0001
1                  TRANSCRIPT OF PROCEEDINGS
2                         BEFORE THE
3                  TEXAS LOTTERY COMMISSION
4                        AUSTIN, TEXAS
5   REGULAR MEETING OF THE       
    TEXAS LOTTERY COMMISSION     
6   FRIDAY, OCTOBER 2, 2009      
7   
8                     COMMISSION MEETING
9                   FRIDAY, OCTOBER 2, 2009
10                 BE IT REMEMBERED THAT on Friday,
11  the 2nd day of October 2009, the Texas Lottery
12  Commission meeting was held from 9:02 a.m. to
13  1:15 p.m., at the Offices of the Texas Lottery
14  Commission, 611 East 6th Street, Austin, Texas  78701,
15  before CHAIRMAN MARY ANN WILLIAMSON and COMMISSIONERS
16  DAVID J. SCHENCK and J. WINSTON KRAUSE.  The following
17  proceedings were reported via machine shorthand by
18  Aloma J. Kennedy, a Certified Shorthand Reporter of
19  the State of Texas, and the following proceedings were
20  had:
21  
22  
23  
24  
25  
0002
1                         APPEARANCES
2   
    CHAIRMAN:
3            Ms. Mary Ann Williamson
4   COMMISSIONERS:
             Mr. David J. Schenck
5            Mr. J. Winston Krause
6   GENERAL COUNSEL:
             Ms. Kimberly Kiplin
7   
    DEPUTY EXECUTIVE DIRECTOR:
8            Mr. Gary Grief
9   DIRECTOR, CHARITABLE BINGO OPERATIONS:
             Mr. Philip D. Sanderson
10  
11  
12  
13  
14  
15  
16  
17  
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21  
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25  
0003
1                    TABLE OF CONTENTS
2                                                     PAGE
3   PROCEEDINGS - TUESDAY, AUGUST 18, 2009............   9
4   AGENDA ITEM NO. I - Meeting Called to Order.......   9
5   AGENDA ITEM NO. II - Consideration of and
    possible discussion and/or action on
6   nominations and/or appointments to the
    Bingo Advisory Committee..........................   9
7   
    AGENDA ITEM NO. III - Report, possible
8   discussion and/or action on calendar year
    2nd quarter conductor information.................  12
9   
    AGENDA ITEM NO. IV - Consideration of
10  and possible discussion and/or action,
    including proposal, on amendments to
11  16 TAC 402.405 relating to
    Temporary Authorization...........................  16
12  
    AGENDA ITEM NO. V - Consideration of and
13  possible discussion and/or action,
    including proposal, on repeal of 16 TAC
14  402.702 relating to Location Verification
    Inspection; amendments to 16 TAC 402.422
15  relating to Amendment to a Regular License
    to Conduct Charitable Bingo; amendments to
16  16 TAC 402.409 relating to Amendment for
    Change of Premises or Occasions Due to
17  Lease Termination or Abandonment;
    amendments to 16 TAC 402.101 relating to
18  Advisory Opinions; amendments to 16 TAC
    402.102 relating to Bingo Advisory
19  Committee; amendments to 16 TAC 402.103
    relating to Training Program; and/or new
20  rule 16 TAC 402.411 relating to Late
    License Renewal...................................  17
21  
    AGENDA ITEM NO. VI - Consideration of and
22  possible discussion and/or action,
    including proposal, on new rule, 16 TAC
23  402.104 relating to Gambling Promoter
    and Professional Gambler........................  19
24  
25  
0004
1               TABLE OF CONTENT (continued)
2                                                     PAGE
3   AGENDA ITEM NO. VII - Consideration of and
    possible discussion and/or action,
4   including proposal, on amendments to
    16 TAC 401.153 relating to Qualifications
5   for License.......................................  19
6   AGENDA ITEM NO. VIII - Report by the
    Charitable Bingo Operations Director and
7   possible discussion and/or action on the
    Charitable Bingo Operations Divisions
8   activities, including updates on HB 1474
    implementation, status of licensees,
9   rulemaking and form revisions, audits,
    pull-tab review, special projects, and
10  upcoming operator training......................... 40
11  AGENDA ITEM NO. IX - Report, possible
    discussion and/or action on lottery sales
12  and revenue, game performance, new game
    opportunities, advertising, market
13  research, and trends..............................  43
14  AGENDA ITEM NO. X - Report, possible
    discussion and/or action on transfers
15  to the State......................................  55
16  AGENDA ITEM NO. XI - Consideration of and
    possible discussion and/or action on
17  Lotto Texas procedures............................  57
18  AGENDA ITEM NO. XII - Report, possible
    discussion and/or action on the 81st
19  Legislature.......................................  59
20  AGENDA ITEM NO. XIII - Report, possible
    discussion and/or action, including
21  procurement, on the agencys audit
    services..........................................  62
22  
    AGENDA ITEM NO. XIV - Report, possible
23  discussion and/or action on the lottery
    operations and services procurement...............  63
24  
25  
0005
1               TABLE OF CONTENT (continued)
2                                                     PAGE
3   AGENDA ITEM NO. XV - Consideration of and
    possible discussion and/or action on the
4   lottery operator contract, including
    whether the negotiation of the lottery
5   operator's contract in an open meeting
    would have a detrimental effect on the
6   Commission's position in negotiations of
    the lottery operator contract.....................  65
7   
    AGENDA ITEM NO. XVI - Consideration of
8   and possible discussion and/or action,
    including adoption or withdrawal, on
9   new rule 16 TAC 401.317 relating to
    terminal printed instant game rule................  74
10  
    AGENDA ITEM NO. XVII - Consideration of
11  and possible discussion and/or action,
    including adoption or withdrawal, on
12  amendments to 16 TAC 401.301 relating
    to General Definitions............................  74
13  
    AGENDA ITEM NO. XVIII - Consideration of
14  and possible discussion and/or action,
    including adoption or withdrawal, on
15  amendments to 16 TAC 401.302 relating
    to Instant Game rules.............................  74
16  
    AGENDA ITEM NO. XIX - Consideration of
17  and/or report, possible discussion and/or
    action on FY 2010 Internal Audit Activity
18  Plan, external and internal audits and/or
    reviews relating to the Texas Lottery
19  Commission, and/or on the Internal Audit
    Departments activities, including an
20  internal audit on retailer accounts and a
    review of the Lottery Sales Representative
21  program...........................................  83
22  AGENDA ITEM NO. XX - Report, possible
    discussion and/or action on the Mega
23  Millions game and/or contract.....................  93
24  AGENDA ITEM NO. XXI - Report, possible
    discussion and/or action on GTECH
25  Corporation.......................................  93
0006
1               TABLE OF CONTENT (continued)
2                                                     PAGE
3   AGENDA ITEM NO. XXII - Report by the
    Executive Director and/or possible
4   discussion and/or action on the
    agencys operational status, agency
5   procedures, and FTE status........................  93
6   AGENDA ITEM NO. XXIII - Consideration of the
    status and possible entry of orders in:
7        A. Docket No. 362-09-4634  Saigon Taipei
            Supermarket.
8        B. Docket No. 362-09-4635  K Food Store.
         C. Docket No. 362-09-4636  Gulftech.
9        D. Docket No. 362-09-4637  Sohls
            Clifton Corner.
10       E. Docket No. 362-09-4960  EZ Food Mart.
         F. Docket No. 362-09-4961  North Fry
11          Road Shell.
         G. Docket No. 362-09-4962  Oak Food
12          Store #2.
         H. Docket No. 362-09-5233  All Stop Food
13          Market.
         I. Docket No. 362-09-5234  One Stop.
14       J. Docket No. 362-08-3473  Lucky 1 Food
            Mart.
15       K. Docket No. 362-08-3476  7 AM Food
            Store.
16       L. Docket No. 362-08-3474  El Amigo.
         M. Docket No. 362-08-3475  Super Corner.
17       N. Docket No. 362-09-4299.B  Connie
            Barrington.
18       O. Docket No. 362-09-4300.B  Nathaniel G.
            Carandang.
19       P. Docket No. 362-09-4301.B  Joanie
            Plunkett.
20       Q. Docket No. 362-08-2778.B  Daytime
            Bingo, Inc.
21       R. Case No. 2010-1  Gary Paul Garrison......  97
22  AGENDA ITEM NO. XXIV - Public comment............. 153
23  
24  
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1               TABLE OF CONTENT (continued)
2                                                     PAGE
3   AGENDA ITEM NO. XXV - Commission may meet in
    Executive Session:
4        A. To deliberate the appointment,
            employment, and duties of the
5           Executive Director pursuant to
            Section 551.074 of the Texas
6           Government Code.
         B. To deliberate the duties and
7           evaluation of the Deputy
            Executive Director pursuant to
8           Section 551.074 of the Texas
            Government Code.
9        C. To deliberate the duties and
            evaluation of the Internal Audit
10          Director pursuant to Section
            551.074 of the Texas Government
11          Code.
         D. To deliberate the duties and
12          evaluation of the Charitable Bingo
            Operations Director pursuant to
13          Section 551.074 of the Texas
            Government Code.
14       E. To deliberate the duties of the
            General Counsel pursuant to
15          Section 551.074 of the Texas
            Government Code.
16       F. To deliberate the duties of the
            Human Resources Director pursuant
17          to Section 551.074 of the Texas
            Government Code.
18       G. To receive legal advice regarding
            pending or contemplated litigation
19          pursuant to Section 551.071(1)(A)
            and/or to receive legal advice
20          regarding settlement offers pursuant
            to Section 551.071 (1) (B) of the
21          Texas Government Code and/or to
            receive legal advice pursuant to
22          Section 551.071 (2) of the Texas
            Government Code, including but not
23          limited to:
24  
25  
0008
1               TABLE OF CONTENT (continued)
2                                                     PAGE
3               First State Bank of DeQueen,
                et al., v. Texas Lottery
4               Commission.
                James T. Jongebloed v. Texas
5               Lottery Commission.
                Texas Lottery Commission v.
6               Leslie Warren, Texas Attorney
                General Child Support Division,
7               Singer Asset Finance Company,
                L.L.C., and Great-West Life &
8               Annuity Insurance Company.
                Gametech International, et al.
9               v. Greg Abbott.
                Employment law, personnel law,
10              procurement and contract law,
                evidentiary and procedural law,
11              and general government law.
                Lottery Operations and Services
12              procurement and/or contract.
                Mega Millions game and/or contract.
13              Request for Attorney General
                Opinion No. RQ-0771-GA.
14       H. To deliberate the negotiation of the
            lottery operator's contract pursuant
15          to Section 467.030 of the Texas
            Government Code........................... 157
16  
    AGENDA ITEM NO. XXVI - Return to open session
17  for further deliberation and possible action
    on any matter discussed in Executive Session...... 159
18  
    AGENDA ITEM NO. XXVII - Adjournment............... 159
19  
    REPORTER'S CERTIFICATE............................ 160
20  
21  
22  
23  
24  
25  
0009
1                    P R O C E E D I N G S
2                   FRIDAY, OCTOBER 2, 2009
3                         (9:02 a.m.)
4                      AGENDA ITEM NO. I
5                 CHAIRMAN WILLIAMSON:  Good morning.  I
6   would like to call the meeting of the Texas Lottery
7   Commission to order.  Today is October the 2nd.  The
8   time is 9:02.  Commissioners Schenck and Krause are
9   present, so we do have a quorum.
10                All right.  Let's get started.
11                    AGENDA ITEM NO. II
12                CHAIRMAN WILLIAMSON:  The first item
13  is -- I believe this is Phil's -- on the Bingo
14  Advisory Committee nominations or appointments
15  discussion.
16                So Phil.
17                MR. SANDERSON:  Thank you, Chairman.
18  Good morning, Commissioners.  In your notebook were 12
19  nomination forms that we had received.  I believe I
20  provided you another six nomination forms that have
21  come in in the last week.  We've got 18 nominees.
22  Just a cursory review of those appear to be a good
23  selection of candidates to choose for the three vacant
24  positions.
25                We will interview, phone interview those
0010
1   individuals.  The BAC workgroup for the nominations
2   has been supplied the nomination forms and they, too,
3   will interview the nominees.  And at the next
4   Commission meeting, we'll bring back a recommendation
5   for the three positions that are vacant.
6                 The next BAC meeting right now is
7   scheduled for October the 21st.  And so if we continue
8   with that one, we may just have six members present.
9   But we could delay it into November, after
10  appointments are made, so that we could have a full
11  quorum or full nine members.
12                COMMISSIONER SCHENCK:  Speaking for
13  myself, Phil, I would think that would be a good idea,
14  to go ahead and delay until we have those other seats
15  filled.  It sounds like you have a good number of
16  applicants.  And looking preliminarily at the
17  application forms, I think you're going to be able to
18  fill those seats.
19                MR. SANDERSON:  I believe so.
20                COMMISSIONER SCHENCK:  So I think it
21  would make sense to wait a little bit.
22                MR. SANDERSON:  Okay.
23                CHAIRMAN WILLIAMSON:  Commissioner, do
24  you have any comments.
25                COMMISSIONER KRAUSE:  I want to look at
0011
1   all the new blood.
2                 CHAIRMAN WILLIAMSON:  Okay.  Great!
3                 I do have one person that's interested
4   in commenting today.  As you can tell, we have a very
5   thick, heavy agenda today.  So I'm going to urge
6   anyone, if you have the opportunity to comment, to
7   keep it as short as possible, just in light of the
8   time.
9                 Jamie McNally.
10                MR. McNALLY:  Good morning,
11  Commissioners.  My name is Jamie McNally.  I'm with
12  the Law Firm of Clark, Thomas & Winters here in town,
13  and I'm here today representing Littlefield Corp.  And
14  I signed up to speak with you this morning before I
15  heard the report.  And I do understand that you have a
16  number of applicants to interview for the open
17  positions.
18                And I was just going to encourage you,
19  on behalf of Littlefield, to actually replace -- when
20  you do consider replacing the positions, to do it with
21  new nominees.  We think that a regular supply of
22  fresh, new perspectives on the committee will be
23  beneficial to both the committee and the Commission.
24                And I understand there's been some
25  frustration in the past on the lack of interest in
0012
1   some representatives in the industry, and I just
2   wanted you to know that I believe at least two of
3   those folks that supplied nominations are from
4   Littlefield and that they would be willing and
5   interested to serve.
6                 So thank you very much for your time,
7   Commissioners.
8                 CHAIRMAN WILLIAMSON:  Thank you.
9                     AGENDA ITEM NO. III
10                CHAIRMAN WILLIAMSON:  The next item --
11  let's see.  Phil, I believe this is yours, on the
12  second quarter conductor information.
13                MR. SANDERSON:  This is a report of the
14  second quarter information from the conductors that
15  are filed.  And Mr. Bruce Miner will be providing the
16  update on that, along with the presentation.
17                MR. MINER:  Good morning, Commissioners,
18  Chairman Williamson.  Let me bring it up real quick.
19                For the record, my name is Bruce Miner,
20  and I'm the Manager of the Taxpayer Services
21  Department of the Charitable Bingo Division.
22                I'm here to present you the information
23  for the first and second quarters of 2009, as reported
24  by our licensed charities.
25                This slide shows the gross receipts for
0013
1   the first two quarter of 2009 is approximately
2   3.6 percent greater than the first and second quarters
3   of 2008, and 6.8 percent greater than the first and
4   second quarters of 2006.
5                 Instant bingo sales increased from
6   $132.2 million in the first and second quarters of
7   '06, to $170.1 million for the first two quarters of
8   2009.
9                 Regular card sales continue to decline,
10  from $127.7 million for the two quarters of '06 to
11  $108.5 million for the same two quarters in 2009.  And
12  electronic sales increased slightly, from
13  $77.6 million for the first half of 2006, as compared
14  to $81.7 million for the same period of 2009.
15                This slide shows the prize payout
16  percentage for regular bingo and instant bingo for the
17  past four years.  The prize payout percentages for
18  regular bingo show a slight decrease over the last
19  year; however, it is still equal to or higher than the
20  prior years.  Instant bingo prize payouts are
21  routinely running just over 72 percent.
22                This slide captures the trend of net
23  receipts, which are gross receipts minus prizes.
24  Total net receipts for the first half of 2009
25  increased 5.3 percent over the same period of 2008,
0014
1   and increased 7.3 percent over the first half of 2006.
2                 And this bar chart compares each of the
3   major categories of expenses, along with the
4   charitable distributions which are shown on the right
5   side of the slide.  And it shows the amount of the
6   disbursements for the first half of each year since
7   2006.  The highest disbursement categories continue to
8   be salaries and rent payments.
9                 And this slide shows the average
10  attendance per occasion as well as average spend per
11  player shown over the past four years.  And it shows
12  that the average attendance has gradually increased
13  since 2007 but still down from 2006.  However, there
14  has been a 17.3 percent increase in the average spend
15  rate per player since 2006.
16                And this chart reflects the revenue --
17  the net revenue, the reported distributions and the
18  required distributions, required distributions which
19  is based on the 35 percent calculations currently done
20  for the first and second quarter of each of the past
21  four years.
22                We have modified this slide, at
23  Commissioner Schenck's request, so that it will
24  indicate the net revenue for the period used to
25  determine the actual and the required distribution.
0015
1   So the net revenue for the fourth quarter of 2008 and
2   the first quarter of 2009 was 6.7 percent greater than
3   the same reporting periods last year and 12.1 percent
4   greater than the reporting period for 2006.
5                 Reported charitable distributions have
6   increased 10.1 percent since 2006.  The reported
7   charitable distributions for the first two quarters of
8   2009 are the highest they've been since the first two
9   quarters of the Year 2000.  And you'll note that the
10  actual reported charitable distributions shown at the
11  bottom have been around three times the amount of the
12  required distributions shown in the green line.
13                And I would like to remind you that the
14  calculations for the required minimum distributions
15  have been changed as a result of House Bill 1474, so
16  this information on this slide will change in the
17  future.
18                In your notebook is additional
19  information from our analysts performed by Arlette
20  Taylor.  And that concludes my report.  And are there
21  any questions?
22                CHAIRMAN WILLIAMSON:  Thank you.
23                Commissioners?
24                COMMISSIONER SCHENCK:  No, thank you.
25                COMMISSIONER KRAUSE:  No, ma'am.
0016
1                 CHAIRMAN WILLIAMSON:  Thank you.
2                 MR. MINER:  Thank you.
3                     AGENDA ITEM NO. IV
4                 CHAIRMAN WILLIAMSON:  Item No. IV,
5   consideration and possible discussion or action on a
6   proposal on amendments to 16 TAC 402.405 relating to
7   temporary authorization.
8                 Sandy, this is your item, please, ma'am.
9                 MS. JOSEPH:  Good morning,
10  Commissioners.  For the record, my name is Sandra
11  Joseph, Special Counsel.
12                This item concerns proposed amendments
13  to Rule 402.405 relating to temporary authorization.
14  The purpose of the amendments is to clarify items that
15  must be in compliance with the Act and the rules for
16  charitable bingo for each license type before a
17  temporary authorization will be issued.
18                This rule has been drafted in response
19  to recommendations of Internal Audit regarding bingo.
20  A hearing is planned for November 3, 2009.  The staff
21  recommends that the Commission approve the proposal of
22  these draft amendments in the Texas Register in order
23  to receive comments for a period of 30 days.
24                CHAIRMAN WILLIAMSON:  Thank you, Sandy.
25                Questions, Commissioners?
0017
1                 COMMISSIONER SCHENCK:  None.
2                 CHAIRMAN WILLIAMSON:  Thank you.  I
3   believe this is an action item?
4                 MS. KIPLIN:  Yes, it is.  Need a motion.
5                 CHAIRMAN WILLIAMSON:  Okay.
6                 MS. JOSEPH:  And I have a T-bar that I
7   would like to have your approval on, but I would like
8   to withhold until after the next item.
9                 COMMISSIONER KRAUSE:  I make a motion
10  that we approve this draft language.
11                COMMISSIONER SCHENCK:  Second the
12  motion.
13                CHAIRMAN WILLIAMSON:  All in favor?
14                COMMISSIONER SCHENCK:  Aye.
15                CHAIRMAN WILLIAMSON:  Aye.
16                COMMISSIONER KRAUSE:  Aye.
17                CHAIRMAN WILLIAMSON:  Motion passes.
18                     AGENDA ITEM NO. V
19                CHAIRMAN WILLIAMSON:  Then I guess we're
20  on to Items --
21                MS. JOSEPH:  Five.
22                CHAIRMAN WILLIAMSON:  -- V relative to
23  House Bill 1475.  Sandy, I'll just let you take it
24  away since there is so much there.
25                MS. JOSEPH:  All right.  Yes.  This item
0018
1   concerns rulemaking proceedings to repeal, amend or
2   propose new rules.  These are charitable bingo rules
3   402.702, 402.422, 402.409, 402.101, 402.102, 402.103
4   and 402.411.
5                 The matters included under Tab V are all
6   staff recommendations that the Commission approve
7   initiation of rulemaking proceeding to repeal, amend
8   or adopt new rules, to implement provisions of HB
9   1474, which was effective October 1st, as recently
10  adopted by the Legislature.
11                In addition, language is included in
12  402.102 pertaining to the Bingo Advisory Committee to
13  provide information on grounds for inquiry and
14  possible removal of a person from the BAC and to
15  provide more flexibility in the scheduling of BAC
16  meetings.
17                I know that you have been individually
18  briefed on these rules; and, therefore, I do not plan
19  to go into more detail, but I would be happy to answer
20  any questions.
21                CHAIRMAN WILLIAMSON:  Commissioners, do
22  you have questions?
23                COMMISSIONER SCHENCK:  I don't have any
24  questions.  We'll look forward to public comment on
25  it.
0019
1                 COMMISSIONER KRAUSE:  No questions.
2                 CHAIRMAN WILLIAMSON:  All right.  Let's
3   see.  Is there a motion?
4                 COMMISSIONER SCHENCK:  I move we adopt
5   staff recommendation and publish these rules for
6   public comment.
7                 COMMISSIONER KRAUSE:  Second.
8                 CHAIRMAN WILLIAMSON:  All in favor?
9                 COMMISSIONER SCHENCK:  Aye.
10                CHAIRMAN WILLIAMSON:  Aye.
11                COMMISSIONER KRAUSE:  Aye.
12                CHAIRMAN WILLIAMSON:  Thank you, Sandy.
13                Phil, thank you for the hard work of
14  your staff.  I know it's been very involved writing
15  these kind of rules, so I want to commend you on the
16  job that you guys have been doing.
