U.S. grand jury to investigate lottery contracts Deals with firm in R.I. are subject of fraud probe

December 13, 1992|By C. Fraser Smith | C. Fraser Smith,Staff Writer

The U.S. attorney said yesterday he will ask a federal gran jury to determine if a fraud was "perpetrated upon the people of Maryland" when the Schaefer administration awarded millions of dollars in Lottery contracts to a Rhode Island computer firm.

"It is of vital importance for the citizens to be confident that there has been a fair and lawful award process," said Richard D. Bennett, the U.S. attorney for Maryland.

The call for a grand jury investigation is the latest development in a three-year saga involving high-paid lobbyists, a state lottery agency under pressure to boost revenue, and public officials pressured by big corporations with products to sell.

Mr. Bennett disclosed his decision in a letter to Delegate Leon G. Billings, a Democratic legislator from Montgomery County. Mr. Billings had asked for an investigation of all gambling in Maryland, particularly the state's recent decision to expand its lottery operation into keno with a $49 million, no-bid contract to GTECH Corp of West Greenwich, R.I.

The U.S. attorney's office and other federal law-enforcement agencies have been watching the lottery computer contract procurement for some time. But the letter to Mr. Billings, the keno contract and other, unspecified information obtained by the U.S. attorney's office resulted in the decision to refer the matter to a grand jury, Mr. Bennett said.

Informed of the U.S. attorney's action, Gov. William Donald Schaefer again defended his contract award process yesterday.

"We had the appropriate checks along the way: advice from the state attorney general's office, review by the Board of Public Works and input from two independent evaluation panels," he said through his press secretary, Page Boinest.

Mr. Schaefer lamented the potential negative impact of a grand jury probe on public confidence in the lottery, which opens the new keno games on Jan. 4.

"It's unfortunate if this investigation will cast a cloud on what the State Lottery Agency is doing right now, which I might add is a vital part of our revenue needs," he said.

GTECH's vice president for public affairs, Craig Watson, said, "We are absolutely certain that when all the facts are known the matter will be closed without further action."

The company's prime lobbyist in Maryland, Bruce C. Bereano, reacted more vigorously.

"It's really sad and regrettable that the U.S. attorney has joined Delegate Billings in giving any credibility or stature to allegations which are reckless and outrageous," he said.

The U.S. attorney's letter says no individual is the target of the investigation. But Mr. Bereano said he believes Delegate Billings had accused him of "criminal misconduct" in his letter requesting the investigation.

"It's slanderous. He's just fortunate he has public-official immunity," Mr. Bereano said.

"If people stopped and looked at the facts, which Delegate Billings doesn't do and the U.S. attorney doesn't do, this is a lot of nothing," he said.

"I think it's just another development in what has become a political football," he said.

Mr. Bennett, who is expected to be a Republican candidate for attorney general in 1994, obliquely addressed the political issue in his letter to Mr. Billings.

"I should note that First Assistant U.S. Attorney, Gary P. Jordan, and Assistant U.S. Attorney Jefferson M. Gray, who happen to be registered Democrats, will work on this matter to its conclusion, regardless of my tenure in office."

In the past, U.S. attorneys in Maryland have remained in office for some time after changes of national administration. President-elect Bill Clinton will appoint a new U.S. attorney, but as much as a year could elapse before that occurs.

Mr. Bennett said the grand jury's investigation would end with either criminal charges or a finding that no federal law was violated. Under federal law, he said, there can be no public report of the investigation if charges are not filed, he said.

Mr. Bennett said he would not interject himself in other public policy questions surrounding state-sponsored gambling. As for the keno controversy, he said, "I believe that a thorough inquiry is warranted."

Mr. Billings raised questions about:

* The decision-making process for the original 1991 contract with GTECH.

* The development of the keno proposal and the degree to which GTECH was involved.

* The nature of the relationships between state and corporate personnel. Mr. Billings asked the U.S. attorney to investigate suggestions that GTECH had inside information from the lottery when it was preparing its bid for the initial contract.

* A possible connection between GTECH's low initial bid for lottery computers -- $17-million below its competitor -- and the subsequent $49 million contract modification for keno. The question is whether the first bid was low because the company had assurances that later business would make up for the low original bid.

Mr. Billings said he thinks Mr. Bennett decided, after months of inquiry, to formalize his investigation because "the amounts of .. money involve the real potential of a rip-off of the state of Maryland irrespective of any criminality in the process."

Without competitive bidding, he said, the state does not know if it is paying "a significantly larger amount of money" for keno than it had to pay.

The U.S. attorney will try to learn whether the state violated its procurement statute. Such a violation would also be a violation of federal law if it resulted in a fraud against the people of the state -- in this case, if the lottery contracts were more costly to taxpayers than they would have been if proper bidding procedures were followed.

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