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Ed Vogel

Nevada Gaming Board Waits on Gaming License

3 June 2004

CARSON CITY, Nevada -- Gaming Control Board members could not agree Wednesday on whether to give Goldman, Sachs & Co. an unconditional waiver from a regulation requiring it to get a gaming license.

Historically, such waivers have been granted to passive owners of gaming properties, such as mutual funds and Wall Street investment firms such as Goldman, Sachs & Co.

But Goldman, Sachs last year paid a $110 million fine over insider trading and conflicts-of-interest improprieties.

Gaming Control Board member Scott Scherer said the company should not automatically get the open-end waiver because of that scandal.

"There are clearly integrity issues with this company," he said. "To grant them a full waiver is unfair to other companies with good records."

Scherer sought to impose a two-year limitation on the waiver. He said if the company performs without problems, then it would be given the full waiver in two years.

The delay would cost Goldman, Sachs about $20,000 to $30,000 in additional investigation fees, he said.

"That is a drop in the bucket to penalties they paid," he added.

Control Board Chairman Dennis Neilander disagreed and supported an unconditional waiver for Goldman Sachs.

He said the conditional waiver is unnecessary because of the scrutiny now on investment companies by the Securities and Exchange Commission and state attorneys general.

Because member Bobby Siller was absent due to illness, the board deadlocked 1-1 on the issue.

That means the Nevada Gaming Commission must decide during its June 17 hearing whether Goldman, Sachs receives the waiver.

Goldman, Sachs owns 11.5 percent of Harrah's Entertainment. Regulations require companies with at least a 10 percent ownership in a gaming property to submit to licensing and state regulations.

Goldman, Sachs Managing Director Lucas van Praag clearly was displeased by the delay. His lawyer argued without success for a full waiver.

"Organizations like us depend on our reputations for success," van Praag said. "I don't see anyone in our organization who is not totally committed (to solving the past problems)."

Van Praag said Goldman, Sachs agreed to the penalties as part of a SEC settlement of improprieties by 10 investment companies. As part of the total $1.4 billion settlement, the companies pledged not to contest the charges.

"As part of the settlement we were prevented from disputing the findings," van Praag said. "I'm hamstrung at what I can say."

Scherer read a long list of charges against the company. They included the practice of having its research analysts drum up more clients for the company's investment bankers by making glowing reports about investment possibilities.

"It appears the company knew their work was compromised by investment bankers," Scherer said.

Van Praag said research and banking divisions now must operate separately and employees cannot even e-mail each other.

"At the time, it seemed a normal business practice," he added. "Every company did it."

But Scherer said he was still troubled because most of Goldman, Sachs' top management remains the same and "compliance is only as good as the people who do it."

He noted that earlier in the meeting he and Neilander both backed a request for a waiver from the regulation for Putnam Advisory Co. This investment company paid $110 million in penalties to settle with the SEC and the state of Massachusetts.

But its lawyers spoke of how many employees were fired and how shareholders were compensated for losses.

"We all make mistakes," Scherer said during that hearing. "I am impressed by the response the company has taken."