17                MR. SANDERSON:  Thank you.  And Kim's
18  staff also as well.
19                CHAIRMAN WILLIAMSON:  And Kim's staff as
20  well.
21                COMMISSIONER SCHENCK:  Thank God for
22  lawyers.
23                (Laughter)
24                AGENDA ITEM NOS. VI AND VII
25                CHAIRMAN WILLIAMSON:  Okay.  Let's see.
0020
1   Item VI.  This is consideration of and possible
2   discussion and/or action, including proposal, of new
3   Rule 167 TAC 402.104 relating to gambling promoter and
4   professional gambler.  I think there's two items right
5   here together -- right? --
6                 MS. KIPLIN:  Yes.
7                 CHAIRMAN WILLIAMSON:  -- VI and VII?
8                 MS. KIPLIN:  We would like to take those
9   up together.
10                CHAIRMAN WILLIAMSON:  We'll take these
11  up at the same time.
12                Pete, these are your items.  And take it
13  away.
14                MR. WASSDORF:  Good morning,
15  Commissioners.  For the record, my name is Pete
16  Wassdorf.  I'm an Assistant General Counsel with the
17  Commission's Legal Services Division.
18                You have before you a proposed new rule
19  under the Bingo Enabling Act to define the terms
20  "professional gambler" and "gambling promoter."  And
21  you also have Item No. VII, an amendment to an
22  existing rule under the State Lottery Act to define
23  the term "professional gambler."
24                Similar rules were first proposed and
25  published for comment on November 14, 2008, as a
0021
1   result of public comment and discussions with and
2   among the Commissioners in public meeting.  The
3   proposed rules were withdrawn and new proposals were
4   made and published on March 6th.
5                 Concurrently with this process, the Hon.
6   Aaron Pena, then Chair of the House Committee on
7   Criminal Jurisprudence, requested an Attorney
8   General's Opinion on the Commission's first proposal.
9   The Commission staff provided the Attorney General's
10  Opinion Committee with information on the Commission's
11  reasoning on the proposed rules, and we notified the
12  Attorney General's Opinion Committee of the withdrawal
13  of the original proposed rules.  And we provided them
14  with text of the newly proposed rules and amendment.
15                The statutory deadline for the Attorney
16  General's Opinion was June 2nd.  However, no opinion
17  was issued at that time, and the proposed rules that
18  were proposed on March 6th were withdraw by operation
19  of law on September 7th.
20                At the Commission meeting in
21  anticipation -- and the August Commission meeting, in
22  anticipation of that automatic withdrawal, the
23  Commission instructed staff to resubmit the proposed
24  rules at the next meeting, and so now you have those
25  rules before you at this time.
0022
1                 CHAIRMAN WILLIAMSON:  Thank you, Pete.
2   And from what I understand, these are exactly like the
3   ones we had before?
4                 MR. WASSDORF:  Yes, they are exactly the
5   same.
6                 CHAIRMAN WILLIAMSON:  And I know
7   Commissioner Schenck had a great deal of involvement
8   with that.  So would y'all like to talk about this or
9   have any comments on this?
10                COMMISSIONER SCHENCK:  I think the world
11  has heard enough from me on this probably, but this is
12  a very sensitive issue.  We don't have enough teeth in
13  our existing efforts to enforce this legislative
14  mandate and at the same time want to be sensitive to
15  the application of Texas law to conduct outside the
16  State of Texas and the Legislature's intention to
17  reach activities within its ambit, and I think we've
18  tried to be mindful of all of those interests in
19  fashioning a rule.  And I understand that we may not
20  please everybody, but this is to this point I think
21  our best thinking on this.
22                MR. WASSDORF:  Kim Kiplin has a T-bar on
23  this issue if the Commission decides to take any
24  action on it.
25                MS. KIPLIN:  Madam Chairman, I will note
0023
1   that I believe you have at least one witness
2   affirmation form --
3                 CHAIRMAN WILLIAMSON:  Right.
4                 MS. KIPLIN:  -- requesting to comment on
5   this.  I didn't know what you wanted to do about that.
6                 CHAIRMAN WILLIAMSON:  All right.  First,
7   Commissioner Krause, if you have any comments you
8   would like to make.
9                 COMMISSIONER KRAUSE:  Well, my comment
10  is, is that I am the one that killed this rulemaking
11  in the last meeting when it was at the very end of the
12  process.  And, you know, primarily it's because I
13  wasn't up to speed on the issue.
14                What my main concern has been is, is I
15  don't want the Lottery Commission to be used by the
16  bingo industry folks that we regulate to put us in a
17  position where we're picking winners and losers.
18  We're not here to benefit one segment over another, to
19  create a competitive advantage or a competitive
20  disadvantage for those people in the bingo industry.
21                And so I feel like that now that I
22  understand, you know, what the staff recommendation is
23  and some historical context for how the laws evolved
24  along that line, that I'm ready to go forward with the
25  good work that our staff has done.
0024
1                 CHAIRMAN WILLIAMSON:  Thank you.
2                 Mr. Bresnen.  Once again, we will
3   encourage you to keep it sensitive to the time,
4   effectively.
5                 MS. KIPLIN:  Commissioners, Mr. Bresnen
6   provided me with also written comments.  So at this
7   time I will distribute that to each of you.
8                 CHAIRMAN WILLIAMSON:  Okay.  And I want
9   to thank you for providing written comment.  I really
10  like that.
11                MR. BRESNEN:  Yes, ma'am.  I am
12  sensitive to the time.  Five minutes seems like a
13  lifetime when you're used to three minutes at the
14  Legislature, so I'll try to conform to a legislative
15  expectation, but I would answer any questions that
16  y'all would ask and ask that that not be counted
17  against me, if I might.
18                This is the first time I've had to
19  address y'all.  I was up to my neck in House Bill 1474
20  during the legislative session, and so I wasn't down
21  here during that time.  It's my first opportunity to
22  thank Phil and the staff, everybody here who worked
23  with us on House Bill 1474, and I appreciate the
24  Commission taking prompt action to implement it.
25                I'm here today on behalf of the Bingo
0025
1   Interest Group, and my name is Steve Bresnen, for the
2   recorder, to make comments on the draft rule on
3   defining "professional gambling" and "gambling
4   promoter."
5                 The first thing, for the new members, I
6   want to make it clear, I represent commercial lessors
7   the Bingo Interest Group.  These two rules do not
8   apply to the commercial lessor, so you might
9   reasonably ask why would I be talking about them?  And
10  the reason I'm talking about them is the very concern
11  that you mentioned, Commissioner Krause, in that how
12  this rule is applied going forward could have a very
13  detrimental effect on the market.  We have relatively
14  few market participants, in particular at the
15  distributor level.  About three distributors control
16  about 80 percent of the bingo market.
17                You were asked to look into this.  And
18  the reason this whole issue came up is basically it
19  evolves out of a long dispute between a distributor
20  and a manufacturer, over a very long period of time,
21  probably a decade.  And our concern is that if you
22  apply this rule retroactively to conduct that occurred
23  before the effective date of this rule, you don't have
24  the slightest idea what someone may have done in their
25  past life 25, 30 years ago.  And my concern is, is
0026
1   that your resources are going to be jerked around by
2   people coming in and saying, "Well, he did this, and
3   he did it 25 years ago," or 15 years ago.
4                 And the abilities in the administrative
5   process for y'all to find the facts of that are very
6   limited.  If someone was convicted of the offense,
7   there is a public record out there, the person has had
8   due process, presumably prosecutors have used subpoena
9   power, maybe wiretaps, a lot of tools that y'all don't
10  have to document that.
11                But under the way the rule is drafted
12  right now, it says you merely have to have engaged in
13  that conduct in Texas, which means that a person could
14  have been acquitted under Texas law under the Penal
15  Code.  But you can come back under the Administrative
16  Procedures Act, using the burden of proof of a
17  preponderance of the evidence rather than beyond a
18  reasonable doubt and find that that person engaged in
19  that conduct.  They could actually have been acquitted
20  under the Penal Code and a second bite at the apple
21  could be taken at the regulatory agency.
22                If someone brings you a complaint that
23  appears to be credible under that set of facts, in the
24  past historically, the agency has been pretty diligent
25  about trying to get to the bottom of complaints.  I'm
0027
1   very concerned that if this has a retroactive
2   application or if it doesn't speak to convictions
3   under these two definitions of conduct in Texas, that
4   that's exactly what's going to happen to you.
5                 COMMISSIONER SCHENCK:  Mr. Bresnen --
6                 MR. BRESNEN:  Yes, sir --
7                 COMMISSIONER SCHENCK:  -- I'm sorry to
8   interrupt, and I guess we won't count this against
9   your time.  But we have this problem because the
10  Legislature gave us this problem.
11                MR. BRESNEN:  Yes, sir.
12                COMMISSIONER SCHENCK:  The Legislature
13  has separately barred from participation people that
14  are convicted of crimes and people who are, in fact,
15  fitting into the category of "professional gambler" or
16  a "gambling promoter."  So at some point I know we may
17  not please -- the fact that we're not going to please
18  those of us who might feel that the Legislature was
19  over-reaching and getting at too much activity is the
20  price we have to pay for accepting the reality that
21  the Legislature makes the laws of this state and we do
22  not.
23                What we're trying to do is put some
24  meaning into these rules so that they have some
25  prospective potentially retroactive application, I
0028
1   suppose.  If a person is or is not a gambling
2   promoter, that is simply a question of fact, and the
3   Legislature has posed that question to us.  Now, I
4   don't know if you were at the last meeting, but we
5   had --
6                 MR. BRESNEN:  I've read the transcript.
7                 COMMISSIONER SCHENCK:  Yes.  No one
8   seems to be happy with this existing rule, which seems
9   to be a sign to me that we are accommodating to some
10  degree the competing interests involved here.  So if
11  you have a more specific concern of the facts --
12                MR. BRESNEN:  Well, I do, and I think
13  it's right on point, and my written comments also
14  address this.  First of all, you are members of the
15  executive branch and some of you, maybe all of you by
16  now, have been confirmed by the Texas Senate.  You
17  have prosecutorial discretion in how you go forward
18  and administer these laws.
19                You are not required to go down every
20  rabbit trail that somebody presents you.  And you have
21  been allocated very few resources to enforce the bingo
22  laws.  If you are rabbit-trailed and your resources
23  are taking off in that direction, then you're not
24  enforcing the laws that have an impact directly on
25  Texas charities.
0029
1                 If you have a retro- -- and I believe
2   it's within your discretion to apply this rule going
3   forward.  You're establishing a standard that no one
4   has known about.  If there are prior discretions, you
5   can operate under the plain language of the statute.
6   And if a case can be made, then that person can be
7   taken out of business.
8                 And with respect to the draft rule as it
9   stands, I can be in Las Vegas working full-time as a
10  gambler, I can pay all my bills with my winnings, I
11  can buy a condo overlooking the Strip so I can walk to
12  work, and I will not be considered a professional
13  gambler under this rule, because I have not been
14  convicted because that conduct in Las Vegas is
15  illegal.
16                I submit to you that the definition that
17  "professional gambler" not being defined in the Act
18  has to be given the plain language meaning that those
19  words connote.  Anybody would say that a person under
20  the scenario that I just described is a professional
21  gambler, without regard to a conviction out of state.
22  On the other hand, "gambling promoter" is defined in
23  Texas law.  Y'all have incorporated by the rule, but
24  you've not required anybody to be convicted of that
25  before it sticks.  And there is no limit on how far
0030
1   back you can go on that.
2                 And I'm just suggesting that it's an
3   unwise use of administrative resources, and it's going
4   to lead to an unfair result.  And if you knock one of
5   the major distributors or manufacturers out of this
6   business -- we had a circumstance well before your
7   time where a distributor or two gained dominance over
8   the card-minder market, and your staff can tell you
9   about this.  The price for a very low level, pretty
10  junky piece of technology was extraordinarily high.
11  The charities paid out millions and millions of
12  dollars.
13                And one of the reasons those curves of
14  improvement are happening here is because the price of
15  card-minders came down as that interweb of
16  relationships between manufacturers and distributors
17  fell apart due to some lawsuits and eventual breaking
18  open of the market.  This will have a very real impact
19  on the bottom line of charities, and I submit to you
20  that under the Act, your charge is to look out for the
21  charities and help them get money to the bottom line
22                I've made three suggestions in my
23  testimony about how you might clean this rule up.
24  First of all is to apply it prospectively.  And I have
25  offered amendment language on Page 9 of the testimony.
0031
1   It simply says, "This rule applies to conduct that
2   occurs after the effective date of this rule."
3                 The second thing is, on Page 10, is that
4   the language about "engaging in" should be replaced
5   with "a final conviction" so a person who acts out of
6   state and a person who acts in state are treated the
7   same.  Texas businesses, Texas citizens should not be
8   treated more harshly than people out of state, and I
9   don't think the statute requires that result.
10                And, finally, you need to eliminate the
11  reference in the professional gambler rule to 47.03,
12  47.04 and 47.05 of the Penal Code, because those have
13  nothing to do with gambling, per se.  Operating a
14  gambling house does not make you a better.  Under the
15  Penal Code, gambling involves betting, and a
16  professional gambler is one who bets for their
17  livelihood.
18                I'll be happy to answer any questions.
19  I feel like I've used my three minutes.  And I
20  appreciate you hearing me out.  I know I'm -- I'm not
21  really a latecomer to this, because many of these
22  issues were discussed when I was first involved with
23  this before the rule was proposed.  Sorry I wasn't
24  here in March.  But I'm here now, and I don't want you
25  to make a mistake, and I want you to keep your
0032
1   resources focused where they're most appropriately
2   used.
3                 CHAIRMAN WILLIAMSON:  Thank you.
4                 MR. BRESNEN:  Yes, ma'am.
5                 COMMISSIONER SCHENCK:  I have one
6   question.  Your concern about 47.03, .04 and .05 in
7   professional gambler, the definition of "professional
8   gambler," is that a person operating a betting
9   operation wouldn't himself be a gambler necessarily?
10                MR. BRESNEN:  If I allow a piece of real
11  estate, my real estate to be used where gambling is
12  taking place, I'm in violation of one of those numbers
13  on there.  I can look it up here.
14                COMMISSIONER SCHENCK:  Well, my point
15  would be, wouldn't you then be a gambling promoter?
16                MR. BRESNEN:  I would have to look back
17  at the gambling promoter statute, but it doesn't fit
18  under professional gambler.  A gambler is one who
19  bets.
20                COMMISSIONER SCHENCK:  Well, the reason
21  I ask is, I'm not necessarily agreeing with you, but
22  I'm wondering if we should broaden our definition of
23  "gambling promoter" to include:  Engaged in conduct
24  prescribed by Chapter 10, 47.03 to .04 and .05 as
25  well.
0033
1                 MR. BRESNEN:  Commissioner, not to
2   interrupt, but you have a statute that defines
3   gambling promotion, and I believe the rule of
4   statutory construction is that where the Legislature
5   has supplied a meaning, that unless it's absurd in a
6   different context, that you should use that same
7   meaning.  And so I don't think that fits either, and I
8   think you would be going beyond the statute just as
9   you are in the draft rule on professional gambler.
10                COMMISSIONER SCHENCK:  Okay.  And with
11  respect to professional gambler, is it your suggestion
12  that we would treat anyone, regardless of where
13  they're engaging in professional gambling and whether
14  it's lawful where it's taking place, as a professional
15  gambler ineligible to participate under our rules?
16                MR. BRESNEN:  I think that's the plain
17  language of the statute if you're gambling for a
18  living.  You don't have a definition in the statute of
19  "professional" that I can find that relates in any way
20  to this circumstance, so you have to use basically a
21  dictionary definition, which in this context basically
22  means a person is doing it for their livelihood, for
23  gain.  The word --
24                COMMISSIONER SCHENCK:  Doesn't
25  everyone who -- I mean, people play the lottery in
0034
1   this state hoping not to lose.  Right?
2                 MR. BRESNEN:  Yes, sir.
3                 COMMISSIONER SCHENCK:  And everyone
4   gambles to win.
5                 MR. BRESNEN:  Yes, sir.
6                 COMMISSIONER SCHENCK:  I mean, at what
7   point -- where do you draw that line?
8                 MR. BRESNEN:  I'm not quibbling with the
9   part about it being a primary source of income there.
10  I'm sort of hung on my time limits here.  But in the
11  written testimony there, I've pointed out that, for
12  example, it says 50 percent of your annual income.
13  Well, annual income -- what?  In any given year, if I
14  happen to strike it big in Vegas -- if I go to Vegas
15  this weekend and I win $200,000 in a slot machine,
16  that will be more than 50 percent of my income -- not
17  to get too personal about it.
18                So is it that one year, am I a
19  professional gambler, or is that averaged over my
20  career going is my income, is it my net income or my
21  gross income?  These are questions that are going to
22  come up under this rule and you're going to --
23                COMMISSIONER SCHENCK:  Or they're going
24  to come up no matter what.  We have a statute in place
25  that says "is or has been a professional gambler."
0035
1                 MR. BRESNEN:  Yes, sir, I agree.
2                 COMMISSIONER SCHENCK:  The question we
3   have is whether the Legislature was intending that to
4   apply to anyone who has made some income by gambling
5   and potentially whether it's directed at activity that
6   is lawful outside the State of Texas, which is now
7   being subject to a restriction on the person's
8   activities here in the state.  That's the concern I
9   have, is on the potential extraterritorial application
10  of Texas law to conduct that's legal where it occurs.
11                MR. BRESNEN:  Well, the licensure is --
12  the licensure is being granted in Texas, but I don't
13  think your argument supports treating a Texas citizen
14  and a Texas person in a manner different from an
15  Oklahoma person.  If the situation were flipped and
16  the disadvantage were to the Oklahoma person, I'm
17  pretty darn should have you would have an interstate
18  commerce violation and couldn't do that.  I didn't
19  have time to research the law and see if you could do
20  that --
21                COMMISSIONER SCHENCK:  That's exactly my
22  concern, is the interstate commerce concern of this,
23  of Nevada retaliating or Massachusetts passing a law,
24  for instance, saying, "If you've ever killed a furry
25  animal, you can't get a license as a cab driver in
0036
1   this state."  I don't think we would like that law
2   being applied to our citizens if they want to go up to
3   Massachusetts, would we?
4                 MR. BRESNEN:  You don't have a commerce
5   clause problem if you treat citizens of every place
6   equally.  And I'm suggesting that if you do that on a
7   basis of a final conviction, two things will happen.
8   You will have a public record in another state where a
9   person, you know, has already had the full panoply of
10  due process and all you have to do is go get the
11  document and that's your proof and you're done.
12                COMMISSIONER SCHENCK:  I understand
13  that.  But we already have a prohibition on licensure
14  for conviction of a crime.  The people who disagree
15  with you on this rule will point out that this is a
16  totally separate restriction --
17                MR. BRESNEN:  Yes, sir.
18                COMMISSIONER SCHENCK:  -- the
19  Legislature has put in place.  So then it would render
20  it meaningless if we were just limiting it to
21  convictions.
22                MR. BRESNEN:  Well, I don't think it
23  does render it meaningless.  It means that that's what
24  you're decided that you're going -- the basis on which
25  you're going to enforce, because you have limitations
0037
1   in your resources and your ability to go forward.
2                 Now, I grant you that it can be read
3   that way.  I've spent the last three years working on
4   statutory construction over at the Supremes over
5   there.  So I agree with you, and that's a hard
6   argument to combat.  But I think if you make a
7   decision on how you're going to allocate your
8   resources -- first of all, if you make it prospective,
9   you're a lot less likely to be jerked around by stuff
10  that's happened in the past and everybody will know
11  what the rules are going forward.  If you make it
12  retroactive, then I'm suggesting you need some basis
13  to be able to prove a claim without having a huge
14  drain on your resources.
15                Is the guy's testimony under oath in the
16  Las Vegas lawsuit going to be sufficient for you to
17  call him a professional gambl- -- I'm assuming you
18  know what I'm talking about.  Is that going to be
19  sufficient for you to determine that he is a
20  professional gambler under this rule?
21                No.  As I recall -- and it's been a few
22  months since I've seen this -- he didn't say anything
23  about how much of his income he made or even whether
24  he made income.  You know, he may have lost.  It may
25  have been a -- you know, he may have had to report
0038
1   losses to the Internal Revenue Service.
2                 And, by the way, how are you going to
3   prove that?  How are you going to prove that's
4   50 percent of his income?  I care about state
5   agencies.  For y'all that may not know, I'm 16 years
6   state employee.  I helped run the Controller's office.
7   I know something about running money down when you're
8   trying to collect it from people or find out how much
9   they made.  You will not be able to do that under this
10  law, because you simply don't have the other tools
11  that are necessary to do it.
12                COMMISSIONER SCHENCK:  I think that's a
13  problem that we're going to have regardless of what
14  standard we come up with.  The Legislature has given
15  us this problem.  We have to come to a solution.  I
16  appreciate your comments, and I think I understand
17  your position.
18                MR. BRESNEN:  Yes, sir.  Well, thank you
19  for allowing me to be so strident in them.
20                COMMISSIONER KRAUSE:  I don't have
21  anything to add.
22                COMMISSIONER SCHENCK:  Thank you.
23                MR. BRESNEN:  Thank you, Commissioners.
24  I appreciate your time.
25                CHAIRMAN WILLIAMSON:  Thank you.
0039
1                 So I guess at this time, do we want
2   to -- what sort of motion?  I'm going to defer to you.
3   What motion do you want to make?
4                 COMMISSIONER SCHENCK:  I'm going to move
5   that we adopt staff recommendations and publish this
6   rule for additional public comment, for whatever
7   period that will be -- 90 days or 60?
8                 MS. KIPLIN:  I think -- it's a 30-day
9   public comment period?  Yes, Pete?
10                MR. WASSDORF:  Yes.
11                COMMISSIONER SCHENCK:  For 30 days,
12  then.
