Pulltab Settlement Reached Toronto Firm To Pay $500,000, Ending State Gambling Inquiry

A Canadian company will pay $500,000 under a settlement reached with the state Gambling Commission, which accused the company of secretly acquiring a Bellevue pulltab manufacturer without first getting a license.

Gaming Lottery Corp. of Toronto could end up paying $750,000 under the settlement signed Thursday by Frank Miller, executive director of the Gambling Commission.

“This sends a strong message to other people not to do this. GLC operated without a license and they hid it,” Miller said.

Jack Lowery, a Seattle attorney representing GLC, said the company did nothing improper but decided to settle the case to avoid a long and costly court fight.

The commission still has a pending lawsuit against Ace Novelty Co., which sold the Bellevue pulltab business to GLC.

The commission had been expected to settle its case against GLC earlier this year, but the company refused to sign off unless it was assured it would not face criminal prosecution, the Seattle Post-Intelligencer reported Friday, citing a knowledgeable source.

The P-I said the source told it the state attorney general’s office recently completed a review of the matter and decided not to file charges. That cleared the way for the settlement of the civil lawsuit filed against GLC by the state in April.

“We were able to achieve a much better result with this civil penalty than had the case been tied up in the criminal courts,” Miller said. “But we had an obligation to send it off for criminal review.”

GLC still has to sell some assets from the pulltab business it bought from Ace Novelty. The settlement calls for GLC to pay the Gambling Commission one-third of the sales price of those remaining assets up to a maximum of $750,000, and a minimum of $500,000.

GLC, which had hoped to become a major player in the U.S. gambling industry, had to take a $3 million loss on its $4.3 million purchase of Ace Novelty’s pulltab business, the P-I said. GLC also had negotiated a $33.5 million purchase of Seattle’s Trade Products, the largest U.S. manufacturer of pulltabs, but that deal fell through because of GLC’s problems with the Gambling Commission.

Pulltabs are similar to lottery tickets and are dispensed at licensed businesses such as taverns. Players break open the paper to find out if the tab has matching numbers or symbols that are good for a cash prize. Washington has the largest pulltab market in the country.

GLC also tried to acquire Stuart Entertainment Inc. of Iowa, which makes and markets bingo cards and break-open pulltabs. But Stuart Entertainment backed out of the deal earlier this year because of GLC’s licensing problems in Washington state.

Because of the regulatory problems it has faced, GLC announced in its most recent annual report that it plans to dispose of all its paper gaming products such as pulltabs by early next year and invest instead in electronic gaming.

The state’s lawsuit said GLC began negotiating for Ace Novelty’s pulltab business in late 1994. The Gambling Commission reminded Ace to notify the commission of any sale, and Ace responded that no sale had occurred.

Ace and GLC reached agreement on the sale in January 1995, and a trust account containing the $4.3 million for the purchase was set up pending the sale’s completion.

A month later, GLC applied for a license with the Gambling Commission. That license was denied because the company refused to disclose names of investors behind the money used to buy the pulltab business, the suit said.

About 90 percent of the money came from European sources through a Swiss bank, Miller said.

“We could never determine who was behind this company,” Miller said. “This group was unable to demonstrate to us where the money came from, and that’s a significant factor in determining qualification for a license.”

But Lowery said the commission was supplied with complete background information on all of GLC’s directors, as well as its major shareholders.

“GLC raised some of the money in Europe through one of the oldest lending firms on this planet,” Lowery said. “Some investors wanted to remain anonymous. … We provided the commission with proof that none of the people who bought the stock held more than 1 percent interest in the company.”