Regulators OK $1 million fine to settle drug, prostitution complaint against Palms

The Nevada Gaming Commission signed off Thursday on a $1 million fine against the Palms to settle a complaint issued by the state's Gaming Control Board resulting from an investigation that discovered rampant drug sales and prostitution at clubs on the property.

It's the third-largest fine ever approved by the commission.

Under the deal, the Palms will also pay $78,000 to cover the cost of the control board's investigation. The commission voted 4-0 to approve the fine, with Commissioner John Moran Jr. abstaining.

"We are very sorry to be appearing before you today," George Maloof, minority owner of the Palms, told the commission. "We take these (charges) very seriously and have implemented many changes to prevent these issues from happening again."

The violations contained in the 17-count complaint made public Jan. 11 were gathered during five undercover operations last year by board investigators and Las Vegas police.

Among the charges in the complaint was that on March 16 about 11:15 p.m., an undercover officer on his way to the Moon nightclub contacted a host manager, asking whether he could "supply some girls for their party because they wanted to get laid and didn't care how much it would cost."

The host manager said it would not be a problem. About 12:50 a.m., the host manager brought two women to the undercover officer's table at Moon. According to the complaint, they went to the club's outdoor deck where the host manager asked whether he "was happy with the girls because (host manager) could provide different girls if (the undercover officer) wanted."

Commissioner Dr. Tony Alamo said it was déjà vu all over again, noting that the commission approved a $650,000 fine against the Hard Rock Hotel to settle similar charges in January 2011.

"These clubs and pools are a good thing," Alamo said. "Somewhere along the way it looks like we are losing control. It's not a proud moment for the Palms."

The Palms has four months to pay the $1 million fine. As a result of the complaint, the Palms replaced contract club security with resort employees, added additional cameras in the clubs, and hired a mystery shopping company to help identify potential problems.

"For a stand-alone property, this is a significant penalty," said Frank Schreck, an attorney representing the Palms.

The commission could have rejected the settlement and conducted a hearing to change the amount of the fine or considered revoking the off-Strip hotel's gaming license.

Only twice has the commission imposed heftier fines. In 1984, the commission levied a $3 million fine against the Stardust resort for skimming. The commission fined Ralph Engelstad, the ex-owner of the Imperial Palace, $1.5 million in 1988 for damaging the reputation of the state by holding, in two separate years, private Hitler birthday parties at his casino.

"This is a very serious matter, and we are committed to preventing this from happening on our property again," the Palms said in a statement.

Also on Thursday, the five-member commission approved two companies to receive the state's 18th and 19th interactive gaming licenses.

Lottomatica Group was approved as a technology provider, while Sartini Synergy Online, a division of Golden Gaming in Pahrump, was approved as an operator.

Lottomatica, based in Rome, owns several gaming industry subsidiaries, including lottery company Gtech and slot machine manufacturer Spielo. The company plans to provide software to casino operators that want to launch online poker sites within Nevada.

Lottomatica also said it will change its name to Gtech by the end of the year, as it moves further integrate its businesses with its U.S. division Gtech Holdings Corp.

"We are very aware of the privilege that comes with a license, and we take that responsibility very seriously," Lottomatica general counsel Robert Jones said.

Golden Gaming CEO Blake Sartini told the commission the company has "taken a cautious approach to this point" and is still developing its interactive gaming strategy. Sartini said the company sought licensing so Sartini Synergy could be "ready when it makes sense."

Also on Thursday, the commission approved Truckee Gaming's $19.2 million acquisition of three Northern Nevada casinos from Affinity Gaming. The private equity group is headed by Ferenc Szony, Affinity Gaming's former chief operating officer.

The casinos are in Reno, Verdi and Dayton.

"Northern Nevada is a challenging market, but that can be fun to operate in," Szony said. "We think we can keep these (casinos) moving forward. I think we can do well."

Contact reporter Chris Sieroty at csieroty@reviewjournal.com or 702-477-3893. Follow @sierotyfeatures on Twitter.