Nelson Johnson - Boardwalk Empire - The Birth, High Times, and Corruption of Atlantic City

By early 1978, some 16 months after the voters had said YES, Resorts was still being investigated. Jim Crosby was upset. The length of the investigation began to draw criticism from the politicians and the media. To the average person, the delay in getting casinos going was bureaucratic foot-dragging. The fact that Resorts International was a complicated financial entity with a long history, various subsidiaries, and some shady relationships in the past meant nothing. The pressure mounted and Resorts’ lawyers persuaded the legislature that it had to act. The plan, for which Joel Sterns is given credit, was to give Resorts a temporary license to operate a casino.

Crosby’s company was given a six-month permit, renewable for 90 days, while the investigation continued. Having succeeded in making an end-run on the review process, Resorts opened its doors on May 28, 1978, to thousands of customers, literally waiting in line. Within several months time, Resorts International emerged as the most profitable casino in the world. In 220 days of business in 1978, Resorts had gross winnings exceeding $134 million. In 1979, its first full year of operation, Resorts grossed an incredible $232 million.

During the time Resorts was the only game in town, customer demand was phenomenal. Hordes of eager patrons waited in line for hours, in all kinds of weather, for the privilege of gambling. It was a sight to see. Resorts had no marketing problems. Its only concerns were logistical: crowd control, security, staffing, clean up, and counting money.

Resorts International had pulled off one of the biggest business coups ever. It was beyond anything Crosby had imagined.

While the temporary license proved to be a boon to Resorts, it was a nightmare to the Division. Under the Casino Control Act, the Anglo-Saxon tradition of presuming a person innocent until proven guilty is reversed. In order for Resorts’ application to be approved, it was supposed to show it was worthy of a license, namely, that it was free from any wrongful conduct or associations that might lessen the public’s confidence in its ability to run a casino honestly. However, once the temporary license was granted, the burden of proof was effectively reversed. It was thrown back on the Division to show Resorts was unfit.

The Division’s report was submitted to the Commission in December 1978, more than six months after the public had begun gambling in Atlantic City’s first casino. To the dismay of the procasino forces and the outrage of Jim Crosby, the Division recommended denial of a permanent license. In its report, the Division cited 17 “exceptions”—investigative findings—comprising the basis for its decision to oppose the granting of a license to Resorts International. A majority of the 17 exceptions dealt with Mary Carter Paint’s and Resorts International’s activities in the Bahamas. The report detailed Resorts dealings with Wallace Groves and the payments to Bahamian government strong man, Sir Stafford Sands. The Division charged that in establishing the Paradise Island Casino, Crosby’s firm had secured financing through persons of unsuitable character, including several whose licenses as stockbrokers had been revoked for manipulating the stock of Mary Carter Paint. There were others who had been disciplined for violating criminal banking laws.

The Division claimed that in operating Paradise Island, Resorts had continued its association with people linked to the underworld after informing the Bahamian government it had ended such relationships. The report accused Resorts of maintaining an unrecorded cash fund from which it made payments to government officials in the Bahamas in exchange for what Resorts described as “goodwill” treatment. Finally, the Division was critical of Resorts’s accounting and internal controls for both the Paradise Island and the “temporary” Atlantic City casino.

The report complained that the procedures used prevented an accurate accounting of the amount of cash flowing through the gambling operations. The Division noted that these practices had been criticized by Resorts’ own security agency, Intertel, as including procedures that create a “wide open area for theft” in the casino. The Division argued that by continuing these practices, after warnings from Intertel, Resorts’ management wasn’t fit to be licensed. Crosby and his attorneys responded to the Division’s charges by demanding an immediate hearing. They claimed there was nothing new in the report and it could all be explained. Commission Chairman Joseph Lordi set January 8, 1979, as the date on which hearings would begin. When the hearing began, Resorts was represented by Newark attorney Raymond Brown.

At the time, Ray Brown was New Jersey’s pre-eminent criminal trial attorney. A tall, thin, light-skinned black man in his mid-60s with a gray mustache, Brown was an unassuming figure. Usually attired in baggy suits and scuffed up shoes, his looks were deceiving. As an attorney he was a tiger and dominated every courtroom he entered. As a tactician, he was unsurpassed. Since the burden of proof lay with Brown’s client to show it was worthy of a license, Resorts had the chance to respond to the Division’s report prior to the state putting on its case. Rather than tackling the 17 exceptions head-on from the start, Ray Brown began his case by calling a list of witnesses whose testimony had nothing to do with the Division’s charges. Brown asked his witnesses questions about such things as banquet facilities, meeting rooms, parking spaces, and specifics on the hotel’s wiring, plumbing, ventilation, and numerous details on the renovation work at Resorts’ hotel.

Brown’s strategy was calculated to lull the Commission and bore the media away from the hearings. It worked. At one point, G. Michael Brown, the deputy attorney general handling the state’s case, offered to dispense with the witnesses and formally agree that the hotel met the Commission’s requirements, but Ray Brown refused and proceeded with his case as planned. As the hearing wore on, Ray Brown eventually produced Jim Crosby and the other key corporate officers. They explained away Resorts’ past associations by testifying that once a person’s unseemly background was brought to management’s attention, the relationship was severed. As for the dealings with the Bahamian government, and the payment of $250,000 to Stafford Sands, that was just the way things were done in the Bahamas.

Ray Brown’s presentation to the Commission consumed nearly six weeks. The Division’s case, presented by Michael Brown, was completed in three days. It was hardly what was expected from reading the Division’s report. Michael Brown called several staff investigators who recounted interviews with individuals who had given them damning information about Resorts. Their statements were a poor substitute for direct testimony from the informants themselves. The Division’s presentation to the Commission never measured up to the advance billing of the 17 exceptions reported by the media prior to the hearing. In the end, the Commission voted unanimously to reject the Division’s recommendation and granted Resorts International a permanent casino license.

CBS News editorialized on the Commission’s decision by giving a mock lecture to future casino applicants:You should know it’s okay to have employees who gained their experience in illegal gambling operations … to have kept employees on the payroll even after you had good reason to suspect they had connections with organized crime … to have given payments to officials of a foreign country where you had a casino, and to have improperly recorded these payments on your company’s books … the trick is to admit these things and say sure, you did them, but that you don’t do them anymore.

Regardless of what the media had to say about Resorts International’s corporate ethics, it was right at home in Atlantic City. Nucky Johnson and Jim Crosby would have gotten along just fine.