13                CHAIRMAN WILLIAMSON:  Second?
14                COMMISSIONER KRAUSE:  Second.
15                CHAIRMAN WILLIAMSON:  All in favor?
16                COMMISSIONER SCHENCK:  Aye.
17                COMMISSIONER KRAUSE:  Aye.
18                CHAIRMAN WILLIAMSON:  Aye.
19                Motion passes.
20                And I strongly encourage everyone who is
21  interested in it to submit public comment.  I do read
22  that.
23                MS. KIPLIN:  I have the T-bar memos for
24  each of these rulemaking, the one on the bingo rule
25  and the one on the amendments to the lottery rule.
0040
1                       AGENDA NO. VIII
2                 CHAIRMAN WILLIAMSON:  I believe we're
3   down to No. VIII.  Is that correct?  This is the
4   Charitable Bingo Operations Director Report,
5   activities update.  Phil.
6                 MR. SANDERSON:  Commissioners, in your
7   notebook is the report on August activities that I had
8   e-mailed to you earlier in September.  We're still
9   finalizing the September report.  And once we get that
10  finalized, I will e-mail that to you for your
11  consideration and review.
12                I would like to provide an update on the
13  implementation of House Bill 1474 at this time.  As
14  you know, yesterday, October 1st, was the effective
15  date for implementing this legislation.  We're still
16  waiting on some program changes, changes to forms and
17  application revisions, still have several rules to go
18  through the rulemaking process.  About a third to a
19  half you heard today and the last meeting.  However,
20  we have put in place processes and procedures
21  necessary to ensure that the intent is met of the
22  legislative changes.
23                And just to give you an idea of what has
24  been impacted by these changes, since the Governor
25  signed the bill on June 19, 2009, we have through this
0041
1   process revised 25 administrative rules.  We'll have
2   repealed five rules and develop nine new rules through
3   this process.  We've revised over 70 forms and
4   applications.  We've developed a new training module
5   that explains the changes that are being made by House
6   Bill 1474.
7                 We've also revised the bingo training
8   program as well, moving it into a different platform
9   that will help make it more user friendly and allow us
10  to gather better statistical information.  We've
11  submitted 56 ISRs to the Information Resource for
12  program changes.
13                While all of this was happening, we
14  continued our day-to-day operations and issued and
15  processed over 2,300 applications, 1,000 worker
16  registry applicants.  We've completed 149 audits,
17  inspections and complaint investigations, processed
18  over 2,000 quarterly reports and payments, totaling
19  over $8 million.
20                So with all that, I would like to
21  publicly express my thanks to the entire Bingo staff.
22  While some were dedicated strictly to the
23  implementation of the bill, the others helped pick up
24  the slack for the day-to-day operations so we could
25  continue our work.
0042
1                 I would also like to thank Ms. Kiplin
2   and her legal staff on all the rulemaking, along with
3   Mr. Pyka and her staff on providing fiscal impact
4   statements as it relates to the rules, Mr. Fernandez
5   and his staff and Information Resources for the
6   programming necessary to implement the bill, his
7   Graphics Department for all the revisions to the
8   applications and rules, as well as his staff and
9   facilities for their assistance in mailing out
10  numerous letters.  We've sent out two different Bingo
11  Bulletins, we've sent out four different letters to
12  the organizations alerting them to the changes that
13  are impacted by this bill.
14                One other item that I would like to add
15  as an update is finding of facts request letter that
16  was approved at the last Commission meeting and sent
17  to the State Comptroller.  Based on their review of
18  the information that we have provided, they have
19  concluded that sufficient revenue will be generated to
20  cover the additional appropriation contained in the
21  Act as well as the appropriations contained in the
22  section of the bill allowing us to increase the
23  appropriation to implement House Bill 1474.
24                So with that, I will end my report and
25  be glad to answer any questions.
0043
1                 CHAIRMAN WILLIAMSON:  Thank you, Phil.
2                 Commissioners?
3                 COMMISSIONER KRAUSE:  No questions.
4                 COMMISSIONER SCHENCK:  Thank you, Phil.
5   That's an impressive report.  And I know it's a lot of
6   work, and I want to congratulate you and your staff as
7   well as Kathy and Kim and everyone else that's been
8   working with you on that.
9                 MR. SANDERSON:  Thank you.
10                    AGENDA ITEM NO. IX
11                CHAIRMAN WILLIAMSON:  Let's see.  I
12  believe the next item is IX, report on lottery sales
13  and revenue, game performance.  Ms. Pyka, Mr. Tirloni
14  and . . .
15                MS. PYKA:  Good morning, Commissioners.
16  My name is Kathy Pyka, Controller for the Commission.
17  With me to my right is Robert Tirloni, our Products
18  Manager.  With me to our left is David Sizemore, our
19  Research Coordinator.
20                Commissioners, this morning we're going
21  to be presenting a final year-end summary on Fiscal
22  Year 2009 sales and revenue for you.  And our first
23  slide this morning reflects sales and net revenue to
24  the state through the fiscal year ending August 31,
25  2009.  Total sales for Fiscal Year 2009 wrapped up at
0044
1   $3.72 billion.  This is a $48.6 million increase over
2   Fiscal Year 2008 sales, or a 1.3 percent increase.
3   Commissioners, this represents our fourth best year of
4   sales since the lottery began selling tickets in 1992.
5   Net revenue to the Foundation School Fund for the
6   fiscal year was $986.3 million prior to adjustment of
7   accruals.
8                 And we'll move to the next slide noting
9   the calculation of the final transfer to the
10  Foundation School Fund as well as prize expense for
11  the fiscal year.  Final cash transfers to the
12  Foundation School Fund were $1,000,400,000 as compared
13  to $983.2 million in Fiscal Year 2008.  And this
14  represents an increase of $17.3 million over prior
15  year transfers.  Prize expense as a percentage of
16  sales is 61.8 percent as compared to 62 percent for
17  the prior fiscal year.
18                Commissioners, as noted on the previous
19  slide, the total increase over 2008 sales is 1.3
20  percent or $48.6 million, and this increase includes
21  $40.9 million for our online games and $7.7 million
22  for our instant ticket games.
23                I wanted to note that with
24  $215.4 million in sales for Mega Millions and
25  $47.4 million in Megaplier sales, we experienced our
0045
1   highest sales for Mega and Megaplier since we began
2   selling the product in December of 2003.  Our Two Step
3   game finished up at 51 and a half million dollars, and
4   this is the best year for Two Step as well since 2003.
5                 We completed the fiscal year with
6   $2.79 billion in instant scratch-off ticket sales.
7   This is our third highest sales level for instant
8   ticket scratch-off sales since the game began in two
9   thousand -- or in 1992 as well.
10                So with that, Robert will now begin a
11  discussion on sales by product.
12                MR. TIRLONI:  Good morning.  For the
13  record, my name is Robert Tirloni.  I am the Products
14  Manager for the Commission.
15                This next slides shows total fiscal year
16  sales of $3.72 billion, broken down by our two product
17  categories, instant and online.  And as we've
18  discussed on a pretty regular basis, we don't see much
19  difference here for the year-end total.  Instants are
20  making up 75 percent of the total, with online making
21  up the remaining quarter.
22                Looking at our online game sales, this
23  represents $928.6 million in total sales for Fiscal
24  Year 2009.  This is broken down by products.  Pick 3
25  continues to be the best selling product, followed by
0046
1   Mega Millions and then Lotto Texas.  We did have very
2   large jackpots right through the end of the fiscal
3   year, right through August.  So we ended August with a
4   $333 million Mega Millions jackpot, and that helped
5   boost Mega Millions into the second best slot in the
6   online category.
7                 Similar pie chart but for the instant
8   products.  Again this is the year-end total for
9   instants.  The total is $2.8 billion, again broken
10  down by price points.  The $5.00 is the best selling
11  price point for our scratch-off games, followed by the
12  $2.00, the $10 and then the $20.
13                And, Commissioners, Dr. Sizemore is here
14  this morning to provide some information on research
15  and our Ipsos Reid tracking.
16                DR. SIZEMORE:  Good morning,
17  Commissioners, Chair Williamson.  I am David Sizemore,
18  the Research Coordinator for the Lottery, and I have
19  the pleasure today to present to you the public
20  opinion material that we collect on a monthly basis
21  via our market research vendor.
22                And as a refresher, this data is
23  collected on a monthly basis through the tracking
24  studies that we carry out.  And we've conducted this
25  sort of research since the nineties, with some of this
0047
1   material presented today dating back to 1994.  And
2   again, this is a series of questions that is part of a
3   larger battery of questions that we develop and carry
4   out each month.
5                 These questions specifically are drawn
6   up quarterly.  You'll see at the bottom these
7   represent quarters for each of the years, dating back
8   to 2007, as opposed to the actual monthly data.
9                 Each month we survey about 400 people.
10  And again, these are rolled up for three months, which
11  for most of the quarters is 1,200, except for Quarter
12  One.  The first quarter is 2,000 people, which
13  includes our segmentation study of roughly 1,200
14  respondents, so it's much a larger section there.
15                We ask questions on participation, game
16  awareness, advertising recall, images of the Lottery
17  and so on, as well as some add-on questions that we
18  bring in as needed on a regular basis.  The following
19  items are, of course, just a series of questions, a
20  couple of questions that we have extracted from this
21  material and we present here at the Commission
22  meetings on a regular basis.
23                The first slide has to do with how well-
24  informed respondents are about the lottery.  And you
25  note that the question is actually cited at the top of
0048
1   the slide, "How well informed do you feel you are
2   about the Texas lottery and what it is they do?"  And
3   what this shows is some relative stability over the
4   series of these quarters, the most recent being
5   53 percent of people that are not informed, while
6   34 percent of respondents are informed.  And again,
7   that's fairly stable over time, with some minor
8   fluctuation.
9                 The next slide has to do with
10  respondents' overall opinion of the Texas Lottery.
11  And again, the question it cited at the top of the
12  slide:  "How would you describe your overall opinion
13  of the Texas Lottery?"  And this is broken out by
14  negative, neutral or don't know, and positive.
15                The positive responses are on the top.
16  For the most recent quarter, fourth quarter of 2009,
17  about 46 percent of respondents had a positive
18  opinion, overall opinion of the lottery, while about
19  33 percent had a negative overall opinion of the
20  lottery.  And again, as the slide demonstrates, this
21  is fairly stable over time.
22                The next slide deals with respondent
23  views of whether the lottery is operated fairly and
24  honestly.  And again, the fundamental point is that
25  things are pretty stable over time, with well over
0049
1   half of respondents agreeing that the Texas lottery is
2   operated fairly and honestly, with about less than a
3   quarter, 23 percent, disagreeing with that statement.
4                 Now, the last time we presented this
5   material, Commissioner Krause asked whether there was
6   any kind of follow-up to these questions dealing with
7   expressions of why people had or disagreed with the
8   lottery being operated fairly and honestly, and the
9   next two slides deal with that follow-up sort of
10  questions.
11                And we started collecting this some time
12  ago, based on some other inquires.  Actually, the next
13  slide will deal with our follow-up to this original
14  work.  But this is an open-ended question where if
15  someone disagrees that the lottery is operated fairly
16  and honestly, we ask them, "Why do you feel that way?"
17  or "Why do you disagree?"
18                As an open-ended response, you'll see
19  that the most highly ranked statement is that the
20  lottery is dishonest, not operated fairly and/or
21  fraud, followed by never win, don't know anyone who
22  has won and so on down the line.  You'll also notice
23  at the bottom that about 14 percent of respondents for
24  the most recent quarter either don't know or have some
25  other statement to this sort of question.  Now, as
0050
1   a --
2                 COMMISSIONER SCHENCK:  Does that mean
3   one in five people randomly selected believe that the
4   lottery is a fraud?
5                 DR. SIZEMORE:  Well, no.  That's
6   actually a combination and a collection of answers.
7   So since it's an open-ended question, yes, they could
8   say -- when they're asked, "Why do you disagree?" they
9   can say whatever they want.  And in this case, they
10  either said, "Well, I think it's dishonest" --
11                COMMISSIONER SCHENCK:  There's got to be
12  a universe of people who disagreed that the lottery
13  was operated fairly.
14                DR. SIZEMORE:  Yes.
15                COMMISSIONER SCHENCK:  As I'm recalling,
16  something like 23 percent in the most recent --
17                COMMISSIONER KRAUSE:  Look at the other
18  slide.  In the most recent --
19                COMMISSIONER KRAUSE:  23.
20                DR. SIZEMORE:  -- 23 percent.
21                COMMISSIONER SCHENCK:  Okay.  So of that
22  23 percent, a fifth of them think it's a fraud?
23                DR. SIZEMORE:  Correct.
24                COMMISSIONER SCHENCK:  Okay.
25                DR. SIZEMORE:  More or less.  But again,
0051
1   that could also include -- that 18 percent actually
2   includes people who said dishonest or not operated
3   fairly.  So fraud is sort of tossed in.
4                 COMMISSIONER SCHENCK:  I would be
5   equally concerned if I believed the lottery were
6   dishonest or not operated fairly.  But that's fine.  I
7   got it.
8                 DR. SIZEMORE:  Okay.  All right.  And
9   actually, that top measure is fairly redundant,
10  because we're asking them -- well, they've already
11  said they disagreed that the lottery is fair.
12                COMMISSIONER SCHENCK:  The 23 percent
13  would say they think it's unfair?
14                DR. SIZEMORE:  Right.  And they said
15  again it's unfair.  So we asked them why it's
16  dishonest or unfair, and they say because it's
17  dishonest or unfair, which led to a closed-ended
18  series of questions.
19                Can we go back, please?
20                MR. TIRLONI:  Sure.
21                DR. SIZEMORE:  I will ask if you have
22  any comments about this.  I know this is quite a bit
23  of detail, whether there is anything specific that
24  jumps out at you that you would like me to follow up
25  on or comment about?
0052
1                 COMMISSIONER SCHENCK:  You might ask
2   them people -- well, I would say ask them some other
3   questions, just to get a sense for who we're dealing
4   with:  Is Elvis still alive?
5                 DR. SIZEMORE:  Well, we used to have --
6   Ben Barnes was often cited in some of this work, which
7   precedes me personally, but it had a long history well
8   after that issue was resolved.
9                 The next question, largely developed
10  because people repeated the question that was asked to
11  them the last time when asked why they thought -- why
12  they disagreed with the lottery.  They said it's -- or
13  they agree that it was dishonest, they said it was
14  dishonest again in open-ended series.
15                So we wanted to sort of close that venue
16  off or that opportunity offered them to actually
17  repeat or parrot the question itself and get some more
18  precise answers and narrow down things a little bit
19  more.  So in this slide, you'll see that the most
20  common response on a closed-ended basis is that people
21  do not know enough about the lottery operations,
22  followed by not knowing where the profits go and then
23  that lottery profits are not going to education as
24  publicized.  So this are again closed-ended responses
25  as opposed to the open-ended responses from the last
0053
1   slide.
2                 That's all.  Thank you.  Are there any
3   questions?
4                 CHAIRMAN WILLIAMSON:  Commissioners, do
5   you have any questions?
6                 MS. PYKA:  And, Commissioners, while we
7   did not speak to Fiscal Year 2010 data this morning,
8   we do have a memo at the table for you that outlines
9   where we were through the 26th of September.
10                CHAIRMAN WILLIAMSON:  I do have a
11  question.  You know, our sales have done well,
12  particularly overcoming the hurricane and whatever.
13  What have you done this year that you feel like has
14  helped propel that or get us in that position to
15  maintain what we contribute to the school fund?
16                MR. TIRLONI:  I think the introduction
17  of the $500 million blockbuster game, the $20 game
18  that started in May -- we also call it the spotlight
19  game -- I think that had a tremendous impact on our
20  scratch-off sales.  That kind of led us into the
21  summer.
22                I also believe the Dallas Cowboys and
23  Houston Texans ticket that started in August really
24  helped us finish the year off strong on the
25  scratch-off side.
0054
1                 We don't have a lot of control over
2   this.  But as I mentioned earlier, not only did we
3   have a large Mega Millions jackpot in August, but
4   Lotto Texas and Texas Two Step were also rolling
5   during that same time period.  So all of our jackpot
6   games were rolling throughout the month of August, and
7   we had those strong scratch-off products.
8                 So a lot of effort in the product
9   category, a lot of effort on the sales side and the
10  retail communications side I think all combined really
11  helped us end the year off very strong.  And I think
12  we're poised for the start of this next fiscal year to
13  see some success as well.
14                Starting in about two to -- well, about
15  two to three weeks, we have our whole holiday suite of
16  games that start, and so that will hopefully put us in
17  a good position to have some strong sales this fall.
18                CHAIRMAN WILLIAMSON:  Thank you.
19                Any other comments, Commissioners?
20                MR. GRIEF:  Madam Chair, could I add
21  something to what Robert said?
22                CHAIRMAN WILLIAMSON:  Sure.
23                MR. GRIEF:  Part of what's integral or
24  what Robert mentioned about the spotlight game is some
25  sound business, entrepreneurial risks that we took
0055
1   this last year on that particular spotlight game.  We
2   did some things that were never done before as far as
3   prize payout percentage, the top prize that's
4   available and the print run.
5                 You know, as you and I have had many
6   discussions, this is a business that we're operating
7   here.  And in order to be successful, there comes some
8   times when we need to look at some things that are
9   outside the normal box that we perform.  And in this
10  particular case, with the $500 million blockbuster,
11  those are some sound business risks that we took that
12  panned out very well for us in the State of Texas,
13  too.
14                CHAIRMAN WILLIAMSON:  All right.  Thank
15  you.
16                     AGENDA ITEM NO. X
17                CHAIRMAN WILLIAMSON:  Let's see.
18  Ms. Pyka, the next item is yours on the state
19  transfers.
20                MS. PYKA:  Thank you.  Again for the
21  record, Kathy Pyka, Controller for the Lottery
22  Commission.
23                The first report in your notebook
24  reflects transfers and allocations to the Foundation
25  School Fund, the allocation of unclaimed prizes for
0056
1   the fiscal year ending 2009.  Total cash transfers to
2   the state amounted to $1.04 billion for the fiscal
3   year.
4                 The second page in your notebook
5   reflects the detailed information for the monthly
6   transfers.  Of the $1.04 billion transfer to the
7   state, slightly over $1 billion was transferred to the
8   Foundation School Fund.  Again, this represents a
9   1.8 percent increase, or $17.3 million over the amount
10  that we transferred in Fiscal Year 2008.
11                The remaining transfer of $43.1 million
12  was transferred to the state from unclaimed lottery
13  prizes, and $10 million of this went to the State
14  Department of Health Services for the multi-
15  categorical teaching hospital, with the balance going
16  to the state General Revenue Fund.
17                The last document in your notebook
18  includes the report of sales, expenditures and
19  transfers from Fiscal Year 1992 to date.  Total
20  cumulative transfers to the Foundation School Fund
21  through Fiscal Year 2009 now total $11.7 billion.
22                Commissioners, this concludes my
23  presentation.  I would be happy to answer any
24  questions.
25                CHAIRMAN WILLIAMSON:  Thank you.
0057
1                 Commissioners, do you have any
2   questions?
3                 COMMISSIONER SCHENCK:  No.
4                 COMMISSIONER KRAUSE:  No, ma'am.
5                 CHAIRMAN WILLIAMSON:  Thank you.
6                       AGENDA ITEM XI
7                 CHAIRMAN WILLIAMSON:  And I believe
8   you're still up, aren't you, Kathy --
9                 MS. PYKA:  Yes.
10                CHAIRMAN WILLIAMSON:  -- on the Lotto
11  Texas?
12                MS. PYKA:  Yes.  Again for the record,
13  Kathy Pyka.  Commissioners, in accordance with the
14  Commission's procedure regarding approval of
15  procedures that affect Lotto Texas, I'm seeking your
16  approval this morning in three procedures.  Following
17  our Commission meeting on May 14, 2009, the Lotto
18  Texas procedures have been placed in the Texas
19  Register and on our website.
20                We've also scheduled a public comment
21  hearing.  To date, following the publication of the
22  procedure and the public comment hearing, we have not
23  received any public comment on the procedures.  It is
24  staff's recommendation that the procedures be
25  approved.  If you do approve, we will proceed with
0058
1   publishing the approved procedures in the Texas
2   Register as well as on our website.  And, of course,
3   we've redact any of the confidential sections of the
4   procedures.
5                 Commissioners, I would be happy to
6   answer any questions.
7                 CHAIRMAN WILLIAMSON:  Commissioners, do
8   you have any questions?
9                 COMMISSIONER KRAUSE:  No, ma'am.
10                CHAIRMAN WILLIAMSON:  Do I hear a
11  motion.
12                COMMISSIONER SCHENCK:  Yes, you do.  I
13  move we adopt staff's recommendation and adopt these
14  rules.
15                CHAIRMAN WILLIAMSON:  Second?
16                COMMISSIONER KRAUSE:  Second.
17                CHAIRMAN WILLIAMSON:  All in favor?
18                COMMISSIONER KRAUSE:  Aye.
19                CHAIRMAN WILLIAMSON:  Aye.
20                COMMISSIONER SCHENCK:  Aye.
21                CHAIRMAN WILLIAMSON:  Motion is
22  approved.
23                MS. PYKA:  Thank you, Commissioners.
24                CHAIRMAN WILLIAMSON:  Thank you.
25  
0059
1                     AGENDA ITEM NO. XII
2                 CHAIRMAN WILLIAMSON:  Let's see.  I
3   believe the next item was on discussion or action on
4   the 81st Legislature.
5                 MS. VILLASENOR:  Good morning, Madam
6   Chair, Commissioner.  For the record, I'm Melissa
7   Villasenor, Governmental Affairs representative.  I
8   have a brief report related to status of the agency's
9   legislative implementation project.
10                In your notebook we provide you with an
11  updated copy of the Legislature Implementation
12  Tracking Report.  As reported at the last meeting, 21
13  bills are included in this project.  These bills were
14  assigned to division directors on the basis of subject
15  matter to determine what agency action is needed, if
16  any, to implement the bill.
17                Of the 21 bills, 20 of them either
18  required minimal action, which has now been completed,
19  or no action was required by the agency.  There are
20  two bills identified that await further information
21  from other agencies to determine if any additional
22  action will be required of this agency.  They include
23  HB 1830 relating to the information technology
24  security practices for state agencies.
25                At present, the agency is awaiting for
0060
1   the Department of Information Resources to adopt
2   required rules at which time the TLC's contract staff
3   will draft the appropriate language for inclusion in
4   the agency's hardware and software contracts.
