Court to determine who controls raceway
Future operations at Spokane Raceway Park are on the line today with the resumption of a Superior Court hearing where dissident shareholders are seeking to oust track operator Orville Moe.
To bolster their case, the dissidents hired a forensic auditor who claims Moe may have underreported gate receipts at the Airway Heights race track by as much as $20 million between 1974 and 1991.
The expert, Nathan Transeth, of Portland, also testified last month that his examination of Spokane Raceway Park records, provided by Moe, shows Moe has paid employees in cash “under the table,” and failed to fill out federal employment forms.
Moe also engaged in “self-dealing” by funneling race track concession, souvenir, video and advertising business to companies he largely controls, and claimed a questionable $182,500 federal income tax deduction in 2002, Transeth testified.
“I believe, absolutely, that a receiver needs to be appointed,” Transeth told the court at the Nov. 22 hearing.
A court-appointed receiver, he said, should investigate conflicts of interest involving Moe, his accountant, Larry Wyatt, and business partner, Spokane tax attorney Bob Kovacevich, Transeth testified.
A receiver would take control of the financial operations at the race complex and likely would hire a track operator to run the facility until various legal battles are concluded.
Transeth, a former accountant for the FBI and the Office of Inspector General, is scheduled to be back on the witness stand today for cross-examination by Moe’s attorney, Carl Oreskovich.
The hearing is scheduled to last through Tuesday, and could conclude with Judge Robert Austin making a decision from the bench whether to appoint a receiver to take over operations.
The Kalispel Tribe, which operates Northern Quest Casino on land it bought from Moe, also is suing Moe in another civil dispute that started when Moe used a D-8 Caterpillar with rip hooks to destroy a parking lot the tribe was enlarging.
The dissident shareholders, led by Don Materne and Ed Torrison, both of Spokane, are among more than 500 “limited partners” who bought an estimated $2.5 million worth of stock in Washington Motorsports, which built the racetrack in the 1970s. Orville Moe, doing business as Spokane Raceway Park, was the “general partner” and operator of the facility. Moe promised to share profits with his fellow investors.
But the limited partners say they have never seen any return on their investment, and some have been told by Moe their stock is worthless.
Moe said in an interview last summer that the track didn’t make enough money to return to the limited partners. He also said he has never been fully paid for his work at the race track.
After earlier legal challenges in the 1970s and 1980s failed, the dissidents filed suit in October 2003 against Moe. That suit was significantly expanded in November when the limited partners hired Portland attorney Mike Esler and Spokane attorneys John Giesa, Roger Reed and Aaron Goforth.
Their modified suit accuses Orville Moe of fraud, criminal profiteering and evasion of state and federal taxes.
It accuses him of “leading organized crime by intentionally organizing, managing, directing, supervising or financing three or more individuals with the intent to engage in a pattern of criminal profiteering.”
Moe hasn’t testified and the 67-year-old millionaire businessman may not be called as his attorney attempts to convince the court that appointment of a receiver isn’t needed.
At the Nov. 22 hearing, the limited partners’ legal team called Transeth to testify as an expert financial witness. Transeth examined business records supplied by Moe and his accounting firm, LeMasters & Daniels.
Attorney Esler asked Transeth to offer his “overall opinion” about the financial operations over the past three decades.
“I think it has operated in an unsophisticated manner (and) it has been dishonest in the conduct of its business,” Transeth testified. “There has been a pattern of dishonesty over an extended period of time.”
Oreskovich, representing Moe, jumped to his feet and objected.
The judge then asked the expert witness to explain what he meant by “dishonesty.”
Transeth explained that business records show a number of cash payments to various individuals, including employees and race participants. “Those cash payments are not recorded in the revenue,” he said. “The revenue was understated by those amounts.”
Later, he said, such cash payments constitute “a tax fraud” perpetrated on the federal and state governments.
“There are indications, all through the records, that this has occurred on multiple occasions with multiple individuals,” Transeth testified.
The financial expert also told the court that he found evidence that Spokane Raceway Park had underreported ticket sales, meaning it took in far more in gate receipts than was reflected in business records kept by Moe.
“There is a long-term pattern,” Transeth said. “Ticket sales were underreported and the amount of revenues was misstated and the amount of expenses was misstated.”
Esler specifically asked the witness about ticket sales between 1974 and 1991.
“My opinion, based on the review of these documents, is that the underreporting of revenue at Spokane Raceway Park could exceed $20 million during this period of time,” Transeth said.
Esler then asked Transeth if he found “any evidence” that Spokane Raceway Park ever filled out federal employment forms 1099 or W-2 for federal income and Social Security taxes.
“I never saw any evidence … that any 1099s or W-2s were prepared,” he answered.
Transeth later described seeing a $20,000 payment, by cash and check, to a top-fuel drag racer that was “another transaction off the books.”
“Did you find any evidence of self-dealing on the part of Orville Moe?” Esler asked.
“It was my finding … that all of the businesses that earned revenue from SRP were either owned or controlled by Orville Moe,” Transeth said, listing U.S. Fast Foods, General Broadcasting and Ideas Inc.
He also said he concluded that Moe’s subsidiary companies doing business at the track understated their revenue and listed expenses that were excessive.
Transeth also said the fact that they paid their workers in cash was known by Moe’s accountant, Larry Wyatt, of LeMasters & Daniels.
The witness said he discovered “an unusual high deduction for a consulting fee” on the 2002 Spokane Raceway tax return, prepared by Wyatt. Transeth said he couldn’t find verification for that $182,500 expenditure when he examined the check register and other business records.