Nevada regulators OK $1 million fine against Peppermill Casino owners

State gaming regulators signed off on a $1 million fine Thursday against owners of the Peppermill Casino in Reno after the property’s owners admitted they allowed an employee to use a common slot machine “reset” key on games operated by competing Northern Nevada casinos to steal proprietary information.

Nevada Gaming Commission members questioned the size of the fine, but they were also told the actions were not deemed criminal. Attorney Frank Schreck, representing the Peppermill’s ownership, said the Washoe County District Attorney declined to prosecute the casino and the employee.

“I’m not trying to make excuses of the seriousness of the action,” Schreck said. “It was abject stupidity on their part. This wasn’t a crime, but it was felony stupid.”

The commission voted 3-0 to accept the settlement. Commission Chairman Pete Bernhard recused himself on the matter because of a conflict, while Commissioner Joe Brown abstained from the vote.

Peppermill President William Paganetti appeared at the hearing in Las Vegas and read a brief statement, apologizing for the casino’s action.

“I’m sorry for the embarrassment this has caused,” Paganetti said. “It was inappropriate of the Peppermill to be involved in in this type of action.”

Paganetti told the commission he had reached out to other Northern Nevada casino owners to apologize for slot machine tampering.

The key — known in the industry as a 2341 key — is a common tool used by slot machine technicians to gather information or reset a game following verification of a large jackpot. Most keys are generic and work on slot machines of all manufacturers.

Schreck told the commission the information gleaned from the slot machines was never used by the Peppermill.

“The information was never used to gain a competitive advantage,” Schreck said. “It was to satisfy curiosity.”

Gaming Control Board Chairman A.G. Burnett told the commission the $1 million fine was not intended to “financially harm or bankrupt” the Peppermill, but get the attention of other casino operators.

“I knew the number had to be high and high enough to send a message,” Burnett said. He based the number on Peppermill’s cash flow figures.

According to the stipulated settlement filed last week, Peppermill management approved the employee’s activities and encouraged him to gather the information. A three-count complaint against the Peppermill was filed at the same time as the agreement.

The Peppermill is privately owned by a multiple family partnership and is one of Reno’s largest casinos. The property has 1,600 hotel rooms, an 80,000-square-foot casino, 106,000 square feet of convention space and 10 restaurants.

In the complaint, the control board said the Peppermill was operating in “an unsuitable manner” when Ryan Tors, a corporate analyst for the casino, was caught in July using a reset key on several slot machines at the Grand Sierra.

By using the key, the Peppermill employee was able to learn certain diagnostic information about the slot machine, such as play history, hold percentages, event logs and game configuration.

During the investigation, the board found that Tors gathered information on slot machines at the Grand Sierra and at 10 other Northern Nevada casinos, including the Eldorado, Circus Circus Reno, Siena, Atlantis, Rail City in Sparks, and two casinos in Wendover.

According to the complaint, Tors had been gathering the information since 2011.

The investigation revealed that Peppermill management approved and directed Tors to obtain the theoretical hold percentage information from the competition’s slot machines using the “reset” key.

Before the hearing, an attorney for the Grand Sierra told the commission the casino had filed a lawsuit in Reno against Peppermill and Tors over the slot machine tampering.

Schreck said Tors had been placed on administrative leave with pay by the Peppermill since the control board began investigating the actions last summer.

Board members said the Peppermill’s actions “constitute a failure … to exercise discretion and sound judgment to prevent incidents which might reflect on the repute of the state of Nevada and act as a detriment to the development of the industry.”

The key is available to the public, but not through normal channels. A check on eBay.com found more than a dozen listings for a “slot machine reset key” or a “2341 key” for several manufacturers, including International Game Technology, Bally Technologies and WMS Industries. Prices ranged from $2.99 for a single key to nearly $100 for 72 keys.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871. Follow @howardstutz on Twitter.