5                 The other is SB 1068 relating to
6   allowing a governmental body to redact certain
7   personnel information under public information law
8   without the necessity of requesting a decision from
9   the Attorney General.  The Attorney General's office
10  is in the process of promulgating the rules.  The
11  agency's General Counsel will continue implementation
12  oversight to ensure TLC's compliance with the OAG
13  rules.  Implementation on the remaining one bill
14  continues.  This is HB 1474.
15                During Phil's earlier report on the
16  Bingo Division's activities, you received an update
17  relating to the progress made of implementing HB 1474.
18  The bill will continue to remain in pending status
19  until the completion of program changes and
20  rulemaking.
21                The last bill I would like to comment on
22  relates to SB 1655 which requires the Lottery
23  Commission to create and market a scratch-off game to
24  benefit the Veterans' Assistance Fund, with an
25  anticipated game launch the week of November 9th,
0061
1   which coincides with Veterans Day on November 11th.
2                 The agency continues to coordinate with
3   the bill authors, Rep. Chris Turner and Sen. Leticia
4   Van De Putte, along with the Texas Veterans
5   Commission, regarding the promotion of the game
6   tentatively scheduled for October 19th.
7                 Additionally, public service
8   announcements featuring members of the Legislature,
9   filmed and produced by the agency's Media Relations
10  Division, will take place this month.
11                As of this date, 12 members of the
12  Legislature have completed the production of a PSA.
13  The agency will provide these PSAs to the member who
14  is featured, for them to distribute to broadcast media
15  in their respective districts.
16                Additionally, it is anticipated a press
17  tour with the bill sponsors and other members of the
18  Legislature will occur on the day the game is
19  launched.
20                As staff continues its work on this
21  project, we will provide you with appropriate updates.
22                At this time I would like to thank
23  directors and agency staff for their assistance and
24  participation in ensuring the success of the
25  legislative implementation agency project.  This
0062
1   concludes my report, and I will be glad to answer any
2   questions you may have.
3                 CHAIRMAN WILLIAMSON:  Thank you.
4                 Commissioners, do you have any
5   questions?
6                 COMMISSIONER SCHENCK:  I do not.  Thank
7   you, Melissa.
8                 COMMISSIONER KRAUSE:  No, ma'am.
9                 MS. VILLASENOR:  Thank you.
10                CHAIRMAN WILLIAMSON:  Thank you.
11                   AGENDA ITEM NO. XIII
12                CHAIRMAN WILLIAMSON:  Mike Fernandez,
13  possible discussion and action on procurement of the
14  agency's audit services.
15                MR. FERNANDEZ:  Good morning, Madam
16  Chairman, Commissioners.  My name is Mike Fernandez.
17  I'm the Director of Administration.
18                Item No. XIII on your agenda is an
19  informational item, and that' to advise you of staff's
20  intent to issue a solicitation for our annual
21  financial audit and agreed-upon procedures.  As you
22  know, we're required by statute to go to the SAO and
23  either get or request delegation authority if the
24  state auditor doesn't have the resources to conduct
25  the audit.
0063
1                 We've done so, and that authority has
2   been delegated to the agency, so we will be putting
3   that out for bid.
4                     AGENDA ITEM NO. XIV
5                 CHAIRMAN WILLIAMSON:  You can go on.  I
6   know the next two items are yours.  Go to Item NO.
7   XIV.
8                 MR. FERNANDEZ:  Item No. XIV on your
9   agenda is a first-time posting for us, and this has to
10  do with the upcoming contract or the renewal for
11  lottery operations and services.  As you know, the
12  current contract expires August 31 of 2011.  And as
13  you also are aware, it is the staff's intent to award
14  that contract and have it negotiated and signed a year
15  in advance, giving the opportunity for a year's
16  transition.
17                What we intend to do is to continue to
18  have this item posted until such time as we've made a
19  recommendation to Mr. Grief for award.  And we want to
20  do that to give the Commission the opportunity to have
21  discussion and also to advise you of milestones as
22  they're reached or as they're approaching or as
23  they're accomplished.
24                The reason we bring this before you
25  today, our first large milestone is to shift the RFP
0064
1   in its entirety to the contract advisory team at the
2   Comptroller of Public Accounts, which is a requirement
3   for their review.  As you I'm sure know, that is not a
4   legal review but it is a review in terms of looking at
5   the contract to ensure all of the elements that are
6   required in state contracts are included and that they
7   understand what we're asking for, readability, if you
8   will.
9                 CHAIRMAN WILLIAMSON:  Mike, I'm going to
10  stop you just for a second --
11                MR. FERNANDEZ:  Yes, ma'am.
12                CHAIRMAN WILLIAMSON:  -- because I think
13  I missed.  I needed to talk about whether we need to
14  discuss this in open Commission.
15                MS. KIPLIN:  No.
16                MR. FERNANDEZ:  No.
17                MS. KIPLIN:  We're good.  The issue of
18  the ability to go into the executive session on the
19  deliberations of the lottery operator contract is on
20  the next item.
21                CHAIRMAN WILLIAMSON:  Okay.  Sorry about
22  that.
23                MR. FERNANDEZ:  That's quite all right.
24                So we did want to advise you today of
25  staff's intent within the next 60 days to shift that
0065
1   RFP to a contract advisory team.
2                 I would offer Mr. Grief the opportunity,
3   if you would like to add any comments, Gary, please.
4                 MR. GRIEF:  I have none to add, Mike.
5                 MR. FERNANDEZ:  All right.  That's all I
6   have on this agenda item.  But again, as a standing
7   offer that if you have any questions at any time of
8   any of my staff or myself, please feel free to call
9   us.  And we want to keep you fully advised as we move
10  through this process.
11                    AGENDA ITEM NO. XV
12                CHAIRMAN WILLIAMSON:  Okay.  Now, the
13  next item, No. XV, consideration, discussion or action
14  on the lottery operator contract, including whether
15  the negotiation of the lottery operator's contract in
16  an open meeting would have a detrimental effect on the
17  Commission's position in negotiations of the lottery
18  operator contract.
19                Mike, this is also yours.
20                Commissioners, I understand that with
21  this item, we have the discretion to deliberate this
22  in executive session.
23                And, Kim, now if you'll address that for
24  me.
25                MS. KIPLIN:  Sure, I will be glad to.
0066
1   There is an exception to the Open Meetings Act that
2   allows the Commission, if they decide, to be able to
3   go and deliberate in executive session or closed
4   meeting the negotiations of the lottery operator
5   contract.  To be able to do that, though, you have to
6   determine in the open that open deliberations would
7   have a detrimental impact in the negotiations of the
8   lottery operator contract.
9                 And I recommend that you talk to Mike
10  Fernandez to see whether he thinks it would or not.
11  It's my understanding that these are not on the level
12  that would have a detrimental impact, but it's
13  certainly the Commission's discretion to make that
14  decision.
15                CHAIRMAN WILLIAMSON:  I do have a
16  question.  Is this something that we can decide every
17  Commission meeting?
18                MS. KIPLIN:  Every time that there is an
19  action or -- in terms of a contract amendment to
20  the -- we'll just call it, for lack of a better word,
21  the GTECH contract, because they're the current
22  vendor, yes, you sure can.  And I'll continue to make
23  this obligatory comment on the record so that you-all
24  can decide affirmatively whether you want to or you
25  don't want to.
0067
1                 I will tell you that historically, I'm
2   thinking it's either one or two times tops that the
3   Commission, since this provision was put into the
4   Chapter 467 of the Government Code, which is the
5   Lottery Commission statute, they've actually only
6   exercised it about two times that I can recall.  It's
7   been something that the Commission and past complement
8   of Commissioners has been very judicious about whether
9   they're going to go in or not.
10                CHAIRMAN WILLIAMSON:  So I guess my
11  question to you is at this point, do you think that we
12  need to discuss this in executive session or open
13  meeting is fine?
14                MR. FERNANDEZ:  No, we have no request
15  to take this in the executive session.
16                CHAIRMAN WILLIAMSON:  All right.
17                Commissioners, do you have any
18  questions?
19                MR. FERNANDEZ:  This item again is an
20  informational item, and this is to advise you of
21  staff's intent to amend the current GTECH contract.
22  This would be Amendment 13 to that contract, and this
23  has to do with amending two items.
24                The first item has to do with lottery
25  sales representatives' visits to retailers.  The
0068
1   current contract requires that lottery sales
2   representatives visit every retailer every two weeks.
3   And the language or the proposed language that we're
4   looking at amending would state that the lottery sales
5   representatives would visit once during each two-week
6   sales cycle.  And what we believe is, that will give
7   our Operations staff, Mr. Anger's staff, more
8   flexibility in directing those visits.  So that's one
9   of the items.
10                The other item that we intend to amend
11  is having to do with equipment and equipment failures,
12  and that's on two pieces of equipment.  Currently our
13  contract states that if we have failures on checking
14  ticket terminals or ticket vending machines, that the
15  GTECH company will have a certain amount of time to
16  respond to the call.  So what they're doing, in
17  essence, is contacting that retailer about a piece of
18  equipment that they've received notification is
19  broken.  And what we intend to do is to amend that to
20  bring that to a return-to-service language, that it
21  would be returned to service in a certain number of
22  hours, not a notification.
23                So those are the two items that we
24  wanted you to be aware of.  If you have any questions,
25  we would be happy to answer them.
0069
1                 CHAIRMAN WILLIAMSON:  Thank you, Mike.
2                 Commissioners, do you have a question?
3                 COMMISSIONER SCHENCK:  I think I have an
4   observation that you can treat as a question, Mike, to
5   the extent I'm wrong -- and Kim.
6                 My understanding is that with respect to
7   the RFP, that we'll issue this and then we'll have
8   some people raise their hands saying they are
9   interested in participating and bidding on the lottery
10  operator contract.  Correct?
11                MR. FERNANDEZ:  That's correct.
12                COMMISSIONER SCHENCK:  Okay.  And when
13  will the potential bidders have to respond?
14                MR. FERNANDEZ:  Well, that's going to
15  depend on how the schedule unfolds.  You know, right
16  now, Commissioner, I would like to give you a date
17  certain time on that.  But my understanding --
18                MR. GRIEF:  Mike, I hate to interrupt
19  you.  I think there is a disconnect on the question.
20                COMMISSIONER SCHENCK:  I just want to
21  know when people will be asked to respond to the RFP.
22                MS. KIPLIN:  And I think you're on --
23  we're back to --
24                CHAIRMAN WILLIAMSON:  We're talking
25  about the current contract --
0070
1                 MS. KIPLIN:  The current contract.
2                 CHAIRMAN WILLIAMSON:  -- not the --
3                 COMMISSIONER SCHENCK:  Yes, I understand
4   that.
5                 MS. KIPLIN:  But we're going to go back
6   to the preceding item, because the question that you
7   have, and it really has to do with the scheduled
8   events.
9                 COMMISSIONER SCHENCK:  Sorry, Mike.
10  I'm --
11                MS. KIPLIN:  Can I address that.
12                MR. FERNANDEZ:  Absolutely, Counselor.
13                COMMISSIONER SCHENCK:  I'm building to a
14  point.
15                MS. KIPLIN:  Traditionally, there will
16  be in the solicitation document or request for
17  proposals, there will be a schedule of events.  And
18  part of the schedule of events has historically been a
19  deadline for those that are interested in the
20  procurement to submit a letter of intent.
21  Historically, failure to submit that letter of intent
22  means you're not -- you're out, so that's a pretty
23  historical time line in terms of the letter of intent.
24                Does that address your question?
25                COMMISSIONER SCHENCK:  That does.  Okay.
0071
1                 And while that RFP is out and people are
2   deciding to raise their hands and file letters of
3   intent with us, my understanding is that at that point
4   and forward-looking, individual Commissioners have no
5   role in negotiating these contracts but that we would
6   sit as effectively an appeal panel, should there be a
7   challenge to the decision that the staff ultimately
8   makes with respect to awarding the contract.
9                 MS. KIPLIN:  I think generally that's
10  correct.  I think the State Lottery Act is very clear
11  that it's the Executive Director that awards the
12  contract.  The State Lottery Act is also very clear
13  that a person who feels aggrieved by the Executive
14  Director's action in terms of the issuance of the
15  solicitation document -- that being the RFP -- or the
16  contract award has the ability to protest that action
17  to the three-member Commission must do so.  It's a
18  very tight deadline in the State Lottery Act.  It's 72
19  hours -- not three days, 72 hours.  I don't know want
20  to make of that.
21                COMMISSIONER SCHENCK:  So let me just
22  make this observation.  If I were, say, operating a
23  small company interested in participating in this
24  process, it would be extremely unproductive for me to
25  try to reach out to individual Commissioners to
0072
1   involve them in any way in negotiations or to debate
2   the merits of any of the RFP or any of the other
3   participants in the process.
4                 I just want to make sure that the public
5   is aware of that before we start rolling down this
6   path, because we will not be -- I at least will not be
7   directly involved and will not be welcoming of
8   approaches of this nature, because I think it's just,
9   frankly, unproductive and unhelpful and could only
10  cause confusion should we get to the point where we
11  actually have a role in this process.
12                MS. KIPLIN:  And the continuing legal
13  advice that I will give you is to not participate in
14  those kind of communications when we have an open
15  procurement.  It's, frankly, the same advice that I
16  give the staff.  You know, when we're in open
17  procurement, we want to avoid any appearance of any
18  kind of favoritism or bias towards one vendor as
19  against another.
20                There will be an evaluation process;
21  there will be an evaluation committee.  They will
22  evaluate the proposals; they will make the
23  recommendation to the Executive Director.  The
24  Executive Director will take whatever action the
25  Executive Director believes is appropriate pursuant,
0073
1   obviously, to the statutes, the rules and the
2   procedures.
3                 The Commission -- you know, it's an
4   interesting body, because obviously the Commission
5   sets policy, the Commission hires and employs an
6   Executive Director.  But the statute is pretty clear
7   that protests are determined by the Commission.  And
8   so, you know, there is the issue, in my view the issue
9   of fundamental due process, and it goes to avoiding
10  anything that would appear to be a bias, a predisposed
11  outcome.
12                I recognize, you know, it's not a
13  contested case proceeding when it comes to you-all in
14  terms of the prohibition of an ex parte communication,
15  but I certainly think that the underlying foundation
16  of the prohibition of an ex parte communication is the
17  rules and principles of fundamental due process.
18                COMMISSIONER SCHENCK:  Well, speaking
19  only for myself, my preference would be not to have
20  any communications offered to me by anyone interested
21  in this contract, about this contract while it's being
22  negotiated with the staff.
23                MS. KIPLIN:  I will tell you that on
24  open procurements, it is clear who the point of
25  contact is in the Contracts and Purchasing Department.
0074
1   This will be the same.  All contact is to go to that
2   point of contact.  There is also historically a
3   provision that's been in an RFP that any other contact
4   to anybody other than that point of contact subjects
5   that particular proposal to be disqualified.
6                 CHAIRMAN WILLIAMSON:  All right.  Thank
7   you.
8                 MR. FERNANDEZ:  Any other questions,
9   Commissioner?
10                CHAIRMAN WILLIAMSON:  No.  I assume this
11  is a just information on the current contract
12  changes --
13                MR. FERNANDEZ:  Yes, ma'am.
14                CHAIRMAN WILLIAMSON:  -- no action is
15  required.
16                Any other questions, Commissioners?
17                COMMISSIONER KRAUSE:  No, ma'am.
18                CHAIRMAN WILLIAMSON:  Thank you.
19                At this time it is 10:17.  We will take
20  a break until 10:35.
21                (Recess:  10:17 a.m. to 10:35 a.m.)
22                CHAIRMAN WILLIAMSON:  It is 10:35.
23  We're back in session now.
24           AGENDA ITEM NOS. XVI, XVII AND XVIII
25                CHAIRMAN WILLIAMSON:  We will be going
0075
1   to Item XVI.  Actually, I think we'll take all three
2   together, XVI, XVII and XVIII.  They are consideration
3   of and possible discussion and/or action, including
4   adoption or withdrawal, on new Rule 16 TAC 401.317
5   relating to terminal printed instant game;
6   consideration of and possible discussion and/or
7   action, including adoption or withdrawal, on
8   amendments to 16 TAC 401.301 relating to general
9   definitions; and consideration of and possible
10  discussion and/or action, including adoption or
11  withdrawal, on Amendments 16 TAC 401.302 relating to
12  instant game rules.
13                Pete, I believe this is yours, if you
14  will please lay that out for us.
15                MR. WASSDORF:  Thank you, Chairman.
16  Good morning, Chairman, Commissioners.  My name is
17  Pete Wassdorf.  I'm an attorney in the Commission's
18  Legal Services Division.  And you have before you a
19  proposal for a new rule, 16 TAC 401.317 and amendments
20  to existing rules.  That's 16 TAC 401.301 and 401.302.
21  The purpose of the proposed rule and -- amendments is
22  to authorize the conduct of terminal-printed instant
23  games.
24                The Commission held a public comment
25  hearing on the proposed new rules on August 5th, and
0076
1   two people spoke at the public hearing, opposed to the
2   proposed rules.  And during the public comment period,
3   the Commission received written comments from
4   representatives of 18 groups and approximately 50
5   individuals and from certain members of the Texas
6   Senate and Texas House of Representatives.  All
7   comments were in opposition to the rule and
8   amendments, and each of you has receives a copy of the
9   comments for your review.  The proposed rules and
10  amendments are ripe for your action at this time.
11                CHAIRMAN WILLIAMSON:  Thank you, Pete.
12                Commissioners, I think this rule was in
13  response to our ongoing request to create additional
14  revenue for the school fund while staying, of course,
15  within the confines of the statutes and regulatory
16  authority that we have.  And I want to thank the staff
17  for continuing to do that.
18                As Robert addressed earlier, we can
19  certainly see some of the successes we've had with
20  their efforts, and I want to thank them for that.
21  Example, recovering from the Hurricane Ike and the
22  impact that it had on revenue generation for the
23  school fund from the Lottery.
24                As Robert mentioned, the spotlight game,
25  which I call the elephant game, has been incredibly
0077
1   successful.  And with that in mind, I know the staff
2   always continues to look for new opportunities, look
3   to other venues, other states where games have been
4   successful, while I know they always keep in the
5   foremost of their mind:  Is this within our statutory
6   authority? as does the Commission.
7                 However, once these rules were
8   published, as Pete has informed you, there was quite a
9   bit of reaction, including some members of the
10  Legislature, on these rules that were interpreted in
11  ways we did not anticipate nor foresee.
12                I will comment at this time, before
13  these rules were even proposed, and not in just this
14  case but other cases of proposals of rules or possible
15  guidelines or statutes or whatever that comes out of
16  the bingo, charitable bingo or the lottery, I know the
17  groups that they are aware of that are interested in
18  this are always informed before the rules are even
19  proposed.  So I understand in this case that was also
20  the same.  So the interested parties that were the
21  most vocal knew before the rule was proposed what it
22  entailed and what it involved, and it was explained.
23                However, having said all of that, as
24  long as I am Chairman, it is never my intent nor my
25  wish or desire to ever overstep our bounds in regards
0078
1   to our authority for making rules or providing any
2   other action that may be construed as in violation of
3   our authority.
4                 So at this time I'm inclined to consider
5   withdrawing this rulemaking.  But, Commissioners, I
6   would certainly like your thoughts and input before
7   any such action or whatever action we take is decided.
8                 COMMISSIONER SCHENCK:  Well, speaking
9   for myself, I was rather vocal when this came up, and
10  I think I wasn't clear enough, as I think, Madam
11  Chairman, you were just a minute ago, and that the
12  staff were responding to requests I think from me as
13  well as everyone else on the Commission for the last
14  year or so, to find new and creative ways to generate
15  revenues.
16                I am where I think I said I was at the
17  last meeting, which is on this particular creative and
18  I think likely within our authority propositions, it's
19  for prudential reasons I'm not in favor of this rule,
20  though I am very grateful to the staff and to Gary and
21  to Legal, Kim, your people.
22                I'm confident that this was a valiant
23  attempt to respond to our request to find additional
24  legal sources for revenue.  But again for prudential
25  reasons, I'm not for it.  I had a number of concerns I
0079
1   expressed.  I think there was a lot of work to deal
2   with my questions from the last meeting.
3                 And, Gary, one of them I think you did a
4   lot of work on and I would live to hear your thoughts
5   on was, one of the concerns I raised about physical
6   security of the game.  If you would like to address
7   that, I would be --
8                 MR. GRIEF:  I'll open that discussion,
9   Commissioner Schenck.  I'll ask Mike Anger to come
10  forward to discuss that in a little more detail,
11  because the solution to the specific question that you
12  raised, which was the concern that clerks could print
13  these types of tickets in advance, hold the losers in
14  abeyance, if you will, and hand those out as players
15  come forward to buy them, I think that question that
16  you railed assisted the agency, not just on this
17  particular rulemaking attempt but also globally on all
18  our other online games.  So I would be happy to have
19  Mike brief you on that.
20                MR. ANGER:  For the record, my name is
21  Michael Anger.  I'm the Lottery Operations Director.
22                And, Commissioner Schenck, we always
23  enjoy a good challenge and you certainly gave us one
24  at the last meeting in something that we hadn't given
25  consideration to and hadn't thought about in the way
0080
1   that you presented it, you know.  So we're always
2   looking to improve, you know, the way we do things.
3                 And so with the concern in mind that you
4   raised about the risk of someone working at a store
5   and possibly palming winning tickets or setting aside
6   winning tickets and then selling the non-winning
7   tickets associated with the terminal-printed instant
8   game to players, we got together, both internally and
9   with the help of our vendor, GTECH, and looked for
10  some solid solutions to address that issue.
11                And we identified what we believe is a
12  very good solution, both associated with the current
13  concept that's under consideration but also something
14  that we believe is a further protection for our
15  players and really our retailers going forward, and
16  that is that we're going to date and time stamp each
17  and every online game ticket that is sold.  And we're
18  currently in the process of working on the software
19  development to push that out and make that available
20  on every one of our online games.  So every player,
21  when they make a purchase now, will know exactly when
22  the ticket was generated and have that information
23  available to them at the time of purchase.
