Casino regulators disqualified Plainridge Racecourse on Monday from the competition for a slot machine parlor license, citing discoveries by state investigators that former track president Gary T. Piontkowski took about $1.4 million in cash from the struggling track’s money room in regular small withdrawals over several years.
The rejection of the Plainville track’s application eliminates one of the leading contenders for the license and raises grave questions about the future of live racing at the only functioning harness horse track in Massachusetts.
“Plainridge can’t continue without a slot operation,” said a glum Michael Perpall, president of the Harness Horseman’s Association of New England. “There are about 500 folks that rely on that facility for their livelihoods. This is going to be devastating for them.”
A rival developer, Raynham Park, was declared qualified to bid in another ruling issued by the gambling commission Monday. Raynham is a former dog track that remains a simulcast betting parlor.
Investigators for the commission discovered Piontkowski’s withdrawals last spring while performing a mandatory background check on the business and its key employees. That information, kept private at the time, led to the ouster of Piontkowski in April from his position as head of the Plainville track and the public face of its long effort to win the right to operate slot machines. At the time, Piontkowski said publicly that he was retiring due to health concerns.
In their report, investigators said that Plainridge recorded Piontkowski’s cash withdrawals in its accounting books, classifying the withdrawals as money he owed the business.
“When this money was not repaid, it was recharacterized at the end of each year as a ‘distribution’ to Piontkowski” over and above his regular pay, the report states.
Plainridge Racecourse ‘can’t continue without a slot operation.’
When investigators revealed the practice to the track’s major investors, the partners bought out Piontkowski’s shares in the project and forced him out. They replaced him with John Grogan, a graduate of Harvard Business School and a former consultant for Plainridge.
The major partners in the track and its slot venture told commissioners that Piontkowski had deceived them and that, if they had known about the withdrawals, they would have stopped the practice.
Grogan told the commission at a hearing last month that he has installed new policies to improve internal controls.
But for the commission, it was a case of “way too little, way too late,” the panel wrote in its nine-page decision, released Monday.
“The burden is on them to demonstrate their suitability to operate a gaming establishment,” the commission wrote of Plainridge, in a unanimous decision. “This lack of attention to detail, interest in the operation, and blind trust does not advance their case.”
The commission drew particular note to the severance deal that the partners worked out with Piontkowski, an arrangement that did not require any money be repaid. The partners also agreed to buy Piontkowski’s shares for $1.8 million, and pay the former president a $180,000 salary for two years, according to the commission.
The partners did not investigate to find out exactly what happened and whether anyone else was involved, the commission stated.
“The terms of Piontkowski’s separation do not evidence the fresh outlook of an organization that will hold its employees accountable for their actions,” the commission wrote.
Plainville Town Administrator Joseph Fernandes was incredulous over the commission’s decision. “This is, as it pertains to Plainville, the worst day I’ve had in 21 years,” he said in an interview Monday night.
Fernandes said he understood the commission’s argument against granting the license to Plainridge, but said the decision was antithetical to the spirit of competition.
“I can’t justify some of the stuff that went on” at the track, Fernandes said, but added that Plainridge is the Commonwealth’s best hope against stopping the “hemorrhage” of gambling dollars to Rhode Island and Connecticut.
Horses and drivers continued to race Monday afternoon at Plainville. Jimmy Hardy a horse owner, driver, and trainer at the track with more than 25 years in the business, said he learned of the commission’s decision just before the start of racing Monday afternoon. “It’s kind of hard to grasp,” he said.
Hardy said the commission’s decision hurts. About 400 horsemen who race out of Plainridge could be in danger of losing their jobs, he said.
Racing spectator Cheryl Brunelle of Millville, said the commission made a mistake.
“This is a sad day,” she said. “It would have been great for the area.”
A statement issued by the track read: “Plainridge is disappointed in the decision and is evaluating its options and alternatives. Its existing harness racing operation and relationship with the community of Plainville are of paramount importance moving forward.”
Plainridge is the first of the 11 applicants to be disqualified from bidding.
Clyde Barrow, a gambling expert at the University of Massachusetts Dartmouth, said the commission’s decision “would have to increase people’s confidence that they are taking the process seriously, if they are willing to disqualify people based on their suitability. Especially a local player.”
The state’s 2011 casino law allowed licenses for three resort casinos and one slot parlor limited to 1,250 slot machines and no table games.
In addition to Raynham Park, three other developers remain in the slots competition.Mark Arsenault can be reached at email@example.com. Follow him on Twitter @bostonglobemark.