SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Isadore Hall, III Chair 2015 - 2016 Regular Bill No: SB 692 Vidak Author: 2/27/2015 Version: No Urgency: Consultant: Felipe Lopez Hearing Date: 4/14/2015 Fiscal: Yes SUBJECT: Gambling: California Gambling Control Commission DIGEST: This bill prohibits a member of the California Gambling Control Commission (CGCC), the executive director, the chief, and any employee of the CGCC or Department of Justice (DOJ) designated by regulation, for a period of 2 years after leaving office or terminating employment, from being employed as a consultant or key employee of a gambling establishment. ANALYSIS: Existing law: 1) Provides, under the Gambling Control Act (Act), for the licensure and regulation of various legalized gambling activities and establishments by the CGCC and the investigation and enforcement of those activities and establishments by DOJ. 2) Specifies qualifications for eligibility as a member of the CGCC and provides that a person is ineligible for appointment if, within 2 year prior to appointment, the person was employed by, retained by, or derived substantial income from, a gambling establishment. 3) Prohibits a member of the CGCC, the executive director, the chief, and any employee of the CGCC or the department designated by regulation, for a period of 3 years after leaving office or terminating employment, for compensation, from acting as agent or attorney for any other person before the CGCC or the DOJ, if the appearance or communication is for the purpose of influencing administrative actions, as specified. 4) Defines a “key employee” as a natural person employed in the operation of a gambling enterprise in a supervisory capacity or empowered to make SB 692 (Vidak) Page 2 of 4 discretionary decisions that regulate gambling operations, including, among others, pit bosses, shift bosses, gambling operation managers and assistant managers, or any other natural person designated as a key employee by the DOJ for reasons consistent with the policies of the Act. This bill prohibits a member of the CGCC, the executive director, the chief, and any employee of the CGCC or the DOJ designated by regulation, for a period of 2 years after leaving office or terminating employment, from being employed as a consultant or key employee of a gambling establishment. Background Purpose of the bill: According to the author, while there are regulations in place to stop the revolving door for past members and employees to not directly lobby the Bureau of Gambling Control (Bureau) and the CGCC, there is no revolving door prohibition on members and employees who go to work as consultants or key employees of a gambling establishment. The author further contends that over the years, former Bureau employees have resigned and immediately started consulting with tribal casinos and cardrooms which has led to at least one recent conflict of interest case currently being presented by the Attorney General. Attorney General’s Accusation: On December 23, 2014, the Attorney General’s Office filed an accusation against Bob Lytle, former director of the Division of Gambling Control from 2002 until his retirement in 2007. In the accusation, the state alleges that Lytle began negotiating a new job with a cardroom in San Jose while he was still in charge of cardroom regulation. Lytle retired from the Division of Gambling Control on December 30, 2007 and began working as a consultant for a card room in San Jose, on December 31 of that same year. The accusation also alleges that Lytle began working as a representative of the card room, and contacted both the Bureau and the commission many times on behalf of his client. Additionally, the accusation also states that between 2012 and 2013, Lytle asked for and obtained confidential information from the Bureau’s special agent in charge. Furthermore, the state alleges that the two exchanged over 180 phone calls as well as text messages and emails. The accusation, which could result in the loss of three separate licenses Lytle has been issued from the state, will be heard before an administrative law judge at a hearing scheduled for October of this year. SB 692 (Vidak) Page 3 of 4 Gambling regulation/enforcement in California: The Gambling Control Act created a comprehensive scheme for statewide regulation of legal gambling under a bifurcated system of administration involving the Bureau within the Attorney General’s Office and the five-member CGCC by the Governor. The CGCC is authorized to establish minimum regulatory standards for the gambling industry and to ensure that the state gambling licenses are not issues to or held by unsuitable or unqualified individuals. The Bureau monitors the conduct of gaming operations to ensure compliance with state gambling laws and conducts extensive background investigations of applicants seeking a state gambling license. The Bureau also conducts background checks for all key employees and state gambling license and vendor applications. The Bureau inspects premises where gambling is conducted, examines gambling equipment, audits papers, books, and records of the gambling establishment, investigates suspected violations of gambling laws, and is ultimately responsible for enforcing compliance with all state laws pertaining to gambling. Prior/Related Legislation AB 2526 (Hall), 2011-2012 Legislative Session. The bill would have revised several definitions within the Act. Specifically the bill revised the definition of a "key employee," added surveillance managers and supervisors to the definition of "key employee" for licensing purposes and deleted the term "pit boss" and replaced the term "shift boss" to "shift manager." (Held on the inactive file on the Senate Floor) SB 730 (Florez), Chapter 438, Statutes of 2007. The bill made various changes to the licensing and regulatory processes related to key employees for gambling establishments under the Act. AB 1753 (Governmental Organization Committee), Chapter 546, Statutes of 2005. The bill deleted the residency requirement for key employees of California card rooms and revised the penalties for violations of California's gambling related laws. SB 8 (Lockyer), Chapter 867, Statutes of 1997. The bill repealed the Gaming Regulation Act, and instead enacted the Act, which provided for DOJ to investigate and enforce controlled gambling in the state. It also establishes the CGCC to regulate gambling in this state and to issue, suspend, or revoke gambling licenses. SB 692 (Vidak) FISCAL EFFECT: Page 4 of 4 Appropriation: No Fiscal Com.: Yes Local: Yes SUPPORT: Artichoke Joe’s Casino Communities for California Cardrooms OPPOSITION: None received ARGUMENTS IN SUPPORT: According to Artichoke Joe’s Casino, the “cooling-off” requirements proposed under this bill are similar to laws imposed on other key California policy-makers in order to avoid conflicts of interest. Therefore, it seems appropriate that the CGCC, which oversees the highly regulated gaming industry, should have the same “cooling-off” period imposed on its commissioners and key employees. Communities for California Cardrooms (CCC) states that protecting the decision making process is critical in gaming regulation because of the broad discretionary authority given to regulators. CCC further argues that regardless of context, regulators should garner facts and weigh factors without unethical influences before exercising discretion and that regulatory systems need to properly safeguard against dishonesty, and self-dealing.