24                COMMISSIONER SCHENCK:  I think that's a
25  great idea.  We really appreciate your responding to
0081
1   that concern.  And again, on this particular rule, I
2   am where I was last time, which is very grateful to
3   the staff for the hard work and creativity in coming
4   up with them.  But ultimately I think, as I say, for
5   prudential reasons, I think I'm opposed to adoption of
6   the rule.
7                 CHAIRMAN WILLIAMSON:  Commissioner?
8                 COMMISSIONER KRAUSE:  I don't see this
9   as wasted effort at all.  I think that it was a good
10  start.  And even though I'm a new Commissioner and I
11  can't say that I'm familiar, you know, what the
12  contents of all of this is, and I would have been
13  somewhat uncomfortable, you know, providing a rubber
14  stamp for it, at the same time I believe that this
15  exercise has been good for us because, you know, I do
16  take seriously our obligation to, you know, make this
17  a game that is profitable for the State of Texas, is
18  fair to the citizens, it's something that they want to
19  do and play.
20                So what this has done is, it has allowed
21  us to educate, ourselves, and I'm glad that we did
22  that.  And that doesn't mean the door is closed at
23  all.  So it's been good work and I think valuable, and
24  I do not think it's going to go to waste.
25                CHAIRMAN WILLIAMSON:  Thank you.
0082
1                 Would one of you like to make a motion?
2                 COMMISSIONER SCHENCK:  I move that we
3   withdraw the proposed rule.
4                 CHAIRMAN WILLIAMSON:  Do we need to
5   specify, Kim, which exactly rules we're doing or --
6                 COMMISSIONER SCHENCK:  16 TAC 401.317 in
7   particular?
8                 MS. KIPLIN:  Yes.  And then Texas
9   Administrative Code, 401.301 relating to general
10  definitions.  Those were amendments, proposed
11  amendments.  And then also proposed amendments to 16
12  Texas Administrative Code 401.302 that was relating
13  to the instant game rule.  So it's three rulemakings
14  that you're going to move to withdraw.
15                COMMISSIONER SCHENCK:  Those three.
16                MS. KIPLIN:  That's correct.
17                CHAIRMAN WILLIAMSON:  Okay.
18                COMMISSIONER KRAUSE:  Second.
19                CHAIRMAN WILLIAMSON:  All in favor?
20                COMMISSIONER SCHENCK:  Aye.
21                CHAIRMAN WILLIAMSON:  Aye.
22                COMMISSIONER KRAUSE:  Aye.
23                CHAIRMAN WILLIAMSON:  Motion to withdraw
24  passes.  So at this point, I see no reason for any
25  further comment.  I would also like to reiterate to
0083
1   anyone that is interested in whatever rules that we
2   have proposed, to encourage you to use the formal
3   public comment period.  I do read the comments, and
4   that's what it's there for.  That tells me you are
5   interested in whatever the topic might be.  And this
6   is a democracy, and I appreciate that input.
7                     AGENDA ITEM NO. XIX
8                 CHAIRMAN WILLIAMSON:  Let's see.  I
9   believe the next item is No. XIX, consideration of and
10  report, discussion or action on the 2010 Internal
11  Audit Activity Plan, external and internal audits,
12  reviews, Internal Audit activities.
13                Ms. Melvin.
14                MS. MELVIN:  Thank you.  Thank you,
15  Madam Chair, Commissioners.  For the record, Catherine
16  Melvin, Director of the Internal Audit Division.
17                This morning I have three items for your
18  attention.  The first item is the Fiscal Year 2010
19  Internal Audit Activity Plan, of which I'll be seeking
20  your approval.  I would like to say we appreciate this
21  opportunity to provide our vision of Internal Audit
22  efforts at the Texas Lottery Commission.  The audit
23  plan is required by professional auditing standards in
24  addition to the Texas Internal Auditing Act.  The
25  Internal Audit Division is committed to being a
0084
1   valuable and trusted resource in improving the
2   agency's operations, and we are proposing a plan that
3   targets key agency responsibilities, yet builds in
4   flexibility to allow for Commissioner and management
5   special requests.  And, of course, special requests
6   are those unanticipated requests that come up
7   periodically during the year and may require immediate
8   attention.
9                 The plan is before you in your
10  notebooks.  As I do each year, I think it's important
11  to briefly mention the concept of acceptable level of
12  risk.  The proposed plan, while it results from our
13  consideration of a wide ranging scope of projects, it
14  does not nor does it intend to address or provide
15  coverage for all agency components or systems.  Our
16  goal, of course, is to optimize our resources to
17  provide reasonable coverage in areas we believe
18  require the most attention.  However, because we
19  cannot address every risk area, it is important for
20  the Commission and for management to understand the
21  limitations of audit coverage and the risks they
22  assume in areas not audited.
23                Having said that, we believe that the
24  plan appropriately allocates the resources of the
25  Internal Audit Division to the most important
0085
1   priorities and risks to the agency at this point in
2   time.
3                 I'm happy to answer any question.
4                 COMMISSIONER SCHENCK:  Can you remind me
5   how many auditors we have full-time now?  Is it four?
6                 MS. MELVIN:  Including myself, we have
7   five.
8                 COMMISSIONER SCHENCK:  Five.  Okay.  We
9   have not had much turnover in your office, if I'm
10  remembering right.
11                MS. MELVIN:  No, sir; no, sir.
12                COMMISSIONER SCHENCK:  That's not a huge
13  number of people.  What happens if we lose somebody
14  during the course of the year?  You have not left, I
15  think, a whole lot of wide open time --
16                MS. MELVIN:  True.
17                COMMISSIONER SCHENCK:  -- if I'm
18  recalling.
19                MS. MELVIN:  Right.
20                COMMISSIONER SCHENCK:  Is that a
21  challenge for you?  Is that something we've run into
22  in the last couple of years?  Not while I've been
23  here, but I'm just a little concerned that if you have
24  somebody go off on maternity leave and then somebody
25  leave at the same time, suddenly half your staff is
0086
1   gone.
2                 MS. MELVIN:  That's a good point.  We
3   are a small shop.  We try to operate very efficiently
4   and leanly.  I am fortunate that I have tenured staff
5   and they've been here at the Lottery Commission for
6   some time.  That's certainly an advantage for any
7   internal audit shop, to have internal auditors that
8   have agency time and experience.
9                 Should we lose an auditor which, you
10  know, I hope doesn't happen, but should that happen,
11  you know, of course, we would seek very quickly to
12  fill that position.  That could possibly impact the
13  audit plan.  You know, as we do, we do build in some
14  flexible time within the plan to allow for hours.  The
15  audit plan is always a guide for audit shops in
16  general.
17                COMMISSIONER SCHENCK:  But as I recall,
18  you've prioritized these audits?
19                MS. MELVIN:  Yes, sir.
20                COMMISSIONER SCHENCK:  So if we have to
21  cut them off, we would start cutting at the bottom,
22  not at the top?
23                MS. MELVIN:  Yes, absolutely.
24                COMMISSIONER SCHENCK:  Okay.  Well, as
25  an important part of your management skills, which
0087
1   I've seen you to be very good, is keeping skilled
2   people happy in their work.
3                 MS. MELVIN:  We try.
4                 COMMISSIONER SCHENCK:  So keep that up.
5                 MS. MELVIN:  Thank you, sir.
6                 CHAIRMAN WILLIAMSON:  Any other
7   questions?
8                 COMMISSIONER KRAUSE:  No, ma'am.
9                 CHAIRMAN WILLIAMSON:  I believe this is
10  an action item.  Is that correct?
11                MS. KIPLIN:  Yes, it is an action item
12  on the Internal Audit Activity Plan for Fiscal Year
13  2010.
14                CHAIRMAN WILLIAMSON:  Okay.  Someone
15  like to make a motion?
16                COMMISSIONER KRAUSE:  I make a motion
17  that we adopt the audit plan.
18                COMMISSIONER SCHENCK:  I second the
19  motion.
20                CHAIRMAN WILLIAMSON:  All in favor?
21                COMMISSIONER SCHENCK:  Aye.
22                CHAIRMAN WILLIAMSON:  Aye.
23                COMMISSIONER KRAUSE:  Aye.
24                CHAIRMAN WILLIAMSON:  Motion passes.
25                MS. KIPLIN:  I've got the plan for
0088
1   you-all's signature.
2                 MS. MELVIN:  Thank you, Commissioners.
3                 CHAIRMAN WILLIAMSON:  Thank you.  And I
4   just want to commend you on the job that your staff
5   has done.  And as we've discussed earlier, I'm finding
6   it very informative to read.  Yes, I do read the
7   internal audit.
8                 MS. MELVIN:  Thank you.
9                 CHAIRMAN WILLIAMSON:  And it's been a
10  great learning tool --
11                MS. MELVIN:  Thank you.
12                CHAIRMAN WILLIAMSON:  -- to understand
13  how the agency -- a lot of how it runs.  So thank you.
14                MS. MELVIN:  Thank you very much.
15                I would like to lay out two recently
16  issued reports, if I may?
17                CHAIRMAN WILLIAMSON:  Sure.
18                MS. MELVIN:  Okay.  The first of those
19  is not within your notebook packets but is available
20  at your table.  And that is the internal audit of
21  retailer accounts.  The objective of the audit of
22  retail accounts was to evaluate the adequacy and
23  effectiveness of internal controls for ensuring
24  accurate and efficient retailer collections and
25  adjustments.
0089
1                 The secondary objective of this audit
2   was to evaluate the tools in place to protect the
3   state from monetary loss in the event of retailer
4   non-payment.  So I state that this was a pretty
5   fundamental audit to do, very important.  This is how
6   we get our money.
7                 And our conclusion here was overall.
8   Based on the results of our review and testing,
9   controls provide reasonable assurance that the
10  retailer sweep is performed accurately, retailer
11  adjustments are made accurately and in accordance with
12  agency policies and procedures and the collection of
13  non-sufficient funds are performed in a timely manner.
14                In the course of our review, we noted
15  some opportunities for improvement.  We have presented
16  management some recommendations to strengthen controls
17  and to improve current processes.  Management
18  indicated agreement with those recommendations.
19                In addition, we provided some additional
20  information regarding opportunities to further manage
21  and minimize the state's risk of loss.  We would like
22  to extend our appreciation to the Lottery Operations
23  Division, the Information Resources Department and the
24  Offices of the Controller for their cooperation and
25  assistance.
0090
1                 If you any questions on that audit, I'm
2   happy to answer them.
3                 CHAIRMAN WILLIAMSON:  Commissioners?
4                 COMMISSIONER SCHENCK:  You gave me a
5   briefing on this before.
6                 MS. MELVIN:  Yes, sir.
7                 COMMISSIONER SCHENCK:  This is an
8   important audit, and I thank you for it.  And I'm glad
9   you got all the support that you felt important.
10                MS. MELVIN:  We did, absolutely did.
11                Okay.  The last item I have is a review
12  of the GTECH Texas lottery sales representative
13  program.  This was also an audit that was approved --
14  or excuse me -- a review that was approved in last
15  year's Internal Audit Activity Plan.  The objective of
16  this engagement was to gather information about the
17  GTECH Texas LSR activities and oversight and present
18  this information for agency management's
19  consideration.
20                As part of our review, we reviewed the
21  administration and management of the LSR program.
22  Overall, we found the lottery sales representatives
23  play an important role in the success of the Texas
24  Lottery Commission.  The LSRs have a wide range of
25  responsibilities in serving over 16,000 retailers
0091
1   across the State of Texas.  Accordingly, they face
2   several challenges in the performance of their
3   responsibilities, including balancing customer service
4   with appropriate controls.
5                 Internal Audit noted many forms of
6   oversight, however, in place to manage and monitor LSR
7   accomplishments.  While LSRs are employees of GTECH,
8   LSRs are monitored in various ways by both GTECH and
9   the Texas Lottery Commission.
10                We would like to note that we received
11  outstanding cooperation in obtaining information and
12  assistance from staff both here at the Texas lottery
13  and at GTECH Texas.  We've provided agency management
14  with further details regarding our review and the
15  information that we gather during that review.  In
16  order to protect confidential and/or proprietary
17  information, those details are not specified in this
18  report.
19                I'm happy to answer any questions about
20  that, should you have any.
21                CHAIRMAN WILLIAMSON:  Commissioners, do
22  you have any questions?
23                COMMISSIONER KRAUSE:  No, ma'am.  Good
24  work.
25                MS. MELVIN:  Thank you.
0092
1                 COMMISSIONER SCHENCK:  I have a stupid
2   question, Gary, which will probably come as no
3   surprise.  But how do these people dress when they go
4   into a retail operation?  Are they wearing GTECH
5   flair?  Are they wearing Texas Lottery shirts or what?
6                 MR. GRIEF:  I would say it's
7   inconsistent.  They're not always -- and I'm not sure
8   if Ramon is here.
9                 COMMISSIONER SCHENCK:  Ramon is not
10  here.
11                MR. GRIEF:  But I think -- I would
12  categorize it as business casual, with many times you
13  will see them in a GTECH Texas shirt.  But I don't
14  think that's always the case.
15                Is that correct, Tom?
16                I think that's not always the case,
17  Commissioner -- and I think Cat would probably attest
18  to this -- the vast majority of these are long-term
19  GTECH employees who have an established relationship
20  with their particular store or retailer that they're
21  visiting, so there's a lot of familiarity there that
22  exists.
23                COMMISSIONER SCHENCK:  Well, it's
24  certainly an important function.  I wonder if every
25  once in a while we're rolling out a new game, if we
0093
1   have T-shirts for people for instance, to wear, a
2   baseball cap or something like that?
3                 MR. GRIEF:  We have had situations where
4   we have a particular focus on a new game or trying to
5   revitalize an old game, if you will, and we use
6   sometimes dress by our LSRs, sometimes in giving the
7   retailer some promotional merchandise to use to pass
8   out to their customers or for their clerks to wear in
9   some cases.
10                COMMISSIONER SCHENCK:  Yes.
11                MR. GRIEF:  So we've used various forms
12  of that, yes.
13                COMMISSIONER SCHENCK:  Okay.  Thanks.
14                Sorry.
15                CHAIRMAN WILLIAMSON:  Any other
16  questions?
17                Thank you.
18                MS. MELVIN:  Thank you.
19             AGENDA ITEM NOS. XX, XXI AND XXII
20                CHAIRMAN WILLIAMSON:  Let's see.  The
21  next three items would be XX, XXI and XXII.  Report on
22  Mega Millions, report, discussion, action on GTECH,
23  and any other operationals.  I would put them all
24  together.
25                Gary.
0094
1                 MR. GRIEF:  Great.  Thank you, Madam
2   Chair.
3                 Commissioners, in addition to the
4   information that I have in your notebooks today, I
5   would just like to touch on three items.  First, I
6   would like to revisit one more time our Fiscal Year
7   2009 revenue results.  And I want to publicly
8   recognize our team for returning us once again over
9   the $1 billion mark in return to the Foundation School
10  Fund.
11                As the Commission mentioned earlier
12  under a different item, we do have a mandate from you,
13  and that is to seek out and to carefully examine and
14  to bring before you new product offerings that we
15  believe are within our statutory authority but that
16  can also generate additional revenue to the fund.  We
17  keep our mission statement at the front of our mind in
18  all that we do, and that is that we're committed to
19  generating revenue for the State of Texas through the
20  responsible management and the sale of entertaining
21  lottery products.
22                Going forward, we're going to continue
23  to stay abreast of industry developments, and we're
24  going to conduct our own independent research, closely
25  monitor our existing games and bring to your attention
0095
1   any opportunities for generating that incremental
2   revenue.  All the while we will stay mindful of our
3   statutory and regulatory authority.
4                 Our staff, our lottery operator, our
5   ticket printers, our advertising agency, all of those
6   folks played very critical roles in helping us get to
7   the billion dollar mark in Fiscal Year '09.  We've got
8   some really good sales momentum going at the beginning
9   of Fiscal Year 2010.  We've had a very productive
10  September.  We're obviously putting a lot of hay away
11  that we lost last September when Hurricane Ike struck
12  Texas.  We've got a couple of new game ideas that
13  we're still researching and developing that we hope to
14  bring before you in the near future that can help us
15  keep that momentum going.
16                Along those same lines, I also want to
17  make you aware of the fact that I'll be traveling to
18  Oklahoma City next week to attend the North American
19  Association of State and Provincial Lotteries
20  Conference.  It's otherwise known as NASPL.  You'll
21  hear us refer to it as that.  NASPL is made up of 52
22  lottery organizations in North America, and our
23  mission is to assemble and disseminate information and
24  benefits of state and provincial lotteries through
25  education and communication.
0096
1                 This annual meeting will bring together
2   the management teams of lotteries from all over the
3   country.  We're going to have individual meetings of
4   the Power Ball and the Mega Millions consortiums while
5   we're there, and we'll continue our discussions about
6   potential joint ventures between the two during next
7   week's time.
8                 I'm also very pleased to say that our
9   chairman, Mary Ann Williamson, will also be
10  participating in the NASPL conference this year, along
11  with Michael Anger and Kathy Pyka.  And I anticipate
12  that next week will be very productive.
13                And finally, I just want to comment on
14  the item related to the lottery operator procurement
15  process.  I want to assure the Commission that this
16  procurement is receiving my complete and full
17  attention, along with that of the senior staff in this
18  agency.  This particular procurement above all the
19  others that we do is absolutely critical to the
20  success of this agency and our ability to generate
21  money for the Foundation School Fund.
22                It's critical that we keep each of you
23  apprised of our progress as we meet the milestones to
24  get to the end of this process.  I want to make sure
25  you know that we're being very methodical in our
0097
1   approach, mindful of even the smallest detail.  We're
2   incorporating both lottery industry and State of Texas
3   best practices into the process, and we're being very
4   conservative in the timing of the issuance of the RFP.
5                 Ultimately, we want to issue an RFP that
6   incorporates the very best procurement practices in
7   the State of Texas and one that will yield the most
8   revenue for the Foundation School Fund.  And we look
9   forward to briefing you on our progress over the next
10  several months.
11                And unless you have any questions for
12  me, that concludes my report this morning.
13                CHAIRMAN WILLIAMSON:  Commissioners, any
14  questions?
15                Thank you.
16                   AGENDA ITEM NO. XXIII
17                CHAIRMAN WILLIAMSON:  Let's see.  Next
18  item is consideration of the status and possible entry
19  of orders in the cases that are posted.  Kim, this is
20  your item.  And I understand we're going to switch the
21  order a little bit.  Is that right?
22                MS. KIPLIN:  Well, if I could, I would
23  like to take up the ones that I would consider to be
24  routine first and get those out of the way.  We do
25  have appearances for two matters.  One is a lottery --
0098
1   I'll just call it a matter.  There's four dockets that
2   are associated with it, a lottery, and then there is
3   another one that's a bingo, and there are two dockets
4   associated with it.
5                 And so with the permission of the
6   Commission, if I could direct your attention to
7   Letters A, B, C, D, E, F, G, H and I.  Those are all
8   lottery cases that are recommendations for revocation
9   of license for insufficient funds.  The staff does
10  recommend that you adopt the recommendation to revoke
11  the licenses in each one of those cases.
12                If I could have a motion.
13                COMMISSIONER SCHENCK:  Sign of life.
14                MS. KIPLIN:  Yes.
15                COMMISSIONER SCHENCK:  I mean, I have a
16  question, first, Kim, believe it or not.  For the
17  record, all of these people are not just NSFs, these
18  are people that we are continuing to pursue our full
19  panoply of remedies against to collect these funds,
20  including going after the most senior officers who,
21  when they first get the license, sign up as basically
22  indemnitors of these obligations.  Is that correct?
23                MS. KIPLIN:  Yes.  Short answer is yes.
24  There are two thresholds for how a revocation action
25  is triggered.  The first one is, we sweep you one time
0099
1   and there's insufficient funds and you don't pay, you
2   don't come back and cure.  We'll immediately move
3   forward after the summary suspension.
4                 The first think that will happen is,
5   once there's an NSF, the Lottery Operations summarily
6   suspends, and that means turns off the terminal.  So
7   we're not going to have any additional insufficient
8   funds.  And there will be a show-cause hearing.  If
9   money is paid, then we'll turn them back on.  If money
10  is not, we move forward to revoke.
11                The other trigger is the three-strikes-
12  and-you're-out rule.  We'll do the NSF, you pay us
13  after the fact, we'll do that three times in a
14  calendar year.  And after that, we will not, and
15  you'll be revoked.  In any event, if there's any
16  monies that are owed to the state -- okay.  We will
17  continue, even after the license is revoked and
18  cancelled, to pursue our collection efforts against
19  the entity itself and any officer, director or owner
20  of that entity.
21                COMMISSIONER SCHENCK:  Okay.  With that,
22  I would -- unless there are other questions?
23                CHAIRMAN WILLIAMSON:  Do you have any
24  other questions?
25                No, I don't have any.
0100
1                 COMMISSIONER SCHENCK:  I'll move we
2   adopt staff recommendations with respect to Items A
3   through F -- I can keep going.
4                 MS. KIPLIN:  A through I.
5                 COMMISSIONER SCHENCK:  G, H and I as
6   well.
7                 MS. KIPLIN:  Yes.
8                 COMMISSIONER SCHENCK:  And revoke the
9   licenses of each affected entity.
10                CHAIRMAN WILLIAMSON:  Is there a second?
11                COMMISSIONER KRAUSE:  Second.
12                CHAIRMAN WILLIAMSON:  All in favor?
13                COMMISSIONER SCHENCK:  Aye.
14                CHAIRMAN WILLIAMSON:  Aye.
15                COMMISSIONER KRAUSE:  Aye.
16                CHAIRMAN WILLIAMSON:  Motion is
17  approved.
18                Kim, I guess.
19                MS. KIPLIN:  I've got three more what I
20  would call routine, and those are Items N, O and P,
21  Items N, O and P.  And those are contested cases
22  against folks on the Registry of Approved Bingo
23  Workers.  In each one of those cases, they are
24  proposed to be removed for a disqualifying criminal
25  history.  They went to hearing.  The Administrative
0101
1   Law Judge has recommended removal from the registry
2   for that disqualifying criminal history, and the staff
3   recommends that you adopt that recommendation and
4   proposal for decision by the ALJ in each one of those
5   cases.
