The Nevada Gaming Commission on Thursday signed off on a $500,000 fine against Mandalay Bay but also used the penalty to send a warning to the rest of the casino industry.
Representatives of Mandalay Corp., the MGM Resorts International subsidiary that operates Mandalay Bay, did not contest the findings of a five-count complaint that employees of the House of Blues Foundation Room provided illegal narcotics and prostitutes to undercover officers four times during a two-month period.
In addition to the fine, the company agreed to a $17,000 reimbursement of investigative expenses.
The commission unanimously approved the settlement after a hearing that lasted more than an hour. But regulators warned other gaming companies that additional penalties could be assessed if similar activities are uncovered.
“Some day we’re going to have a hearing on one of these,” Commissioner John Moran Jr said. “This one isn’t the one.”
Commissioner Tony Alamo Jr. wondered whether a $500,000 fine would actually hurt a company like MGM Resorts, which operates 10 casinos on the Strip.
MGM attorney Ellen Whittemore said the company, “was embarrassed that the incident took place at one of its Strip properties.
Deputy Attorney General Edward Magaw told the commission the fine was consistent with penalties slapped on other casinos where similar illegal activities took place.
“Mandalay took these issues seriously to make sure they did not happen again,” Magaw said.
Whittemore said it was “confluence of circumstances” that the illegal activity at the Foundation Room took place.
Mandalay Corp. President and Chief Operating Officer Charles Bowling, who signed off on the stipulation, appeared before the commission along with three other MGM Resorts executives.
“I’m disappointed we’re here discussing this matter,” Bowling said. “Within the hour that we received the complaint on this matter, we went in proactive action to understand what happened.”
Bowling said the general manager of the House of Blues was replaced.
“This was a message to our company that you have to keep your eye on your smaller venues, not just your large nightclubs,” Bowling said.
Commission Chairman Pete Bernhard said he appreciated Bowling appearing in front of the commission and the attentiveness of MGM Resorts to the matter.
Whittemore said House of Blues would “indemnify Mandalay Bay” for the both the fine and the investigative fee.
“It’s clear to me the tenant hung the licensee out to dry,” Moran said.
Bowling said the House of Blues contract for the Foundation room “would be terminated” if another incident took place.
The Foundation Room is a restaurant and ultralounge operated by the House of Blues on the 43rd floor of Mandalay Bay. By regulation, casino property landlords are responsible for activities related to a tenant’s operation. The Foundation Room is 9,000 square feet and employs 54 workers.
House of Blues Foundation Room managers fired the employees involved in the investigation. MGM Resorts also conducted its own investigation into the matter. The company also conducted its own covert investigation of the Foundation Room to make sure the illegal activity didn’t re-occur.
Control Board and Metropolitan Police Department agents said that 10 House of Blues employees and at least five nonemployees were alleged to have arranged to provide drugs or prostitutes for undercover officers and most of those contacts occurred in public areas, including on the main level of the resort.
Undercover officers said restaurant and lounge employees provided cocaine, Ecstasy and four women who agreed to have sex for money on four occasions over a two-month period in summer 2012.
Contact reporter Howard Stutz at email@example.com or 702-477-3871. Follow @howardstutz on Twitter.