. Schools and universities to verify education. Military information with attention on any disciplinary

or other derogatory information. Marital records with attention to divorces.

The Financial Investigation

Tracing primary holdings to their original sources.

Verifying personal income information to confirm that current holdings are consistent with income disclosed to the tax authorities.

Preparing a cash flow analysis. Verifying the applicant’s net worth.

Conduct During the Investigation The applicant’s conduct during the investigation

may easily become an area of concern to the Board.

If the applicant attempts to hide or mischaracterize a past transgression, the Board may question the applicant’s current credibility.

Making an untrue statement of material fact in any application or statement to the Board is alone grounds for denial.

Corporate Investigation

Conducted by the Corporate Securities Division of the Board.

Involves separate applications and separate request for funds.

Nature of the Corporate Investigation Funds - Does the corporation have funding from suitable sources? Compliance - Does the corporation have adequate personnel,

structure, and supervision to reasonably assure compliance with all laws and regulation? What is the corporation’s history of compliance?

History - What is the corporation’s history for honest and fair business dealings? What is the corporation’s history for the proper and timely payment of taxes? Are the company’s business practices consistent with the standards of honesty, integrity, and good reputation expected of members of the casino industry?

Ownership - Is reported ownership consistent with actual ownership and are the record owners holding the stock on their own behalf or for others ?

Interim Interviews and Document Requests Document requests are continuous during the

course of the investigation. Anticipate one to three interim interviews. Sought to obtain clarification of information

being investigated. Can be either in Las Vegas, at the company’s

headquarters, or at the applicant’s place of business.

The Closing Conference

Near the end of the investigation, the applicant is given a final interview or closing conference.

Agents question the applicant about any unresolved or unclear areas encountered during their investigation.

Opportunity for the agents to advise the applicant of their “areas of concern” -- areas that the agents will identify as relevant to the applicant’s suitability in their summary to the Board.

The Summary

Confidential written investigative summary report for the Board.

Not available to the applicant. Contains the results of the investigation and

sets forth areas of concern. Contains a synopsis of interviews,

summaries of court and police records, and financial analyses.

Board Hearing

All applicants typically must be present. Stacked calendar. Open meeting. No formal rules of evidence. First Wednesday of the month.

Board Hearing Procedures Counsel and the applicant identify themselves for the record. Each applicant and witness is then sworn. Applicant’s counsel may proceed with an opening statement. Applicant may affirmatively address areas of concern. Applicant may be subject to intense examination by the Board

members. After the applicant presents his case, the Board can question

the applicant about any aspect of his personal or business life that impacts his suitability.

Once the Board determines that it has sufficient evidence to make a decision, it permits the applicant to present any further evidence and a closing statement either in person or through counsel.

Board members will then discuss in the open meeting the relative merits of the applicant’s suitability.

Board Decision

Continue the matter Refer the matter back to staff Recommend denial of the application Recommend approval of an unlimited and

unconditional license Recommend a license limited to a fixed

duration, e.g., one year Recommend a license with conditions

Commission Hearing

Commission has the final authority to deny or approve a license.

Commission hearing is similar to the Board hearing.

Attendance of applicants subject to waiver.

Commission Decision

If the Board has given a favorable recommendation on an application or had a tie vote, a simple majority of votes by the Commission will determine the action of the Commission.

If the Board has recommended denial of the application, the Commission must have a unanimous vote to approve the application.

Commission Action

Continue the matter, Refer the matter back to the Board, Deny the application, Approve the application with or without

conditions or for a limited or unlimited duration, or

Combination of the foregoing.

No Judicial Review

A denied applicant for a Nevada gaming license has no recourse against the Commission to seek a reversal of the adverse decision.

Once submitted, an applicant cannot withdraw without a vote of the Board.

Request for withdrawal can be denied.

Timing

Application submitted. Assigned to investigative team – 1 to 3

months. Investigation – 6 to 8 months. Closing interviews - 1 month. Board and Commission Hearings. Total time – typically 8 to12 months.

Other Public Company Considerations

Public offerings

− Speculative securities

− Pre-registration public offerings Takeovers and mergers Other approvals