6                 CHAIRMAN WILLIAMSON:  Any questions,
7   Commissioners?
8                 COMMISSIONER SCHENCK:  I'll make my
9   observation, which I've made before.  With respect to
10  NSFs on the lottery, I would love for the next
11  legislative session for us to pass a bill where I
12  don't think those people should be allowed to sell
13  liquor or cigarettes, both of which are regulated by
14  the state and are a privilege, until they've paid us
15  the money.
16                And with respect to these people, we
17  keep having criminals showing up filing license
18  applications.  I don't think we have a high enough fee
19  or a fine to recompense us for the administrative time
20  and expense that it takes to debar these people.  So
21  if, to the extent we can do it amending our existing
22  rules, I would make that request that we consider that
23  at some point.
24                MS. KIPLIN:  We'll take a look at that.
25                COMMISSIONER SCHENCK:  And subject to
0102
1   that, I would move that we adopt staff's
2   recommendation and strike these three applicants.
3   This is J, K and L?
4                 MS. KIPLIN:  N, O and P.
5                 COMMISSIONER SCHENCK:  I'm sorry.  N, O,
6   and P, and remove these people from the bingo
7   registry.  Is that where they --
8                 MS. KIPLIN:  Yes, sir, that's correct.
9                 CHAIRMAN WILLIAMSON:  Second?
10                COMMISSIONER KRAUSE:  Second.
11                CHAIRMAN WILLIAMSON:  All in favor?
12                COMMISSIONER SCHENCK:  Aye.
13                CHAIRMAN WILLIAMSON:  Aye.
14                COMMISSIONER KRAUSE:  Aye.
15                CHAIRMAN WILLIAMSON:  Motion passes.
16                MS. KIPLIN:  And while you-all are
17  signing those orders, the next items are going to be
18  J, K, L and M.  In that particular matter, Mr. White
19  was the enforcement attorney for the staff, and he is
20  here.  And the respondent's attorney is Mr. Ross
21  Lavin.  And, Commissioners, I would like for them to
22  make their presentations to you.  This is a matter
23  that was before you at the August Commission meeting
24  in the form of agreed orders.  The Commission rejected
25  at that time, is my understanding, the agreed orders,
0103
1   asked Mr. White to take a look at a particular legal
2   issue.  He has done that and there is a briefing
3   document in your notebook for that.  And Mr. Lavin I
4   don't believe was here -- was in attendance at the
5   August Commission meeting, but he is here now.
6                 With that, with the Commission's
7   permission, I would like to turn it on over to
8   Mr. White to lay out the materials in your notebook.
9   We thought we would just try to take care of
10  everything today if possible.  And so what you have in
11  your notebook is the proposal for a decision in each
12  of the four cases and in two of the cases, a proposed
13  agreed order.
14                CHAIRMAN WILLIAMSON:  And then I have
15  one other witness, Mr. Fenoglio.
16                MS. KIPLIN:  He is here for the
17  remaining item on a bingo matter.
18                CHAIRMAN WILLIAMSON:  Okay.
19                MS. KIPLIN:  So, Mr. White.
20                MR. WHITE:  I thank you.  For the
21  record, my name is Stephen White.  I'm an Assistant
22  General Counsel with the Lottery Commission.
23                As Mr. Kiplin pointed out, you have for
24  your consideration four proposals for decisions marked
25  as Tabs J, K, L and M, involving four lottery
0104
1   retailers:  Stylish Enterprises; Yaman, Inc.; Asmita
2   Business, Inc.; Jena Enterprises.  These are licensed
3   lottery retailers.  The sole owner and president of
4   these four retailers is an individual by the name
5   Yunusali Badarpura.  Mr. Badarpura was convicted of a
6   Class A misdemeanor, possession of a gambling device
7   and sentenced to three days in jail on February 13,
8   2008.  Additionally, Mr. Badarpura failed to notify
9   the Commission of this conviction, as required by the
10  Lottery Act.
11                After a hearing and arguments by the
12  parties, the Administrative Law Judge issued a
13  proposal for a decision in each of these cases
14  recommending revocation of the licenses, based on
15  Mr. Badarpura's gambling conviction and failure to
16  notify the Commission of his conviction.
17                Subsequent to the issuance of the
18  Administrative Law Judge's proposal, these four
19  retailers filed motions to reopen evidence at SOAH on
20  the basis that on May 11, 2009, the County Court at
21  Law that found Mr. Badarpura guilty granted his motion
22  for new trial and set aside his conviction for
23  gambling and placed him on deferred adjudication
24  rather than a finding of guilt.  The staff did not
25  oppose the motion to reopen.  However, the
0105
1   Administrative Law Judge determined that SOAH no
2   longer had jurisdiction to consider the new evidence.
3                 In view of the fact that the conviction
4   had been set aside, the staff negotiated agreed orders
5   imposing a 30-day suspension on the two entities --
6   actually, at the time there were three retailers who
7   actually made affirmative misstatements on their
8   applications regarding Mr. Badarpura's conviction.
9   One of those subsequently surrendered its license.
10  That's why they are only two agreed orders, and those
11  agreed orders calls for a 30-day suspension on the
12  basis -- for the violation of the failure of any of
13  these to notify the Commission of a change in
14  information on their application, specifically the
15  conviction of Mr. Badarpura.
16                Those were presented to you at the last
17  Commission meeting.  You had a question on the issue
18  of whether or not the county court judge even had
19  jurisdiction and authority to set aside
20  Mr. Badarpura's conviction, you know, based on the
21  fact that his motion for new trial was filed more than
22  30 days after his conviction.  In fact, it was almost
23  a year afterwards.
24                After researching the issue, the staff
25  concluded that the court did have jurisdiction to
0106
1   grant Mr. Badarpura's motion for new trial because of
2   the implicit factual findings by the judge that the
3   motion was timely filed, as asserted by
4   Mr. Badarpura's attorney.  Accordingly, the conclusion
5   was that the judgment setting aside the conviction was
6   not void for lack of jurisdiction, although probably
7   in the view of most people, erroneous and cannot,
8   therefore, be collaterally attacked by the Commission.
9   And that research is outlined in a memo in your
10  binder.
11                COMMISSIONER SCHENCK:  Are we
12  concluding, then, that because the judge said it was
13  timely, even though it's clearly file-stamped a year
14  after, that the judge -- we can't look behind the
15  judge's conclusion that this is timely?
16                MR. WHITE:  That would be my opinion,
17  based upon the assertion by the defense counsel in his
18  motion for new trial that it was timely filed.  You
19  know, he made an argument, which the judge apparently
20  bought, that because his signature was not personally
21  dated by the judge, there was no way of really knowing
22  when the judgment was entered and, therefore, it was
23  timely filed.  And while I --
24                COMMISSIONER SCHENCK:  I asked this
25  question last time, and you told me.  I think it's
0107
1   Houston, is where this case is?
2                 MR. WHITE:  Yes, sir.
3                 COMMISSIONER SCHENCK:  Harris County.
4   Okay.
5                 MR. WHITE:  So based on that, you know,
6   it's my opinion that, you know, it is what it is, and
7   we would be collaterally attacking that judgment,
8   basically overriding the judge's factual determination
9   that it was timely filed, and we probably do not have
10  the authority to do that.
11                So based on that, we're here again.  And
12  today the staff is offering three alternative
13  proposals for you.  The first would be to, as
14  previously suggested, adopt the two agreed orders,
15  imposing a 30-day suspension on the two entities that
16  affirmatively misstated the issue of Mr. Badarpura's
17  conviction on their applications.
18                The second proposal would be to adopt
19  the ALJ's proposed findings of fact and revoke the
20  four entities.  But we would recommended adding the
21  additional finding of fact that the Court did set
22  aside Mr. Badarpura's conviction.
23                And the third proposal would be to adopt
24  the proposal for decisions of the ALJs in the four
25  cases, again with the additional finding of fact that
0108
1   the judgment was set aside, but rather than revoking
2   the four licenses imposing 30-day suspensions on the
3   four entities.
4                 And the staff would like to point out
5   that this factual situation is somewhat unique and
6   unusual.  There was only one other similar case that
7   we are aware of, and that involved a license who had a
8   disqualifying conviction.  However, we did not find
9   out about it until after the 10 years had passed.  He
10  misstated on his application, denying that he had a
11  disqualifying conviction.  When we found out about it,
12  he was now qualified, because the 10 years had passed,
13  but we imposed a 30-day suspension in that case for,
14  you know, false application and falsely stating that
15  he had not been convicted.
16                COMMISSIONER SCHENCK:  I hate to delve
17  back into criminal law here.  So now it's not that
18  he's been found guilty anymore -- maybe it is -- but
19  he had a deferred adjudication.  Right?
20                MR. WHITE:  Yes, sir.
21                COMMISSIONER SCHENCK:  Okay.  But that's
22  not just a not plea.  Either he pled nolo contendere
23  or guilty, with deferred publishment.  The question is
24  whether there's collateral consequences over here.  Do
25  we know whether it was -- someone knows.  I'm assuming
0109
1   it was nolo contendere?
2                 MR. WHITE:  No, sir.  It was a guilty
3   plea.  And, you know --
4                 COMMISSIONER SCHENCK:  Why doesn't that
5   establish for a -- I hate to -- collateral estoppel
6   purposes that this guy was maintaining a gambling
7   device?
8                 MR. WHITE:  Well, I think it does
9   establish he was maintaining a gambling device, but
10  it's not a conviction.  And so, you know, to
11  disqualify him because of a conviction, we probably
12  cannot do that.  But I think it is evidence that he
13  possessed a gambling device, as he has admitted and
14  the judge found beyond a reasonable doubt that he
15  committed the offense of possession of gambling
16  device, he just chose not to find him guilty.
17                MS. KIPLIN:  For purposes of the State
18  Lottery Act, it has to be a conviction for a
19  disqualifying criminal offense.  So deferred --
20                COMMISSIONER SCHENCK:  Deferred
21  adjudication is not a conviction?
22                MS. KIPLIN:  Is not considered to be a
23  conviction.
24                CHAIRMAN WILLIAMSON:  Okay.  So if you
25  plead guilty -- I'm not an attorney.  So if you plead
0110
1   guilty but you're not convicted, then it's okay?
2                 COMMISSIONER SCHENCK:  Yes.
3                 MS. KIPLIN:  For purposes of the State
4   Lottery Act and for this particular provision, yes.
5                 COMMISSIONER SCHENCK:  It does seem that
6   the system opens itself for a certain amount of
7   gaming.
8                 CHAIRMAN WILLIAMSON:  It does, doesn't
9   it?
10                MS. KIPLIN:  Now, what I would say to
11  you is that it is clear in administrative law in the
12  State of Texas, that it is the Commission's decision
13  what is the appropriate sanction for violations of
14  that commission's statutes and rules.  What you have
15  before you is a gentleman who no longer has a
16  conviction but failed -- under the license
17  applications, either failed to notify the Commission
18  within the 10 days of the change in its license
19  information or on two occasions failed to disclose
20  that in a renewal application when asked, "Do you have
21  a disqualifying criminal conviction?" -- and I'm
22  paraphrasing -- the answer to that was "No."
23                And so, Commissioner Schenck, I
24  understand where you're coming from, and the other
25  Commissioners, in terms of the gambling device itself.
0111
1   But that in and of itself, the Commission has not
2   expressed a policy on possession of a gambling device
3   without a conviction, in terms of a rule.
4                 COMMISSIONER SCHENCK:  To get back to
5   debate on the earlier rule, which we've moved
6   beyond --
7                 MS. KIPLIN:  Right.  I understand.  But
8   at this point --
9                 COMMISSIONER SCHENCK:  Are we going to
10  hear from anyone else on this item?
11                CHAIRMAN WILLIAMSON:  Yes.  Commissioner
12  Krause, do you have any --
13                COMMISSIONER KRAUSE:  No.  Let's go
14  ahead and hear what counsel says.
15                MR. LAVIN:  My name is Ross Lavin, for
16  the record.  And I'm an attorney and I practice here
17  in Travis County.  And I am General Counsel for the
18  Greater Austin Merchants Association.  And we have
19  approximately 350 stores that the vast majority, if
20  not all, have lottery licenses in four counties in
21  Central Texas.  I've been doing that for about three
22  years, and I've been a lawyer for 21 years.  And the
23  vast majority of what I've done is practice criminal
24  law.  And I would like to address some of the concerns
25  that Commissioner Schenck has put forward.
0112
1                 Before I do, I would like to thank the
2   Chair and the Commission for letting me be here.  The
3   General Counsel's office has been very gracious in
4   working with me on this particular case
5   specifically -- Mr. White and members of his staff,
6   and Ms. Kiplin, of course.
7                 I have been involved in representing
8   folks that are charged with gambling type offenses
9   since the mid-nineties, and I'm been involved in jury
10  trials all over the state representing folks that are
11  charged with these types of offenses, most
12  specifically involving 8-liner machines.
13                Now, in the 200 or so cases that I have
14  been involved in either as first chair or second chair
15  or just have observed as being a member of the defense
16  bar that handles these kind of cases, I've only seen
17  one or two instances where somebody actually wound up
18  with a criminal conviction, and that is because the
19  Attorney General's office and the local district
20  attorneys have placed their priority in seizing and
21  forfeiting the machines, and they're willing to
22  negotiate reduction to a Class C, some types of
23  deferred adjudication probation, in exchange for the
24  voluntary relinquishment and forfeiture of the
25  machines.  I understand there is somewhere in Travis
0113
1   County around here several floors of an office
2   building that are filled with these kinds of machines.
3                 To answer the specific question that
4   Commissioner -- am I saying it incorrectly? --
5   "Schenck."  Is that right?
6                 COMMISSIONER SCHENCK:  Yes.
7                 MR. LAVIN:  -- has asked, the matter of
8   the deferred adjudication statute does allow for the
9   plea Of a guilty or no contest.  And what the court
10  actually does is, they withhold a finding.  And in
11  Texas, in order to have a criminal conviction on your
12  record without the niceties of a trial, you have to
13  plead guilty and the court has to find you guilty.
14  And if either one of those elements are not present,
15  then you do not have a criminal conviction.  And
16  that's how lots of criminal cases are disposed of.
17                If the person that's, for example,
18  placed on probation completes their term of probation,
19  then the case is technically -- it's dismissed.  The
20  fact that they were arrested and placed on probation
21  is still going to be on their record, but there is not
22  going to be a criminal conviction for lots of
23  different purposes, and specifically today with regard
24  to the statute.
25                COMMISSIONER SCHENCK:  Let me ask you
0114
1   one important question.
2                 MR. LAVIN:  Yes, sir.
3                 COMMISSIONER SCHENCK:  Are you here
4   today for Mr. Badarpura?  Are you representing him or
5   are you here on behalf of your trade association?
6                 MR. LAVIN:  I represent Mr. Badarpura --
7                 COMMISSIONER SCHENCK:  Okay.
8                 MR. LAVIN:  -- which is how I, because
9   of my association with the association, I was able to
10  pick up a client out of Harris County.
11                COMMISSIONER SCHENCK:  Let me ask one
12  more question.  Were you representing him in Harris
13  County in connection with his motion for --
14                MR. LAVIN:  No, sir.
15                COMMISSIONER SCHENCK:  Then you probably
16  couldn't answer the questions I'm most interested in
17  asking, how that came --
18                MR. LAVIN:  I can.
19                COMMISSIONER SCHENCK:  Okay.  Then I
20  would really like to know how it is that a year after
21  the fact, the judge decides that that motion is
22  timely.
23                MR. LAVIN:  Well, thank you for asking
24  that question.  The answer is, is that it's actually a
25  pretty obvious answer.  I agree with the conclusion
0115
1   from the General Counsel's office, but I disagree with
2   how they arrived at the conclusion.  It's not possible
3   to file a motion for new trial based on a criminal
4   conviction where the judgment has become final if you
5   filed a motion after 30 days from the date that the
6   judgment became final.  And in the State of Texas, a
7   criminal conviction becomes final the day the judge
8   sentences the defendant.  In this particular case, the
9   judge signed the order but did not date it.  And the
10  position --
11                COMMISSIONER SCHENCK:  What did the
12  order say?
13                MR. LAVIN:  They found him and convicted
14  him of the offense.
15                COMMISSIONER SCHENCK:  And imposed some
16  kind of sentence, didn't it?
17                MR. LAVIN:  Three days in jail with
18  three days credit.
19                COMMISSIONER SCHENCK:  Did he go to
20  jail?
21                MR. LAVIN:  He did not.
22                COMMISSIONER SCHENCK:  Okay.  So he
23  never did serve his sentence, then?
24                MR. LAVIN:  No.  He was sentenced to
25  jail time, but he was given credit for the jail time.
0116
1   It's a way to dispose of --
2                 COMMISSIONER SCHENCK:  So he had already
3   served the sentence, then?
4                 MR. LAVIN:  Yes, sir.  But that
5   doesn't -- that's --
6                 COMMISSIONER SCHENCK:  Well, a minute
7   ago you just told me that a criminal conviction is
8   final in Texas when the defendant is sentenced.
9                 MR. LAVIN:  But the Court took the
10  position -- and there's some authority to support the
11  proposition that that judgment has to be formally
12  executed, and that includes the dating of the
13  judgment, which did not occur.  And this is again --
14                COMMISSIONER SCHENCK:  Was it file
15  stamped?
16                MR. LAVIN:  I imagine that it was.
17                COMMISSIONER SCHENCK:  Yes.
18                MR. LAVIN:  And I don't want to sound
19  like I'm talking lawlerly and I'm trying to split
20  legal hairs.  But what the judge in Harris County
21  decided was that the case was never adjudicated.
22                COMMISSIONER SCHENCK:  I appreciate
23  that.
24                MR. LAVIN:  So it's still a pending
25  case.
0117
1                 COMMISSIONER SCHENCK:  I understand, and
2   it's helpful background.  It's just a curiosity to me.
3   I don't think it's critical to the final disposition
4   of this matter.
5                 MR. LAVIN:  I would like to just --
6                 COMMISSIONER SCHENCK:  So my
7   congratulations to whoever that trial lawyer was.
8   That's not something in my practice I've been very
9   successful at achieving or trying, frankly, but
10  congratulations to whoever that was.
11                But now we have the question before us
12  of what to do.  I understand and agree with you that
13  deferred adjudication -- it appears to me that there
14  is not a conviction here or a factual finding.  And
15  the judge -- we're not going to pierce the judge's
16  determination that the lack of a date on his signature
17  that a gentleman wasn't convicted.  That doesn't mean
18  he's not going to face some consequence for not
19  disclosing this on at least two applications.  So the
20  question is what is the proper --
21                MR. LAVIN:  If I could address that
22  point real quickly.  The motion for new trial I think
23  was improperly filed.  I think it should have just
24  been a motion to bring the matter back before the
25  judge, because of the age of the case.  I think it was
0118
1   a pending case.  They could have just reset it.  So
2   the granting of a motion for new trial, I think, also
3   was inappropriate because, as a matter of Texas
4   criminal procedure, that case was still a pending
5   case.
6                 Now -- and again, I don't want to come
7   across as being lawyerly talking and splitting legal
8   hairs.  But if my client, Mr. Badarpura, was not
9   convicted -- and the record establishes he was not
10  convicted -- then he had nothing to disclose to the
11  Lottery Commission.
12                Now, having said that, I would like to
13  add to something that Mr. White suggested.  He said
14  there were three options, and I think there's two
15  additional options that the Commission should
16  consider.  First, we would hope that you would adopt
17  the agreement that we made, and that would have been
18  in the first option that he presented.  And I'm urging
19  the Commission to adopt that, that you give him 30
20  days suspension and allow him to go about his
21  business.
22                The other two options that are in
23  addition to the three that he gave you are that the
24  Commission adopt the ALJ's findings but impose a
25  greater suspension than 30 days.  That's within your
0119
1   authority, I believe
2                 And the last option that I came up with
3   is adopt the ALJ findings but impose a sentence of a
4   suspension or revocation only as to the store where
5   the violation occurred.  This only occurred at one
6   location, and we got four locations that are about to
7   be revoked or suspended.  So I would ask the
8   Commission at least consider the possibility of
9   imposing a heavier sanction as to just the location
10  where the violation occurred.
11                I'll answer any more questions that you
12  might have.
13                CHAIRMAN WILLIAMSON:  Questions?
14                COMMISSIONER KRAUSE:  The gambling
15  device was an 8-liner?
16                MR. LAVIN:  I think so.  I didn't
17  represent him in that case.  I was not involved in
18  that part of it.  It probably was.
19                COMMISSIONER KRAUSE:  Does anyone know?
20                MR. WHITE:  Yes, sir.  I have the
21  investigative report from the Sheriff's Department.
22  And as best I can tell, it doesn't appear that the
23  gambling devices were even at a retail location.
24  Mr. Badarpura had a stand-alone store in a strip mall
25  which contained, according to the report, I think 40
0120
1   8-liner devices, and it was basically an independent
2   8-liner shop he was running.
3                 MS. KIPLIN:  Commissioner Krause, for
4   purposes of the State Lottery Act, it's not the issue
5   of the 8-liners; it's the issue of the conviction for
6   a gambling-related offense which we now know has been
7   set aside, and it's also the issue of failure to
8   disclose that conviction within 10 days after that.
9   And on two of these licenses, an affirmative "No" in
10  response to the question on the application, "Have you
11  ever been convicted?" when, in fact, at that time, at
12  the time of the completion of the renewal application,
13  that was certainly not the case.
14                CHAIRMAN WILLIAMSON:  So it was a
15  conviction at the time of the renewal?
16                COMMISSIONER SCHENCK:  Well, this is a
17  brilliant part of this argument.  I mean, it just
18  keeps getting better, because not only was -- let me
19  think.  Not only are we piercing the original
20  conviction but we're piercing also the motion for new
21  trial, because the motion for new trial wasn't proper
22  either, because --
23                MR. LAVIN:  Can't file a motion for new
24  trial more than 30 days.
25                COMMISSIONER SCHENCK:  -- the judge
0121
1   granted it.  Right?
2                 MR. LAVIN:  He gave him deferred, is
3   what he did.
4                 COMMISSIONER SCHENCK:  Okay.
5                 MR. LAVIN:  He gave him deferred.
6                 COMMISSIONER SCHENCK:  In response to a
7   motion for new trial.
8                 MR. LAVIN:  And I'm taking the position
9   that if there was a conviction --
10                COMMISSIONER SCHENCK:  I understand your
11  argument.
