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My vision is blurring but this article looks like there are more references if someone can sift thru and check them out.

Former Lt. Gov. Barnes linked to kickback inquiry

Feds: Texas money mirrored N.J. scheme

BYLINE: Ken Herman
DATE: January 16, 1997
PUBLICATION: Austin American-Statesman (TX)
EDITION: Final
SECTION: News
PAGE: A1

NEWARK, N.J. -- Federal prosecutors alleged Wednesday that the former GTECH executive convicted in a New Jersey kickback scheme also took more than $500,000 in kickbacks from ex-Lt. Gov. Ben Barnes, consultant for the company that runs the Texas Lottery.

Despite Barnes' claims that he hired one-time GTECH national sales manager J. David Smith as a consultant, prosecutors in Newark said they found ``no evidence'' that Smith did any work for the money. They also noted that the money went to a corporation headed by Smith's wife and contend it was ``laundered'' through an account Barnes set up to pay Smith.

U.S. Attorney Faith Hochberg of Newark alleged the kickbacks in a report filed Wednesday to convince a judge that Smith pulled kickback scams in Texas, Kentucky and New York, as well as New Jersey, and deserved a tough sentence.

Neither Barnes nor Smith has been charged with any wrongdoing in Texas. A spokeswoman for Barnes called the report riddled with ``factual mistakes and false assumptions.''

``Texas and New Jersey are totally different states, and these are totally different situations and contracts,'' Barnes' spokeswoman, Lisa LeMastersaid.

``The payments were open and honest and by check,'' LeMaster said. ``Ben Barnes wouldn't have it any other way. It's not how he does business.''

Smith, reached at his Kentucky home, said he would not comment. The presentencing report said Smith got $519,245 from Texas consultants for GTECH ``under circumstances remarkably similar to the New Jersey transaction'' that resulted in his October conviction for taking kickbacks.

``With minor deviations,'' Hochberg wrote, ``these payments are blueprints for the kickback scheme which occurred in New Jersey.''

GTECH spokesman Bob Rendine had nothing to say about the New Jersey report.

``These are issues that are still pending before the courts and therefore it is inappropriate to make any comment,'' Rendine said.

Barnes and his associate, Austin lobbyist Ricky Knox, through Barnes' Entrecorp firm, serve as worldwide consultants for GTECH. For their efforts, they get 4 percent, minus some expenses, of GTECH's gross Texas revenue. Since the lottery began in May 1992, GTECH has collected more than $500 million in Texas.

In 1992, Barnes and Knox signed a contract with International Marketing Co., owned by Smith's wife, Karen, in which they agreed to pay IMC a third of Entrecorp's gross revenues from ``any lottery or gaming activities.''

Texas payments questioned

According to the report, in 1992 and 1993, Barnes put a third of the income from GTECH into a bank account under his name, which in turn sent checks to IMC. The report included copies of checks totaling $501,906.93 from the Ben F. Barnes account to IMC.

Prosecutors say no evidence exists that IMC did anything for Barnes and Knox. Knox did not return a phone call Wednesday from the Austin American-Statesman.

The presentencing report includes copies of three checks totaling $7,039 from the Barnes account to a plumber, a carpenter and a lumber man who did work on Smith's Kentucky farm.

``As demonstrated below,'' prosecutors said in the presentencing report, ``the Texas monies are kickbacks and should be considered as relevant conduct for the purpose of calculating Smith's'' sentence.

Prosecutors in New Jersey say their findings will be shared with federal prosecutors in Texas looking into lottery-related matters.

``New Jersey is coordinating with Texas,'' said Assistant U.S. Attorney Kimberly Guadagno, who prepared the report for Hochberg. ``It would be irresponsible for me to throw out a document like this without letting Texas know about it.''

A federal grand jury in Austin has been reviewing lottery-related matters for two years. Assistant U.S. Attorney Dan Mills of Austin, who was unavailable for comment Wednesday, has declined to discuss specifics of the investigation.

For sentencing, federal prosecutors in New Jersey must prove their kickback allegations by a ``preponderance'' of evidence -- a lower burden than they needed to convict Smith.

Newark attorney Lawrence Lustberg, representing Smith, called the prosecutors' presentencing report ``extremely premature'' because he would challenge the conviction itself. Lustberg said he would ask that the conviction be overturned, and that effort could include a motion based on what he believes was improper trial testimony concerning Smith's dealings in Texas.

``It is our fervent hope, and we are confident, that we will never reach the sentencing phase,'' said Lustberg, who declined to comment on the Texas-related allegations.

Knox and Barnes could be called to testify in Newark if Smith challenges the prosecution's presentencing memo, which calls for a prison term of 14 to 17 years. A hearing date has not been set.

The prosecutors noted that Knox answered questions from federal investigators ``on the condition his statements not be used against him.'' Barnes, through his attorney, declined to answer questions from federal officials.

A jury convicted Smith on Oct. 4 of taking $169,500 in kickbacks from politically connected consultants he hired to push the lottery company's New Jersey interests. The jury also convicted Steve D'Andrea, whom Smith hired as a GTECH consultant in New Jersey.

Those New Jersey kickbacks occurred over 21 months, starting in May 1992.

The Texas Lottery Commission, which has been questioning Barnes' deal with GTECH, will review the presentencing memo, Chairman Harriet Miers said Wednesday.

``We will obviously be in the process of determining what significance it has for the Texas Lottery,'' Miers said.

LeMaster, Barnes' spokeswoman, said that Guy Snowden, GTECH's chief executive officer, hired Barnes directly and that Smith had ``zero control'' over him. She also challenged the prosecutors' claim that Smith did nothing to earn the money Barnes and Knox paid him.

