Tuesday, May 1, 2012

NYRA: First, Let's Kill the Lawyers

Lots of coverage already on the NYRA cover-up: here, here, here and here, for starters. Here's what we know:

  • The New York statute permitting an extra 1% takeout (to 26%) on certain exotic wagers "sunsetted" on September 15, 2010. At that point, the takeout was supposed to drop back to 25% -- still way too high.
  • NYRA CEO Charlie Hayward was alerted to the upcoming change by an internal email from NYRA's vice-president for simulcasting before the deadline. Charlie apparently referred the matter to NYRA's $400,000-plus-per-year general counsel Pat Kehoe.
  • In September, 2011, a year after the deadline, Steve Crist of the Daily Racing Form passed a message on the Hayward from a DRF reader asking, hey, what about that takeout change? Hayward said he'd take care of it and asked Crist not to go public with the matter.
  • In December, 2011, the takeout problem finally became public and NYRA said "oops" and took steps to refund the $8 million-plus in overcharges, along with temporarily reducing the exotic takeout to 24%
  • Yesterday, the state's inspector-general connects the dots, charges NYRA with a cover-up, and NYRA chairman Steve Duncker, a proud graduate of the Goldman Sachs School of Business Ethics, promptly jettisons Hayward and Kehoe.
Much of the commentary so far has focused on the relative culpability of Hayward and Crist. Charlie's a very decent guy who's sincerely tried to improve NYRA, but he's repeatedly shown himself to have a tin ear when it comes to anticipating the reaction of state officials, the press and the public. Cases in point:  his initial refusal to disclose NYRA's budget and executive salaries to state auditors and the recent bizarre decision to charge low-volume NYRA Rewards phone bet customers $1 a call.

Apparently, his defense will be that he thought the takeout reduction was optional; at least that's what Crist suggests in the latter's not-quite mea culpa on the DRF website. I'm inclined to believe that; Charlie may be a bit arrogant -- that goes with the territory at NYRA -- and he may be a bit oblivious to the likely response to his actions, but I have no reason to believe he's a liar.

But if it's true that Hayward had an incorrect interpretation of the takeout law, then there's only one person to blame: NYRA's overpaid general counsel Pat Kehoe. CEO's of billion-dollar corporations aren't supposed to keep up with all the laws that affect them; that's why corporations have in-house legal staffs and compliance officers. Although the evidence hasn't surfaced yet, the only logical scenario is that Kehoe dropped the ball when Hayward first forwarded the email from NYRA's simulcast vp, and then dropped it again after Hayward's email exchange with Crist.

Under New York's Rules of Professional Conduct for lawyers, an attorney owes his or her client the duty of competent representation. General counsel Kehoe's client is NYRA. By any standards, missing a legal deadline and then mis-reading the relevant statute is something less than competent representation.

So, I guess it's inevitable that Charlie Hayward will be thrown under the bus by those he made look good. But if he's going down, he shouldn't go alone. Pat Kehoe and anyone else in the NYRA counsel's office who gave bad advice should be right there in the next cell.