12                MR. LAVIN:  -- to report --
13                COMMISSIONER SCHENCK:  I love your
14  argument.  I think it's brilliant.
15                MR. LAVIN:  Thank you.
16                COMMISSIONER SCHENCK:  But I'm not
17  buying it (laughter), and here is the reason:  I think
18  your guy served his sentence already.  He was given a
19  sentence.  The judge signed it.  I don't care if there
20  is a date on the bottom of that order or not.  I don't
21  care what you tell me about that, I don't agree with
22  it.
23                I think your guy is going to face some
24  kind of punishment as far as I'm concerned under this
25  whether it's the agreement you guys worked out for
0122
1   him, which I commend you for working out or something
2   else, I'm open to, with everyone else on the staff,
3   but I do appreciate your argument and I enjoyed it.
4                 MR. LAVIN:  I enjoyed giving it.
5                 COMMISSIONER SCHENCK:  Wherever you two
6   want to land on it.
7                 COMMISSIONER KRAUSE:  All right.  Well,
8   I'm going to -- I'll make that clear here in a minute.
9   I always really despised the Texas Alcoholic Beverage
10  Commission by just absolutely having, you know, the
11  big "gotcha" game going with the applications and the
12  disclosure and all that.
13                With that said, running 8-liners
14  competes with charitable bingo.  And here we've got a
15  guy that had a pretty sizable 8-liner shop right next
16  to where he is selling lottery tickets.
17                COMMISSIONER SCHENCK:  It competes with
18  lottery, too.
19                COMMISSIONER KRAUSE:  Well, I don't like
20  either one of those things.  And so, you know, what
21  we're down to is that he was successful in getting his
22  conviction overturned, but we still have the
23  discretion, because even though I generally don't like
24  the "gotcha" game, on the applications and the
25  disclosures and things like that, that's what we've
0123
1   got to work with.
2                 And if we've got a licensee that is
3   undermining what we are trying to accomplish with
4   lottery and charitable bingo, then I don't think that
5   that's the kind of person that I want to have as a
6   licensee.  Now, you know, the brilliance of his
7   lawyers aside, he was equally astute in finding the
8   right legal counsel, and so he's a smart person.
9                 But the bottom line is, is that even
10  though, you know, he's a pretty major operator because
11  he's got at least four stores, maybe more, I want
12  people to know that we don't appreciate the fact that
13  there are operators out there that are competing with
14  what we're trying to do, and I don't want to reward
15  them by being lenient.
16                CHAIRMAN WILLIAMSON:  So having said all
17  of that, Steve, start over at the top again on the
18  three options and put them in layman's terms so that I
19  can understand, please.
20                MR. WHITE:  Yes, ma'am.  The first would
21  be to adopt the agreed orders negotiated between the
22  staff and Mr. Badarpura, which would be basically in
23  regards to two of the stores, a 30-day suspension in
24  two of the stores where on his application he made an
25  affirmative misstatement on the certification that he
0124
1   has never been convicted of a disqualifying offense.
2                 The second proposal is to --
3                 CHAIRMAN WILLIAMSON:  And so you're
4   saying a 30-day suspension for all four or just the
5   two?
6                 MR. WHITE:  Well, the agreed orders
7   that's been negotiated just involve two.  And, again,
8   that was on the two where was an affirmative
9   misstatement on the application as opposed to simply a
10  failure to notify us within 10 days of the conviction.
11                CHAIRMAN WILLIAMSON:  Okay.  So the two
12  stores, a 30-day suspension.  Okay.
13                MR. WHITE:  The second would be to adopt
14  the proposal for a decision of the ALJ, but instead of
15  revoking the licenses of the four stores, impose a
16  30-day suspension or whatever suspension you think is
17  appropriate.  But we would also recommend adding the
18  additional finding of fact that the conviction was set
19  aside, because I think that's clear and undisputed by
20  all the parties, and I think it would be appropriate
21  to include that as additional finding of fact.
22                And then the third --
23                CHAIRMAN WILLIAMSON:  Okay.  So another
24  basically two stores, 30-day suspension.
25                COMMISSIONER SCHENCK:  No.  Four stores
0125
1   on the second one.
2                 MR. WHITE:  Yes.  Two --
3                 CHAIRMAN WILLIAMSON:  Four stores for
4   the 30 days?
5                 MR. WHITE:  Yes, ma'am.
6                 COMMISSIONER SCHENCK:  And Option 3 --
7                 CHAIRMAN WILLIAMSON:  Okay.  So then --
8   like I said, I'm not an attorney.  So if you throw in
9   this finding of fact with that, what impact will that
10  have?
11                MS. KIPLIN:  I think the impact is that
12  you have a complete record so that if, in fact, there
13  is some seeking of judicial review, it will be a
14  complete record, minimize the opportunities for a
15  potential remand back to have a reopening to take in
16  that evidence when I think it's pretty clear that did
17  exist.
18                COMMISSIONER SCHENCK:  My inclination is
19  not to do that.  I would be fine with the finding of
20  fact that there is an order purporting to revoke the
21  sentence, but apparently we don't have agreement on
22  that either.
23                CHAIRMAN WILLIAMSON:  And then what
24  was --
25                MS. KIPLIN:  Well, I think what we
0126
1   had -- and I think this is factual -- was that on or
2   about May 11th -- I'll direct you to that if you want
3   to, but I'll read it.  "On or about May 11, 2009, the
4   County Court at Law No. 2, Harris County, Texas,
5   granted" --
6                 COMMISSIONER SCHENCK:  Or purported to
7   grant, yes.
8                 MS. KIPLIN:  Well, I think it's --
9                 COMMISSIONER SCHENCK:  There's a
10  signature on a piece of paper.  I agree with that.
11                MS. KIPLIN:  Okay.  -- "motion for new
12  trial and set aside his conviction for possession of a
13  gambling device, and the Court placed him on deferred
14  adjudication."
15                So you incorporate that in.  You still
16  have the findings of failure to notify and failure to
17  disclose, if I recall correctly, in two, and those are
18  violations of the State Lottery Act under the
19  conclusions of law.  And it's clear that the
20  Commission has the ultimate authority over what is an
21  appropriate sanction for those failures.
22                CHAIRMAN WILLIAMSON:  Okay.
23                MS. KIPLIN:  So you have a clear record.
24                COMMISSIONER SCHENCK:  That was 2.  And
25  Option 3?
0127
1                 MR. WHITE:  Very similar.  Adopt the
2   proposals for a decision of the ALJ, with the
3   additional finding of fact but, you know, go along
4   with the ALJ's recommendation to revoke the licenses.
5                 CHAIRMAN WILLIAMSON:  So what's the
6   difference in 2 and 3?
7                 MR. WHITE:  Just one would be a 30-day
8   suspension and third would be revoke the licenses.
9                 COMMISSIONER KRAUSE:  For how many
10  locations?
11                MR. WHITE:  For four locations, for both
12  2 and 3.
13                COMMISSIONER KRAUSE:  How many locations
14  does he have?
15                MR. LAVIN:  Four.
16                COMMISSIONER KRAUSE:  That's it?  He
17  doesn't have any other ones that are not in trouble?
18                MR. ANGER:  That's correct.  There was a
19  time where he had five licensed locations.  One of
20  those licenses has since gone away, and so he has a
21  total of four, and they're the four that we're taking
22  up and discussing here.
23                CHAIRMAN WILLIAMSON:  Okay.  So there
24  again, sorry to be basic --
25                COMMISSIONER SCHENCK:  That's all right.
0128
1                 CHAIRMAN WILLIAMSON:  -- but this is --
2                 COMMISSIONER SCHENCK:  I'm having
3   trouble keeping track.
4                 CHAIRMAN WILLIAMSON:  Okay.  So the
5   first one is two stores only, 30-day suspension?
6                 MR. WHITE:  Yes, ma'am.
7                 CHAIRMAN WILLIAMSON:  The second one is
8   four stores, 30-day suspension?
9                 MR. WHITE:  Yes, ma'am.
10                CHAIRMAN WILLIAMSON:  With adding this
11  finding of fact?
12                MR. WHITE:  Yes.
13                CHAIRMAN WILLIAMSON:  And the third one
14  is to revoke the license for four stores, along with a
15  finding of fact?
16                MR. ANGER:  Yes.
17                CHAIRMAN WILLIAMSON:  Now, when we
18  revoke a license, at what point in time is a person
19  eligible to apply again, if at all?
20                MS. KIPLIN:  Well, I guess the person --
21  I can't recall.  Is there a year set out or is that on
22  the bingo?
23                MR. WHITE:  I know it's on the bingo.
24  I'm not sure what --
25                MS. KIPLIN:  My thinking is, a person
0129
1   could apply tomorrow.  And then, of course, it's
2   within the discretion of the agency to deny that
3   application --
4                 CHAIRMAN WILLIAMSON:  Oh, okay.
5                 MS. KIPLIN:  -- for the reasons that I
6   think we're discussing right now.
7                 MR. ANGER:  There is a general character
8   and fitness provision under the Lottery Act that can
9   be taken under consideration.  But this individual,
10  based on our normal criminal review, if he were to
11  file applications for licenses revoked today, wouldn't
12  come up on our criminal background as someone
13  disqualified.  So the only thing to go on would be
14  their general character and fitness.
15                COMMISSIONER SCHENCK:  I think we're
16  just kicking this can down the road.
17                CHAIRMAN WILLIAMSON:  Right.
18                COMMISSIONER SCHENCK:  I think -- I
19  don't know.  My sense would be to go somewhere in
20  between Options 2 and 3.  I think forever seems a
21  little bit excessive.  What about 90 days on the four?
22                COMMISSIONER KRAUSE:  How about 90 days
23  on the four, kill the one and, you know, let GAMA tell
24  their other members to stay away from 8-liners --
25                COMMISSIONER SCHENCK:  There you go.
0130
1                 COMMISSIONER KRAUSE:  -- and let them
2   know that we're going to take away all the stores next
3   time.
4                 MR. ANGER:  To clarify, with regard to
5   the one -- and I'm looking at Mr. Lavin here -- but my
6   understanding of the cases is, he had a stand-alone
7   game room where these 8-liner devices or whatever type
8   of devices, were operated in, and it wasn't actually
9   in the confines of the convenience store.  But I know
10  there has been testimony --
11                COMMISSIONER KRAUSE:  But it was in the
12  same strip center?
13                MR. WHITE:  Pardon?  What was the
14  question?
15                MR. ANGER:  I haven't been able to
16  confirm --
17                COMMISSIONER KRAUSE:  His casino was in
18  the same strip center as the convenience store?
19                MR. WHITE:  I don't believe it was.  I
20  don't know, I mean, because the applications have a
21  post office box, so I wasn't able to verify it.  But
22  the way it was described in the offense report, the
23  casino was in a strip mall.  And I think these
24  retailers are like gas stations, so I suspect it was
25  not in the same location.
0131
1                 COMMISSIONER SCHENCK:  We didn't license
2   a P.O. box, though, did we?
3                 MR. WHITE:  No, sir.
4                 MR. ANGER:  There is no physical match
5   between the four licensed locations and the address
6   that was noted in the investigative case that went to
7   the court.  That is the only part I'm certain about.
8                 MR. LAVIN:  I would like to please point
9   out that GAMA has absolutely nothing to do with this
10  case.  This is a Harris County case, and the Greater
11  Austin Merchants Association is right here in Austin,
12  Texas.
13                COMMISSIONER KRAUSE:  I'm familiar with
14  that trade organization.  It's a great trade
15  organization.  There are a bunch of great people that
16  are part of it and that run it and that the vast
17  majority of all the members, you know, obey the law.
18  I know many of them.  I actually used to represent
19  GAMA myself.  And so anyway -- but there are always a
20  few bad apples.  And so, as I said, it doesn't have
21  anything to do with GAMA --
22                MR. LAVIN:  Yes, sir.
23                COMMISSIONER KRAUSE:  -- you know, but I
24  do want to take advantage of the fact that they have a
25  very efficient communication system amongst their
0132
1   members and would be happy to use them to get the word
2   out about this.
3                 MR. LAVIN:  Yes, sir.
4                 CHAIRMAN WILLIAMSON:  Okay.  So then --
5                 COMMISSIONER SCHENCK:  Well, my proposal
6   would be instead of trying to trace back the P.O. box,
7   I would propose that we revoke for 90 days on all four
8   locations, if that is an acceptable compromise.
9                 CHAIRMAN WILLIAMSON:  And do you want to
10  kept the finding of fact with that?
11                COMMISSIONER SCHENCK:  Yes, that's fine.
12  I'll make the record right here.  The judge signed
13  that piece of paper.  I agree with that.  Whether it's
14  effective or not would be up to any Court of Appeals
15  or anywhere where this goes from here.  I think it
16  might be wise -- I think it's clear for the record.
17                MS. KIPLIN:  And I think all we're doing
18  is incorporating it as a finding of fact.  We're
19  making no conclusion of law as a result of that.
20  We're just incorporating the fact that that's what
21  occurred.
22                CHAIRMAN WILLIAMSON:  Michael, do you
23  have any comments if we change it to 90 days?
24                MR. ANGER:  Nothing further.  That's
25  within our standard penalty chart that the Commission
0133
1   has adopted by rule, anywhere up to 90 days.
2                 CHAIRMAN WILLIAMSON:  Okay.
3                 MR. ANGER:  The next step would be
4   revocation, so that's the maximum for a suspension.
5                 CHAIRMAN WILLIAMSON:  Commissioner, do
6   you have any other comments?
7                 COMMISSIONER KRAUSE:  I'm willing to
8   yield.  But let it be known.
9                 MS. KIPLIN:  So, Commissioners, I guess
10  we'll need a motion and an action.  And then we will
11  get you an order that is consistent with your action,
12  and we'll get that taken care of today.
13                CHAIRMAN WILLIAMSON:  Great!
14                COMMISSIONER KRAUSE:  You make it.
15                COMMISSIONER SCHENCK:  I move that we --
16                COMMISSIONER KRAUSE:  I might say the
17  wrong thing.
18                COMMISSIONER SCHENCK:  -- that we revoke
19  this applicant --
20                MS. KIPLIN:  Suspend.
21                CHAIRMAN WILLIAMSON:  Suspend.
22                COMMISSIONER SCHENCK:  -- that we
23  suspend --
24                MS. KIPLIN:  Thank you, sir.
25                COMMISSIONER SCHENCK:  -- this
0134
1   licensee's license with respect to the four identified
2   licensed locations for a period of 90 days and that we
3   add the additional fact-finding which Ms. Kiplin
4   earlier referenced.
5                 CHAIRMAN WILLIAMSON:  Second?
6                 COMMISSIONER KRAUSE:  A barely audible
7   second.
8                 CHAIRMAN WILLIAMSON:  All in favor?
9                 COMMISSIONER SCHENCK:  Aye.
10                CHAIRMAN WILLIAMSON:  Aye.
11                COMMISSIONER KRAUSE:  Aye.
12                CHAIRMAN WILLIAMSON:  Motion passes.
13  Thank you.
14                MR. LAVIN:  It's very nice to be here.
15  Thank you for your time.
16                COMMISSIONER SCHENCK:  Thank you.
17                MS. KIPLIN:  So we'll get those orders
18  taken care of during the executive session.
19                CHAIRMAN WILLIAMSON:  Okay.
20                MS. KIPLIN:  And then if I could,
21  Commissioner, now direct your attention to the
22  remaining two dockets for you today, which are Items Q
23  and Item R, and that is the matter of Daytime Bingo
24  and Gary Garrison.  Mr. White was the enforcement
25  attorney on that matter.  Mr. Fenoglio represented
0135
1   Daytime Bingo and Mr. Garrison.  And at this time, if
2   I could have them make their presentations.
3                 CHAIRMAN WILLIAMSON:  Sure.  Great!
4                 MS. KIPLIN:  These are proposed agreed
5   orders.
6                 CHAIRMAN WILLIAMSON:  Okay.  Are you
7   going to join them?
8                 Okay.  Great!
9                 MR. WHITE:  Thank you.  Again for the
10  record, my name is Stephen White.  I'm Assistant
11  General Counsel.
12                You have before you two agreed orders
13  marked in Tabs Q and R.  One involves Daytime Bingo,
14  Inc., a licensed commercial lessor, 100 percent owned
15  by Gary Garrison.  And the other involves Gary
16  Garrison in his personal capacity as a registered
17  bingo worker.
18                This is the second half of the three
19  cases that were settled several months ago involving
20  three conductor organizations.  Bnai Brith Men's
21  Club, Bnai Brith Youth Organization and Lou Rosenberg
22  Scholarship Fund conducted bingo at the Daytime Bingo,
23  Inc., hall.
24                COMMISSIONER SCHENCK:  Did we ever find
25  out who took the money?
0136
1                 MR. WHITE:  No, sir, I cannot say for
2   certain where the money ended up.
3                 The Bingo Operations Division conducted
4   audits of the three organizations.  As a result of
5   information provided to the Commission by the Midland
6   Police Department indicating a misapplication of bingo
7   funds, the Midland Police Department obtained this
8   information while investigating a theft that occurred
9   at the Daytime Bingo Hall on or about June 1, 2006.
10                The audits made findings that funds
11  derived from the conduct of bingo -- this is just
12  during the audit period of one year -- in the amount
13  of approximately $318,000 was not deposited into the
14  organization's bingo account by the next business day
15  after the monies were received, as required by the
16  Act.
17                This amount involved approximately
18  $247,000 in overstated prizes and 429 bingo occasions,
19  and approximately $71,000 in proceeds from 323
20  pull-tab deals sold and not reported at the time of
21  the theft.  Additionally, the audit found in order to
22  cover up the fact that bingo proceeds received but
23  were not being deposited into the accounts of the
24  organizations are in at least 377 occasions false
25  entries were made on daily cash reports and quarterly
0137
1   reports.
2                 Gary Paul Garrison admitted that he is
3   aware that proceeds from bingo were not being
4   deposited into the organization's bingo accounts and
5   that bingo records were being falsified to cover up
6   the diverted funds.  Mr. Garrison states that he did
7   not know the amount of proceeds that were not being
8   deposited into the organization's accounts.
9                 In the Daytime Bingo, Inc., proposed
10  agreed order, Daytime Bingo, Inc., agrees to surrender
11  its license, its lessor license with 30 days of the
12  entry of the order and also agrees to a stipulated
13  penalty amount of $100,000, basically a probated
14  penalty.  But if he violates the order, the $100,000
15  becomes payable, due and owing the Commission.
16                On the Gary Garrison agreed order,
17  Mr. Garrison agrees to being removed from the list of
18  approved bingo workers, to divest himself of all
19  interests in Daytime Bingo, Inc., and to cease all
20  involvement in charitable bingo and not to get
21  involved in charitable bingo for at least seven years.
22  What constitutes involvement in charitable bingo is
23  set out in the agreed order.  There is also an agreed
24  stipulated penalty in the amount of $150,000 should
25  Mr. Garrison violate the order.
0138
1                 The staff recommends adopting these
2   orders, as they lay a foundation for a policy that a
3   commercial lessor will be held responsible for
4   violations that occur in the lessor's bingo hall if
5   the lessor is aware of the violations and does not
6   take appropriate action in the form of stopping the
7   violations or reporting the violations to the
8   Commission and/or police.
9                 Daytime Bingo, Inc., has agreed to
10  surrender its license.  Mr. Garrison has agreed to be
11  removed from the registry of approved workers, along
12  with the stipulated penalties in both cases should
13  either party violate the agreed order.  And the staff
14  recommends that you adopt the agreed orders.
15                CHAIRMAN WILLIAMSON:  Thank you.
16                Any questions, Commissioners?
17                COMMISSIONER SCHENCK:  The last time we
18  had a gentleman here from Bnai Brith to talk to us
19  about this, I wanted to know if there were any civil
20  cases pending against Mr. Garrison to try to recoup
21  any of the proceeds from these unrecorded sales.  Do
22  we know whether there is an answer to that?
23                MR. WHITE:  I do not believe there is.
24  I'm fairly certain there is not.
25                COMMISSIONER SCHENCK:  Well, it seems to
0139
1   me that within the limited scope of our authority, we
2   don't have much in the way of remedies, other than the
3   remedies of the type you've just laid out.  This
4   $100,000 fine, $150,000 fine contingent on his
5   violating these orders sounds very stiff.  But, I
6   mean, it's unlikely he violates these orders.  There
7   is no actual fine in place other than that.  Am I
8   understanding that correctly?
9                 MR. WHITE:  That's correct, yes.
10                COMMISSIONER SCHENCK:  I'm not sure I'm
11  comfortable with that.  Also with respect to these
12  enormous interim fines, should he engage in
13  licensed -- well, what triggers this $100,000 and
14  $150,000 fine?  Can you help me remember that?
15                MS. KIPLIN:  What would trigger us
16  collecting on that is if Mr. Garrison violates the
17  term of these agreed orders.
18                COMMISSIONER SCHENCK:  Which is that he
19  doesn't engage in licensed bingo activities?
20                MS. KIPLIN:  That's right, that he
21  does --
22                MR. WHITE:  It's more than that.
23                MS. KIPLIN:  Yes, it's much more.  If we
24  go to the one on the Registry of the bingo workers, if
25  he were to try to apply, if he were to apply to be on
0140
1   the Registry within the seven years set out, if he
2   does not divest himself within 30 days of the entry of
3   this order of all interests in Daytime Bingo --
4                 COMMISSIONER SCHENCK:  What if he has an
5   interest in another gaming bingo, licensed bingo
6   operator?
7                 MS. KIPLIN:  Okay.  If he tries to -- he
8   has to cease any and all activity in the conduct of
9   bingo, and he has to make no attempt to be involved
10  for seven years.  Involved is --
11                COMMISSIONER SCHENCK:  Okay.  Okay.
12                MS. KIPLIN:  Involved for the purposes
13  includes but is not limited to.
14                COMMISSIONER SCHENCK:  All right.
15                MS. KIPLIN:  So it's, you know, a bit of
16  a laundry list:  Applying for any license, being an
17  officer or a director, owner, partner, attorney,
18  employee agent, et cetera, et cetera.
19                COMMISSIONER SCHENCK:  Okay.  We put a
20  wall between him and legal bingo.  Is he going to post
21  a bond to assure -- is he worth $100,000?  Does he
22  have any money?
