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In a stinging blow to what once seemed an unstoppable deal, the Illinois Gaming Board on Tuesday rejected a planned Rosemont casino, concluding that top officials of the would-be riverboat had misled the board and that some investors had links to mob figures.

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'The investigative record establishes the insidious presence of organized crime elements associated with this proposed project that cannot be ignored,' Gaming Board Administrator Sergio Acosta said in a statement to the board.

The board's 4-1 vote against the boat project delivered a severe setback to Rosemont Mayor Donald Stephens and the financial backers of the casino, known as the Emerald, who were once so confident of approval that they sank more than $10 million into the casino's construction.

Stephens and a consortium of powerful gambling interests had mounted a major lobbying effort that resulted in authorization of the casino as the centerpiece of a 1999 gambling law. The law also tied the Rosemont casino's profits to horse racing subsidies.

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The decision highlighted the newfound rigor of a board that not long ago was considered little more than a rubber stamp for the gambling industry. Indeed, within an hour of rejecting the Emerald project, the board announced it had persuaded Jack Binion, the controversial owner of the Empress casino in Joliet, to sell his boat and get out of gambling in Illinois.

A pair of FBI memos released Wednesday in the Illinois Gaming Board's case aimed at stripping Emerald Casino of its riverboat gambling license state that two investors in the casino once planned. Rivers Casino is a 147,000-square-foot casino in Des Plaines. The casino offers 48 table games, such as blackjack and craps and more than 1,050 slot machines. The casino also offers dining and drink options from its Canopy Buffet to Hugo's Frog Bar & Chop House.

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That agreement effectively ends Binion's appeal of a board decision last summer that declared him ethically unfit to run a casino in the state.

The Rosemont decision was a serious blow to the principals of Emerald Casino Inc., run by former Waste Management Inc. executive Donald Flynn, who thought they had the casino's approval locked up after passage of the gambling law, which allowed for a new casino in Cook County.

Before the vote, Acosta said that Flynn and his son, Kevin, Emerald's chief executive office, 'have repeatedly made false and misleading statements' to the board.

The decision outraged Kevin Flynn, who complained that he and his father hadn't had a fair opportunity to rebut the allegations. He described his father as 'stunned' by the decision and vowed an appeal of the board's ruling to an administrative law judge and, if necessary, into the courts.

'It's absurd,' Kevin Flynn said. 'We still don't know what these so-called misleading statements are. I may win the appeal, but I don't know how I get my reputation back.'

In making his recommendation against Emerald, Acosta gave scant details of the reasons for the denial, though they may be more fully spelled out in a formal letter to be sent to Emerald officials in a few weeks. A staff report detailing the investigation into the Emerald is confidential.

But Acosta said staff investigators found evidence that two of Emerald's proposed investors 'have close associations with Chicago organized crime figures.'

Acosta also noted that 'known members of organized crime control at least one firm that has done work at the Rosemont site.'

The Gaming Board has questioned Emerald officials about construction site contracts with D&P Construction, which is controlled by a relative of reputed top mob figure John 'No Nose' DiFronzo.

In addition, Acosta said he has 'serious concerns' that board approval would make it difficult for casino regulators to monitor effectively 'future efforts by organized crime to compromise the integrity of the proposed casino.'

According to a high-level Gaming Board official, who declined to be identified, one of the investors in question was Nicholas Boscarino, who once owned a fork-lift leasing company with both Stephens and William Daddano Jr. Daddano is listed by the Chicago Crime Commission and other law-enforcement groups as a member of the Chicago crime syndicate.

The official also said that some of the allegedly misleading statements by the Flynns were related to a lawsuit brought against the Emerald by California billionaire Marvin Davis, who alleged that he had been promised a stake in the casino in exchange for lobbying help. After providing that help, Davis claimed, the Flynn's reneged on the deal.

For almost two years, the fate of the Emerald and its many politically influential investors has been closely watched statewide. After extensive lobbying by gambling interests and Rosemont, lawmakers in spring 1999 passed legislation that appeared to guarantee Emerald the right to move its gambling operation from a failed location in East Dubuque to the sure-to-be-lucrative site in Rosemont, near O'Hare International Airport.

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As part of an intricate compromise, the law also provided that millions of dollars in Rosemont casino revenue would be used to subsidize the state's horse racing industry. Additional millions of dollars from the new casino would be spent to upgrade the Cook County criminal justice system and state athletic fields.

Some 71 suburban communities agreed to support Rosemont's casino bid in exchange for a cut of the revenue.

Gary Mack, a spokesman for Stephens, expressed bitter disappointment after the vote. But he said that it appeared the board's problems rested with Emerald Casino, not Rosemont, even though board investigators looked into ties Stephens has had with crime syndicate associates. Stephens has repeatedly denied any such links.

Asked about allegations regarding organized crime influence on the project, Mack said: 'Mr. Acosta is wrong. There is none of that in Rosemont.'