``The job was to bring in new business for Entrecorp, and it ranged on a number of issues, including gambling issues,'' she said, adding that she could not immediately identify any clients Smith brought to Entrecorp.

Last week, the Lottery Commission notified GTECH it faces a $25,000 penalty or cancellation of the contract as a result of Barnes' 1992 gift of a $100 paperweight to then-Gov. Ann Richards. Under the lottery contract, GTECH officials cannot make any gifts to state officials.

GTECH says Barnes gave the gift as a longtime friend of Richards and it had no connection with the lottery.

Money for nothing

Barnes has said he hired Smith for consulting work unrelated to GTECH or the lottery. GTECH permitted Smith to do outside work as long as it did not conflict with his GTECH responsibilities.

The presentencing report said GTECH was paying Smith more than $1 million a year in salary and commissions by spring 1992.

The outside consulting Smith performed, Barnes said in November, included work for a client interested in putting a riverboat casino in Texas if lawmakers approved that form of gambling.

But New Jersey prosecutors, noting that the checks went to IMC, said they found ``no documents to support a finding that Smith performed any services for Barnes.''

``Like New Jersey, there is no evidence of any work performed by Smith or International Marketing Co. for Entrecorp,'' Hochberg said. ``Certainly, there is no evidence that Karen Smith ever brought business to Entrecorp or performed any service for Entrecorp.''

Prosecutors said the Barnes-Smith arrangement was ``odd in several respects.''

``The agreement is curiously silent on naming either Smith or GTECH specifically. Yet the payments from Entrecorp to Smith were based on monies which were paid from GTECH to Entrecorp,'' Hochberg said in the presentencing report. ``In addition, the payments to Smith were laundered through a bank account before they were distributed to Smith.''

Though Barnes has claimed Smith was hired for non-lottery consulting, the ``business consulting agreement'' signed July 2, 1992, between Barnes and Knox, and IMC of Morganfield, Ky., says the corporation was to provide ``certain expertise as a business consultant'' for ``any lottery or gaming activities'' in which Barnes and Knox were involved. Prosecutors submitted the contract with the presentencing report.

The contract says Barnes and Knox were to pay IMC 33 percent ``of the gross compensation as provided in any business consulting agreements as they relate to gaming or lottery activities.''

Despite that, prosecutors noted, ``the payments from Entrecorp to Smith were made based on monies which were paid from GTECH to Entrecorp.''

Checks to IMC

Checks in 1992 and 1993 to IMC from Barnes and Entrecorp were attached to the prosecutors' report. Some include no notation; several have a handwritten notation saying ``1/2 of 33%''. Others include only a month or other period.

Prosecutors concluded Barnes got 42 percent of the money GTECH paid Entrecorp and Knox 25 percent. Barnes deposited the other 33 percent to an account in his name and paid half of that money to Smith through Smith's wife's company, the presentencing report said. The prosecutors' report does not address how, or if, Barnes paid the other half of the money due IMC under the one-third agreement.

The payments to Smith began in November 1992 and continued through November 1993.

``Like the payments from New York and New Jersey consultants, the payments from Entrecorp to Smith were stopped when the grand jury subpoenas were served in this case,'' Hochberg said in the government's report.

The report also alleges Smith took Texas ``kickbacks'' from a company co-owned by Knox's wife. The firm, GPMC, was hired by GTECH ``ostensibly to provide ribbon processing services in Texas,'' according to prosecutors.

``In return for simply processing the paperwork, GPMC was paid 8 percent of the ribbon orders placed,'' they said, noting that GPMC creditors actually deposited the checks, totaling $10,300.

Checks to IMC from Ben Barnes/Entrecorp Inc.:

Date^Account^Amount

Nov. 20, 1992^Ben F. Barnes^$130,000.00

Dec. 1, 1992^Entrecorp^26,253.00

Dec. 18, 1992^Ben F. Barnes^70,521,34

March 9, 1993^Ben F. Barnes^4,491.15

March 26, 1993^Ben F. Barnes^18,022.73

May 7, 1993^Ben F. Barnes^42,385.50

June 15, 1993^Ben F. Barnes^36,454.50

July 27, 1993^Ben F. Barnes^43,556.91

Aug. 23, 1993^Ben F. Barnes^30,207.55

Sept. 10, 1993^Ben F. Barnes^45,740.09

Oct. 7, 1993^Ben F. Barnes^17,788.38

Oct. 26, 1993^Ben F. Barnes^21,258.69

Nov. 24, 1993^Ben F. Barnes^41,480.09

Total^$528.159.93

Source: Presentencing report for J. David Smith filed in federal court in New Jersey.

How federal prosecutors say former GTECH executive J. David Smith received money from Entrecorp, run by Ben Barnes, former Texas lieutenant governor, and lobbyist Ricky Knox.

1. GTECH pays Entrecorp about 4 percent of its Texas lottery revenues for consulting services worldwide. Barnes gets 75 percent, Knox 25 percent.

2. Barnes puts a third of the money into an account under the name ``Ben F. Barnes.''

3. Checks for a half of that amount are issued to International Marketing Corp., run by Smith's wife Karen. All checks come from the Barnes account except for one from Entrecorp.

Total payments to IMC in 1992-93: $528,219.93. Prosecutors say there is no evidence IMC did anything to earn that money.

4. From other accounts, Barnes pays $7,038.53 to Smith's plumber, carpenter and lumberman.

J. DAVID SMITH is former national sales manager for GTECH Corp., which operates lotteries in Texas and other states. His wife, KAREN SMITH, runs INTERNATIONAL MARKETING CO., which operates their Kentucky farm.

BEN BARNES, former Texas lieutenant governor, owns Entrecorp, a lobby and consulting firm. RICKY KNOX, Austin lobbyist, works with Barneson lottery issues.