23                MS. KIPLIN:  Mr. Fenoglio is his lawyer,
24  and he may be able to answer that.
25                MR. FENOGLIO:  They're not public, but
0141
1   the tax returns were introduced under a
2   confidentiality agreement, and he has significant
3   resources, yes.
4                 COMMISSIONER SCHENCK:  All right.
5                 MR. FENOGLIO:  And he's also
6   surrendering a license that has intrinsic value as
7   well.
8                 COMMISSIONER SCHENCK:  But he's not,
9   under this proposed agreement, to post a bond to
10  secure payment or place --
11                MR. FENOGLIO:  I don't think you have
12  the authority to require someone to post a bond under
13  these circumstances.
14                COMMISSIONER SCHENCK:  We have the
15  authority to decline your plea deal.
16                MR. FENOGLIO:  Well, that's true.
17                MS. KIPLIN:  Well, I think in the terms
18  of an agreed order, if the parties were to agree and
19  Mr. Garrison were to agree to post a bond, then that
20  would be part of an agreed order.  But for the
21  Commission to impose that, absent --
22                COMMISSIONER SCHENCK:  What's the
23  maximum fine we could actually place on him as a
24  result of this?
25                MR. WHITE:  Well, the Act allows a fine
0142
1   of $1,000 per violation.  It actually goes on after
2   that.  It says each day the violation continues, which
3   I'm not sure what that means in this context.  But,
4   you know --
5                 COMMISSIONER SCHENCK:  These are pretty
6   serious violations.
7                 MR. FENOGLIO:  I would like to address
8   that, if I may, at the appropriate time.
9                 COMMISSIONER SCHENCK:  Sure.
10                MR. WHITE:  I mean, to answer your
11  question more specifically, I mean, we have
12  specifically, you know, amounts, number of times that
13  a document was falsified, number of bingo occasions
14  that monies were withheld.
15                COMMISSIONER SCHENCK:  We have 374
16  entries on one of these accounts.
17                MR. WHITE:  Yes, sir.  So just that
18  alone would be arguably $374,000.
19                COMMISSIONER SCHENCK:  For a gentleman
20  who has substantial financial resources.
21                MS. KIPLIN:  If I could just say -- and
22  if you said this, well, then, just make me stop
23  talking.  But where we are right now is, this matter
24  has actually gone to a hearing over at the State
25  Office of Administrative Hearings.  That's where we
0143
1   are.  And so this agreement is post-hearing but
2   pre-issuance of a proposal for a decision.
3                 Is that a correct statement, parties?
4                 MR. WHITE:  Yes, ma'am.
5                 COMMISSIONER SCHENCK:  So SOAH is not
6   done with this yet?
7                 MR. WHITE:  No, sir.  Everything has
8   sort of been put on hold, because subsequent to the
9   hearing, we negotiated this settlement.  And if I may
10  say something in terms of perhaps why, one of the
11  reasons the staff is recommending you adopt these
12  agreed orders, I'm not sure there is anything that
13  prevents Mr. Garrison from simply surrendering his
14  license, with or without an agreed order.
15                And once he surrenders his license,
16  arguably the Commission loses jurisdiction.  I don't
17  want to say that for certain, but there is a
18  possibility of that.  And if that would happen, we
19  would have sort of nothing, you know, put it that way.
20  This agreed order, we have again findings and sort of
21  a policy that Mr. Garrison is and should be held
22  accountable for what had happened in his bingo hall.
23  We have agreements that he'll stay out of the bingo
24  business for a period of time and we have the
25  stipulated penalties.
0144
1                 COMMISSIONER SCHENCK:  Well --
2                 CHAIRMAN WILLIAMSON:  Well, there again,
3   not being an attorney, so I have to ask -- there are
4   no dumb questions, just uninformed sometimes -- just
5   because someone says they're not going to do
6   something, as we know, doesn't necessarily mean that
7   they don't do it.  Is there any monitoring or
8   follow-up or how do we assure ourselves that he's
9   complying with this order if we approve it, in terms
10  of staying out of the business for seven years?
11                MR. WHITE:  Yes, ma'am.  I mean -- and
12  perhaps the Director could answer that question a
13  little better than me.  But, I mean, as part of the
14  application you've required to submit the names of all
15  persons associated with that applicant in terms of the
16  owners, the officers, directors.  We do background
17  checks.  We obtain information from the Secretary of
18  the State and Controller's office to verify that
19  information.  So hopefully it would be caught if, in
20  fact, he, you know at some point becomes an officer or
21  a director or a shareholder of the licensee.  There is
22  obviously no guarantee of that, but hopefully we
23  would.
24                MR. SANDERSON:  Another avenue is, the
25  auditors and inspectors go out and investigators will
0145
1   go out and they routinely do inspections of locations,
2   and probably more so if he stays in the Midland-
3   Odessa area, that, you know, we've got an office there
4   also with two auditors there at that point.  So it can
5   be monitored just by conducting routine inspections of
6   the locations.
7                 Additionally, you know, our Bingo
8   Bulletin that we send out, we list all the
9   administrative actions that take place.  So there
10  would be a listing in there that he was removed from
11  the Registry and couldn't be involved in bingo, as
12  part of the administrative action.
13                CHAIRMAN WILLIAMSON:  Okay.  Thank you.
14                Any other questions, comments?
15                COMMISSIONER SCHENCK:  I would feel
16  better about this if there were a real fine attached
17  instead of one conditioned on us catching him
18  violating the terms of this deal.
19                COMMISSIONER KRAUSE:  Sounds fine to me.
20                MR. FENOGLIO:  I would like to have a
21  word, if I may.
22                COMMISSIONER SCHENCK:  Of course.
23                CHAIRMAN WILLIAMSON:  Sure.
24                MR. FENOGLIO:  Stephen Fenoglio, the
25  attorney for Daytime Bingo, Inc.
0146
1                 There are a lot of allegations in this
2   case.  But over the course of, I guess, a total of --
3   if memory serves me correct -- 12 depositions and two
4   full days of hearing, no one could prove much of
5   anything, other than Mr. Garrison admitted in his
6   first and second depositions that he was aware of the
7   practice that was ongoing.  The record evidence is
8   clear that he didn't engage in the practice, he didn't
9   initiate the practice, it was started a long time ago.
10  The evidence is unclear who established it.  There is
11  some evidence that shows that Gene Garrison, Gary
12  Garrison's father, started one or more of these
13  practices.
14                You asked a question about the stolen
15  money.  It's a puzzle to all of us, I think, because
16  the Midland Police Department records clearly show
17  that a former employee of the hall became a target of
18  the criminal investigation.  Her name is Angel
19  Sandate.  She gave one statement to the Police
20  Department.  They asked her to come back, and they
21  told her that she might be a target.  And she said, "I
22  want to consult with an attorney and I'll be back next
23  week."  And then they got a call from her attorney
24  that she refused to cooperate.  The investigation
25  stopped.
0147
1                 By the way, Mr. Garrison was a target
2   initially of the theft that occurred.  He took a lie
3   detector test, passed it.  The administerer of the
4   test is a former administerer for the Odessa Police
5   Department.  And after that, he no longer was a
6   target.
7                 The allegations are serious.  But
8   insofar as -- Commissioner Schenck, I heard you say
9   there are allegations and then you immediately
10  concluded there are violations.  The evidence is
11  unquestioned by anyone that Mr. Garrison never
12  prepared any document, never instructed people how to
13  prepare the filings -- the daily cash reports, the
14  quarterly reports that are on file.  And so you have
15  allegations of falsifying records, but there is no
16  evidence that he ever did any of those things.
17                And so that's why I think you're left
18  with, at the end of the day, a lot of allegations, no
19  clear proof who did what.  The only clear proof is
20  that Mr. Garrison was aware of what was going on.  And
21  so that's why I believe you find that your staff come
22  forward to you and say, "This is the best of possible
23  worlds," because, I mean, quite frankly, he could
24  surrender his license.  And I think, sitting on my
25  side of the table as opposed to Mr. White's, who is
0148
1   sitting on a different side of the table, I think if
2   we do that, the hunt is over.  And I think you've got
3   kind of a qualified position from Mr. White as to,
4   "Well, I don't know if it would be over or not."
5                 So there would be an end to the
6   litigation.  I mean, the bingo world is fairly small
7   within the industry, and certainly Midland and Odessa
8   are very small communities.  And I think it's I would
9   say 99.9 percent likelihood that if Mr. Garrison ever
10  put his foot into the bingo world, that it would be
11  known pretty quickly.
12                He is a practicing attorney.  He
13  inherited the business from his father.  Actually, I
14  think he paid substantial dollars for it, but he's
15  getting out, and I don't see him ever wanting to get
16  back in.  And he is surrendering a license that, by
17  the way, would be up for renewal around October 24, I
18  believe, that has intrinsic value.  They've regularly
19  been sold, bartered for between 50 and $150,000 each,
20  for each license, this category of what we call a
21  grandfathered lessor license.
22                So all that to say he's out of the
23  business.  If he gets back in the business, it would
24  be a significant penalty.  And you've got a lot of
25  allegations.  You've got a lot of allegations, but
0149
1   it's not real clear who did what.
2                 COMMISSIONER SCHENCK:  Well, one thing.
3   Back to your representation about my statements about
4   this.  There are allegations out there.  I believe
5   what you're telling me is, he knew what was going on.
6   Other people filled out reports that were required to
7   be submitted with us that were false.  He is our
8   licensee, is he not?
9                 MR. FENOGLIO:  Well, he is the
10  commercial lessor.  He's not the charity that was
11  actually conducting.  And I don't think anyone
12  realistically suggested that he was out there telling
13  everyone, "You must do it this way."  By the way,
14  there is also evidence that one or more of the charity
15  employees were also aware what they were doing was
16  wrong, some of whom are still there.  But, you know,
17  that's for another day.
18                COMMISSIONER SCHENCK:  Well, I agree
19  with that.
20                I don't know.  My inclination is, it
21  sounds like he thinks he might not have done anything
22  wrong and maybe we should let the SOAH process work
23  itself out, to test the question of withdrawing his
24  license and seeing if that removes any continuing
25  jurisdiction.  I guess we can cross that bridge when
0150
1   we come to it.  My preference still would be to have
2   some kind of actual fine attached to this as opposed
3   to one that's conditional.  Just my view.
4                 CHAIRMAN WILLIAMSON:  Do we have the
5   authority to impose a fine?
6                 MS. KIPLIN:  Well --
7                 COMMISSIONER SCHENCK:  Not yet.  They
8   haven't completed the SOAH process.
9                 CHAIRMAN WILLIAMSON:  Oh, okay.
10                COMMISSIONER SCHENCK:  Right?
11                MS. KIPLIN:  That's correct.  Right now
12  what's before you is a proposed agreed order that the
13  parties have agreed to.  What is pending is the
14  issuance of a proposal for a decision after -- there
15  has been a pretty prolonged hearing process over there
16  and discovery process.
17                COMMISSIONER SCHENCK:  If that's true --
18  maybe I'm creating a whole lot of work over a fairly
19  smaller -- when you say "a prolonged process," I mean,
20  was it a multi-day hearing that's already gone on?
21                MS. KIPLIN:  It was a multi-day hearing,
22  but there was a lengthy discovery process.  I want to
23  say nine months, but I'm sure that you-all --
24                MR. FENOGLIO:  Close to it.
25                MS. KIPLIN:  -- will correct me if I'm
0151
1   wrong.
2                 CHAIRMAN WILLIAMSON:  So if we have an
3   action over here, will that impact what continues or
4   doesn't continue on at SOAH?
5                 MR. FENOGLIO:  No.  It would --
6                 MS. KIPLIN:  If you take action today,
7   that will moot out the need for the SOAH process to
8   continue, and we would notify the State Office of
9   Administrative Hearings that there has been an agreed
10  order that's been entered.
11                COMMISSIONER SCHENCK:  They've entered
12  into a -- effectively have entered into a plea deal
13  they're looking for us to agree to.
14                CHAIRMAN WILLIAMSON:  Okay.
15                COMMISSIONER SCHENCK:  We either send
16  them back and say, "Go try it or work out a better
17  plea that we're willing to agree to."
18                CHAIRMAN WILLIAMSON:  Okay.
19                COMMISSIONER SCHENCK:  I fear if they go
20  try it, the problem -- it creates a whole lot of time
21  and staff distraction -- it may not be worth the fine
22  that I would be looking for anyway.
23                CHAIRMAN WILLIAMSON:  Okay.
24                COMMISSIONER SCHENCK:  So I think I'm
25  going to reconsider my position, and I'm going to
0152
1   propose that we adopt the staff recommendation.
2                 COMMISSIONER KRAUSE:  Second.
3                 CHAIRMAN WILLIAMSON:  All in favor?
4                 COMMISSIONER SCHENCK:  Aye.
5                 CHAIRMAN WILLIAMSON:  Aye.
6                 COMMISSIONER KRAUSE:  Aye.
7                 CHAIRMAN WILLIAMSON:  Just one comment
8   on this topic.  You know, in light of certain
9   headlines and occurrences with other parties related
10  in the bingo industry, I think we're all very
11  sensitive when these occurrences happen that reflect
12  poorly on the bingo industry.  And then, obviously,
13  you know, some of that reflects on charitable bingo
14  and the lottery and the Lottery Commissioners.  And I
15  know both of my fellow Commissioners have spoken to
16  that.
17                But we really don't like this kind of
18  activity.  And any time that we can continue honing
19  that message -- and as we can see from the 90-day
20  suspension -- I think you probably will see stricter
21  and harsher penalties for those that decide to operate
22  outside of the bounds of the statutes.
23                Having said that . . .
24                MS. KIPLIN:  Commissioners, I have the
25  two agreed orders for your signature on the Daytime
0153
1   Bingo and Gary Garrison.  And also I have the orders
2   on the lottery cases that now reflect the
3   incorporation of the additional finding and then the
4   90-day, consecutive day suspension.
5                    AGENDA ITEM NO. XXIV
6                 CHAIRMAN WILLIAMSON:  Okay.  Now, I have
7   one witness affirmation form for public comment at
8   this time from Gerald Busald.  This will need to be on
9   anything other than the other topics for the day.  Is
10  that correct?
11                MS. KIPLIN:  That's my understanding of
12  the guidelines you've incorporated.  And I'll just put
13  a reminder out, that under this topic of public
14  comment, you're here to receive the public comment,
15  but you're not able to deliberate what you're hearing,
16  with the exception of whether you want to put it on
17  for a future Commission meeting agenda.
18                CHAIRMAN WILLIAMSON:  Okay.  So I assume
19  you will not be discussing anything that we've
20  previously discussed or comment on today's meeting?
21                PROF. BUSALD:  Well, for the record, my
22  name is Gerald Busald.  I'm a mathematics professor at
23  San Antonio College.
24                I would like to add that I was -- I did
25  file a witness form for Item XVI, and I was not
0154
1   permitted to comment on that, because that was
2   withdrawn.  Is that correct?  Well, you can't respond.
3                 First of all, I guess I'm the person who
4   is responsible for these guidelines being adopted,
5   after my appearance in May.  I kind of get that
6   feeling that, you know, I was cut off after five
7   minutes.
8                 I would like to comment that if these
9   rules had been in effect -- after I served on the
10  search committee that eventually Anthony Sadberry was
11  hired as the Executive Director, I made a list of
12  eight suggestions to the Commissioners that were
13  eventually adopted.  With the current rules, I feel
14  like I wouldn't have even been heard.  I want to make
15  sure that the Commission is open to hearing comments
16  from people who really have suggestions.  My
17  suggestions were eventually adopted.  So if you see
18  cash value option, the amount of the cash value option
19  on the front of a lotto ticket, it's because of me and
20  because the Commissioners were willing to hear me.
21                I got the feeling at the last meeting
22  that I really wasn't willing to be heard.  And so
23  that's a pretty disturbing thing, after all the hours
24  and dollars.  And when I served on that committee, we
25  were not recompensed hotels or anything.  We were all
0155
1   on our own money to do that service for the
2   Commission.  So I feel like I've done a lot for this
3   Commission to make it open and honest as far as the
4   public is concerned.
5                 So in May I came to comment about the
6   issue of security and the clerks stealing.  And we
7   know that happens.  And so the reason I was
8   concerned -- and I read with appreciation Commissioner
9   Schenck's comments in May -- I mean in -- yes, in May
10  about the -- I'm sorry -- in July, about clerks --
11  what's going to keep clerks from stealing, because
12  that has been my concern and was the concern at the
13  time, trying to protect the player.  And I want to
14  make sure we have those things in place.  And I was
15  concerned that that previous order would have given
16  clerks a license to steal, so I'm glad that it was
17  withdrawn.
18                We know that retailers are licensed, but
19  clerks are not licensed.  Clerks sometimes are felons,
20  because it's a low-paying position and we know that we
21  have that type of person sometimes doing that
22  activity.  So we need to take everything we can do to
23  help protect the players.
24                So one of the things that happened in
25  June was, my comments that I made were handed over by
0156
1   Gary -- I'm sorry, by -- well, my comments were
2   forwarded by Michael, but they never become part of
3   the record.  And I think it is important, that the
4   reason it needs to be spoken at the hearing is that it
5   becomes a record and people can access it on the
6   Internet.  They're not going to be able to access
7   comments that are submitted in writing.  They're just
8   not there unless you do an open records request to see
9   all the comments, so I think it's important that those
10  comments be out there.
11                One of my comments at the time was that
12  I was hoping that we could at least get 100 percent
13  coverage of the ticket checkers, because that would
14  help prevent clerks stealing from players, and I
15  intend to try and push that.  But, of course, that's
16  nowhere in the record because it was in a comment that
17  I sent in, but it was just made -- handed to you, but
18  that never became part of any record, so I think it is
19  important.
20                I guess the last thing I would say is,
21  the current rules -- previously, Commissioners, if
22  there was a citizen to be heard, they realized we
23  traveled a long way.  It's not inexpensive.  They were
24  willing maybe to amend the agenda or go out of order
25  on the agenda to hear citizens, instead of making
0157
1   someone listen to maybe three or four hours about
2   bingo and things that they may not have any concern
3   with, "We're going to make them listen, make them sit
4   till the end," even if it's still 2:00 in the
5   afternoon, like you have to do, before they can make a
6   comment.  I think that's not conducive to citizens
7   being heard.  So I hope that they will be treated
8   fairly.
9                 And I would like to say one last comment
10  about my last appearance.  I was not informed ahead of
11  time that we had any five-minute rule, because we had
12  never had a five-minute rule before.  So any comment
13  that I violated a five-minute rule I felt was a little
14  bit rude.
15                So I hope that you are willing to listen
16  to people who have legitimate concerns.  And I think
17  I've been very constructive for this agency, for the
18  Commission, and I don't think I was treated that way
19  the last time I was here.  So that's my only comments.
20  Thank you very much for your attention
21                CHAIRMAN WILLIAMSON:  Thank you.  Thank
22  you for providing your comments.
23                    AGENDA ITEM NO. XXV
24                CHAIRMAN WILLIAMSON:  At this time I
25  move the Texas Lottery Commission go into executive
0158
1   session to deliberate the appointment, employment and
2   duties of the Executive Directors, the duties and
3   evaluation of the Deputy Executive Director, Internal
4   Audit Director, Charitable Bingo's Director and the
5   duties of the General Counsel and Human Resources
6   Director and to receive any legal advice on pending or
7   contemplated litigation and --
8                 MS. KIPLIN:  Can I go back and reference
9   on the deliberation of all the people?
10                CHAIRMAN WILLIAMSON:  Okay.
11                MS. KIPLIN:  It's pursuant to Section
12  551.074 --
13                CHAIRMAN WILLIAMSON:  Okay.
14                MS. KIPLIN:  -- of the Texas Government
15  Code.  And the legal advice is pursuant to Section
16  551.071(1)(A) and (1)(B) as well as 551.071(2) of the
17  Texas Government Code.
18                CHAIRMAN WILLIAMSON:  That's included as
19  well.  Thank you.
20                Is there a second?
21                COMMISSIONER KRAUSE:  Second.
22                COMMISSIONER SCHENCK:  Second -- third.
23                CHAIRMAN WILLIAMSON:  I need to note the
24  time.  It's 12:08.  Sorry about that.
25                All in favor?
0159
1                 COMMISSIONER SCHENCK:  Aye.
2                 CHAIRMAN WILLIAMSON:  Aye.
3                 COMMISSIONER KRAUSE:  Aye.
4                 CHAIRMAN WILLIAMSON:  We adjourn to
5   executive session.
6                 MS. KIPLIN:  And before we go off the
7   record, it's obvious, but it's October 2nd as well.
8                 (Recess:  12:08 p.m. to 1:15 p.m.)
9                    AGENDA ITEM NO. XXVI
10                CHAIRMAN WILLIAMSON:  The Texas Lottery
11  Commission is out of executive session.  The time is
12  1:15 p.m.
13                Is there any action to be taken as a
14  result of the executive session?
15                COMMISSIONER KRAUSE:  No.
16                   AGENDA ITEM NO. XXVII
17                CHAIRMAN WILLIAMSON:  If not, then there
18  are no other items to discuss, and we'll adjourn.
19                COMMISSIONER KRAUSE:  I move we adjourn.
20                COMMISSIONER SCHENCK:  Second.
21                CHAIRMAN WILLIAMSON:  All in favor?
22                COMMISSIONER SCHENCK:  Aye.
23                CHAIRMAN WILLIAMSON:  Aye.
24                COMMISSIONER KRAUSE:  Aye.
25                (Meeting adjourned:  1:15 p.m.)
0160
1                    C E R T I F I C A T E
2   STATE OF TEXAS    )
3   COUNTY OF TRAVIS  )
4                 I, Aloma J. Kennedy, a Certified
5   Shorthand Reporter in and for the State of Texas, do
6   hereby certify that the above-mentioned matter
7   occurred as hereinbefore set out.
8                 I FURTHER CERTIFY THAT the proceedings
9   of such were reported by me or under my supervision,
10  later reduced to typewritten form under my supervision
11  and control and that the foregoing pages are a full,
12  true and correct transcription of the original notes.
13                IN WITNESS WHEREOF, I have hereunto set
14  my hand and seal this 13th day of October 2009.
15  
16  
17  
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                          Certified Shorthand Reporter
19                        CSR No. 494 - Expires 12/31/10
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