State fines Vernon Downs boss, issues temporary racing license

CNY Business Journal (1996+), Apr 06, 2001 by Dickinson, Casey J

VERNON - The 49th season at Vernon Downs is getting off to a rough start, as state regulators crack down on the harness-racing track and its owner, Mid-State Raceway, Inc.

The New York State Racing and Wagering Board has imposed a $5,000 fine on Vernon Downs President John Signorelli for his ultimate responsibility regarding several regulatory compliance issues. The board issued 90-day limited track and simulcast licenses to Vernon Downs until Mid-State brings the venue up to date on its bills and regulatory matters. Track and simulcast licenses are normally issued for a period of one year, says Stacy Walker, spokesperson for the Racing and Wagering Board.

"There may have been a few things we missed," says Signorelli. "They'll be corrected."

The Board fined Signorelli $2,500 immediately and suspended the other $2,500 penalty pending the positive outcome of a report on the track's progress. Mid-State will hire an independent Finn to monitor its compliance with the state's racing regulations. The monitor will report to the Racing Board after 75 days. If the Board is satisfied, Vernon Downs will receive a license for the remainder of the year.

The track's troubles with state racing regulators began in December when MidState filed its application with the state to hold harness races and host racing simulcasts for the 2001 season. A review of the track's application found that it was incomplete and would require further information, according to a report prepared for the board by Thomas Casaregola, its director of audits and investigations. While checking on the license information, state investigators uncovered several instances where Vernon Downs was not in compliance with state racing laws.

When contacted about issues at the track, Signorelli "was less than cooperative" with investigators during the inquiry, according to Casaregola's report. The report's final section concludes that Signorelli "impeded staff's review by both failing to cooperate in the investigation and by providing less than accurate and truthful responses."

State investigators found that Mid-State had not made payments to two state-run racing promotion funds as required by law as a condition for licensing. The New York State Agriculture and Breeders Development Fund and the New York State Thoroughbred Breeding and Development Fund both receive a percentage of each track's bets.

The state also found Vernon Downs was behind on its payments to two state racing organizations. The New York Racing Association and the Finger Lakes Racing Association had both complained to the Racing Board about delinquent payments. These payments are also required by the state's Racing law.

In addition to delinquent statutory payments, Lanz Construction, Inc., a Vernon-based contractor, complained to the board that Vernon Downs had not paid the company for some materials delivered for use in Vernon Downs' new 7/8-mile track. In June 2000, Midstate upgraded Vernon Downs' 3/4-mile track to the standard size seen at most major racing venues.

In addition to complaints to the Board about missed payments, state auditors checking the raceway's books found MidState had secured $550,000 in financing without notifying the board, also required by law.

Investigators subsequently uncovered the fact that an unlicensed member served on the Vernon Downs board for more than four months. Members of a raceway board must hold a Track Management license issued by the state Board of Racing and Wagering.

A review of Vernon Downs' financial documents by state auditors "raised serious concerns of the financial viability of Mid-State Raceway, Inc." The auditors found Vernon Downs had more than $800,000 in accounts payable at the end of last year. Approximately $500,000 of that amount was 90 days past due, according to the report. After quizzing Mid-State staff about how they intended to pay their bills, the auditors were less than impressed with the track's financial outlook. The Racing Board's staff concluded MidState's supplied cash-flow projections showed racing revenues that were 'most likely not attainable."

The Racing and Wagering Board has given Mid-State 30 days to bring all racing-related payables up to date. Signorelli says he's confident the track can comply with the Board's recommendations. The company is required to keep its bills current through the remainder of the year as a condition of licensing.

The state's auditors were apparently not alone in their view of MidState's financial procedures. Urbach, Kahn & Werlin LLP, Mid-State's former accountants, also took issue with the company's accounting practices. The Albany-based firm resigned as Mid-State's auditors in September 2000 after disagreements over how to record events relating to two lawsuits, according to a document notifying the SEC of the resignation.

Vernon Downs had overall questionable management procedures in effect, the state report concludes. The auditors noted that they were able to find documents posted or filed in the track's offices that the facility's management and employees said they did not know existed. The investigative staff further concluded "there are virtually no set controls nor reporting requirements established for the management of the track."