LOTTO FIRM'S HANDOVER QUESTIONED QUIET SALE RAISES CONCERNS.

Byline: STEVE GEISSINGER Staff Writer

SACRAMENTO -- An Italian company with a blemished history has quietly purchased the U.S. firm that operates the California lottery, and lawmakers want to know why the acting lottery director agreed to continue the contract without consulting them or the state's attorneys.

A spokesman said acting lottery Director Joan Borucki, a gubernatorial appointee, is standing by her decision to continue contracting with GTECH, whose $4.7 billion purchase by Lottomatica is expected to be finalized by year's end.

But officials and government watchdog groups expressed concern that Borucki did not consult with them before she assured Lottomatica that California would continue its contract if the purchase took place.

``I'm not aware of the lottery seeking our advice or counsel on this matter,'' said Nathan Barankin, a spokesman for the Attorney General's Office.

Concern over fairness

Officials also questioned whether the lottery will remain fair to players, prize winners and schools, which get one-third of the revenue.

And they raised concerns about information contained in government documents that details Lottomatica's violations of antitrust regulations in Italy, as well as lotto outages, lack of audits and an absence of vendor and employee background checks.

``This decision brings into question the lottery's integrity,'' said Fred Jones, an attorney for the California Coalition Against Gambling Expansion.

``Who will the people and schools of California hold accountable if this fateful decision eventually proves unwise?''

But GTECH officials issued assurances that the company will answer any questions raised by lawmakers and address any of their concerns.

GTECH President W. Bruce Turner also said Lottomatica ``will address personal disclosure requirements'' for key employees and others, and implement ``anti-corruption and anti-bribery programs'' similar to those created by GTECH.

State Sen. Dean Florez, who learned of the ownership change only when asked to comment on the documents, said he planned to schedule an emergency hearing this month of the government-organization committee that oversees the lottery.

Florez, D-Fresno, also said Borucki's handling on the Lottomatica issue may jeopardize her confirmation to the permanent post.

``Here is a sole-source, dead-of-the-night, no-public-hearing contract, not only not brought to the Legislature, but not even brought to the (Lottery) Commission itself,'' Florez said.

``I think it's actually grounds for the Senate Rules Committee to give the acting lottery director a thumbs down.''

But lottery spokesman Rob McAndrews said Borucki briefed the Lottery Commission on the sale during meetings, sparsely attended by the public, in the lottery's Sacramento headquarters, far from the Capitol.

No formal action

He also said that, since Lottomatica planned to retain most GTECH operations and senior management, there was no need for the commission to formally act on the matter.

That compares with Texas and Rhode Island, which held public hearings on the issue.

In advance of the sale, lottery agencies in California, Nebraska and Oregon sent agents to Italy, where they joined the FBI, State Department, Interpol and Italian police to scrutinize Italian criminal files.

The North American Association of State and Provincial Lotteries also hired an accounting firm to answer financial questions about Lottomatica.

While the findings were generally positive, analysts did discover that the Italian government had fined Lottomatica $7.5 million for colluding with a competitor and a similar penalty for a one-day outage of the country's games, according to records acquired under a California Public Records Act request.

``We were aware of all of those issues, and none of them were found to have any impact on GTECH's ability to meet the terms of our contract with them,'' McAndrews said. ``That's what the decision was about -- whether we would be terminating our contract with GTECH based on the fact that they were merging with Lottomatica.''

Records show lottery investigations also raised concerns that Lottomatica does not conduct background checks on new employees and vendors. The Italian government also does not verify it is receiving the correct amount of revenue from Lottomatica.

GTECH has been the California lottery's on-line contractor since it launched the games in 1986.

The governor-appointed Lottery Commission normally weighs major new contracts or contract renewals under the 1984, voter-approved Lottery Act. But the authors didn't address mergers involving major contractors.

steve.geissinger(at)angnewspapers.com

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