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The vote on the Emerald was preceded by testimony from supporters and opponents of the project, including Wayne Johnson, chief investigator of the Chicago Crime Commission, a citizen anti-crime watchdog group. Johnson urged the board to reject the Emerald project based on what he said were relationships between Stephens and associates of organized crime.

But at least three of the four board members who opposed Emerald's license request said afterward they didn't base their decision on any information relating to Stephens or Rosemont.

In other public comments, a representative of the suburbs that hoped to share casino revenues presented the board with a letter from former Gov. James R. Thompson. In the letter, Thompson vouched for Stephens, calling him 'a fine public servant and a friend.'

State lawmakers who helped push through the casino legislation expressed little more than resignation over the board's decision.

House Speaker Michael Madigan (D-Chicago), who supported the gambling legislation, said only that the Gaming Board 'has the authority to what they did. That's the way it is.'

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Rep. Angelo 'Skip' Saviano (R-Elmwood Park), a Stephens ally who helped shepherd the casino package through the General Assembly, noted how important the project is to Stephens.

'I mean, this is like the final component of his overall vision,' he said, adding, 'This was going to be the other jewel to finalize it being a premier convention town.'

Thom Serafin, spokesman for Arlington Park, emphatically denied that the loss of anticipated casino money would impact the race track. He said counting on that money would have been 'hypothetical' and a poor way to run a racing business.

Michael Dockterman, a lawyer for Lake County Riverboat LP, a rival group of casino investors who had sued the Gaming Board to scuttle the Emerald project, said he hoped the decision would allow his group to compete for a license in an open process. If that fails to happen, he said his group would press an appeal of the lawsuit, which was thrown out by a Cook County judge last week.

The lawsuit claimed the 1999 gambling law was unconstitutionally written to confer special benefits on the Emerald group to the exclusion of others.

A pair of FBI memos released Wednesday in the Illinois Gaming Board's case aimed at stripping Emerald Casino of its riverboat gambling license state that two investors in the casino once planned for suburban Rosemont associated with members of organized crime.

Although the accusations of mob ties have been part of the Emerald case for years, it is the first time the FBI's investigation into the mob in Chicago has officially become part of the case against Emerald Casino.

And the memos involving Emerald investors Nick S. Boscarino and Vito Salamone are key pieces of evidence the Gaming Board used four years ago in blocking Emerald's efforts to open in Rosemont and in the board's current case aimed at stripping the license from the casino company.

The Gaming Board alleges that Boscarino was an investor via a legal trust through his wife, Sherri, and that Salamone's investment was through his brother, Joseph. The brothers had owned several businesses together, including an Italian restaurant in Addison that was 'known to the FBI as being a meeting place for members and associates' of Chicago's mob, according to testimony.

The memos were entered into evidence Wednesday during the testimony of former Gaming Board administrator Sergio Acosta and over numerous objections by Emerald's attorney, Robert Clifford, who argued that they were uncorroborated, hearsay and could violate the privacy rights of Boscarino and Salamone.

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During the hearing, which has resumed after three years of delays, Acosta testified that he and his staff used the FBI memos from November 2000 and forwarded the information to the Gaming Board. A few months later, the board voted against the Emerald deal, citing the mob ties of investors and being misled by Emerald officials.

Abner Mikva, the administrative judge overseeing the hearing, did not allow copies of the FBI memos to be made public. But while on the stand, Acosta read portions of them, including statements about Salamone and Boscarino, who was once a close friend and business associate of Rosemont Mayor Don Stephens.

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'Nick Boscarino appears to be at the very least a close associate of a number of members of the LCN [La Cosa Nostra],' Acosta read from the report. Acosta went on to testify that the report said Boscarino once owned a trade-show forklift rental company called American Trade Show Services with reputed mobster William Daddano Jr. and members of his family.

Reading from the FBI report about Salamone, Acosta said Salamone was 'close with members and associates of Chicago LCN,' including reputed mob head bookmaker Marco D'Amico and Frank Rappa, who was arrested in New York as part of a 1971 mob heroin ring.

The FBI memos are based on preliminary information and are not the outright conclusions of the FBI.

But Gaming Board attorneys have argued that the board's job is to protect the integrity of gambling in Illinois and even the appearance of an infiltration by organized crime would taint the industry.

Clifford has argued that Emerald was treated unfairly by the board, which changed its rules just for Emerald, and that Emerald's officials didn't have the capabilities to unearth the mob ties of investors like the Gaming Board did.

During other testimony Wednesday, documents showed that although the Sherri Boscarino Trust was the official investor in the Emerald Casino, Nick Boscarino appeared to finance the deal. Acosta testified about an agreement entered into evidence that showed Nick Boscarino lent the exact amount of money that the Sherri Boscarino Trust put into the casino--$1.5 million--to his mother-in-law, Ida Hansen.

Also, Acosta testified that in 1999, when people were lining up to be investors in Emerald, the casino firm submitted to the board a list of potential investors, including some who eventually didn't follow through.

One of the people who never did become investors was political powerbroker Antoin 'Tony' Rezko, Acosta said. Rezko has come under fire recently for a number of questionable deals that intermingle his business dealings and state government.

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