In the years to follow there would be many winners in casino gambling. In the short term, the biggest winner was the one that had gambled the most to finance Weiner’s efforts—Resorts International.
There’s a lot to be said for being first. From the start of the referendum campaign there was never a doubt Resorts International would own the first casino to open its doors for business. What no one could foresee was the dominant role this newcomer would play in the early years of casino gambling. Not since Jonathan Pitney and his Camden-Atlantic Land Company had there been anyone with the opportunity to reap the type of profits realized by Resorts International. Ironically, Resort International’s beginnings were as foreign to casino gambling as Pitney’s were to the founding of a beach village.
The story of Resorts International begins with a family named Crosby and a company known as Mary Carter Paint. John F. Crosby was a businessman-lawyer who had served as Connecticut’s attorney general and as a deputy attorney general in the administration of President Woodrow Wilson. Crosby had four sons: One was a real estate developer, another a plastic surgeon, the third a convicted felon, and the last one a stockbroker. The Crosbys got involved in the business world through the Schaefer Manufacturing Company, a foundry business in Wisconsin. In 1955 the Crosbys purchased Schaefer and changed the name to Crosby-Miller. Several years later, Crosby-Miller, with the assistance of financing from an investment group headed by former New York Governor Thomas E. Dewey, purchased the Mary Carter Paint Company. The Crosby son behind this move was James Crosby, the stockbroker.
James Crosby was born in Long Island, New York, in 1928. Educated in prep schools and a graduate of Georgetown University, Jim Crosby’s first position was a brief stint with the management of a paint company. From there he moved to a New York City brokerage firm, buying and selling securities. Eight years later, Crosby went to work with Gustave Ring, a Washington, D.C. financier. It was while working with Ring that Crosby became interested in a New Jersey-based firm, Mary Carter Paint.
The thing most noteworthy about Mary Carter wasn’t its paint—it was mediocre—but rather its advertising techniques. The company engaged in a merchandising program in which it offered a second can of paint for every can purchased, advertising, “Buy one—get one free.” From the start, the company’s sales pitch was criticized by consumer groups as deliberately misleading. The Federal Trade Commission agreed and in 1955 filed a complaint, which eventually forced Mary Carter Paint to halt its novel approach to selling. Despite the notoriety, Crosby viewed Mary Carter as a good investment and urged his family to buy control of the company.
By 1960 the character of the corporation that would eventually become Resorts International was taking shape. Crosby recruited Harvard Business School graduate Irving “Jack” Davis to help manage things. Together, they headed a tightly knit group of family and friends who ran the business. Crosby’s determination to keep things a family affair was shown by the structure of the stock offered when they decided to go public. Two classes of stock were created: “A” and “B” shares. There were many more A than B; however, a B share had 100 times the voting power of an A share. Nearly all of the B shares were in the hands of Crosby’s inner circle. While outside investors were welcomed, real power in the corporation was kept beyond their reach. Because of this arrangement, which they continued as Resorts International, the stock was barred from trading on the prestigious New York Stock Exchange and was sold only on the American Stock Exchange.
With the resources obtained from their new shareholders, Mary Carter Paint reached out for more customers. By the early 1960s, it owned more than 70 stores and had franchised nearly 200 outlets. Despite the success in expanding Mary Carter’s operation, its share of the paint market was eroding. There were too many established competitors and the profit margin was slim. Crosby knew he’d have to diversify Mary Carter’s operation if his family’s business interests were to survive. Crosby and Davis found an opportunity in a world far removed from the American paint industry—the Caribbean.
When Fidel Castro deposed Cuban dictator Fulgencio Batista, he put an end to capitalism in every form. With his revolution, Castro drove Batista’s friend, Meyer Lansky, from the island. Under Lansky’s direction, organized crime had been making a fortune through operating gambling casinos in Cuba, catering to American and European tourists. With Batista gone, Meyer Lansky and company needed a new island to do business. They looked to the Bahamas.
Lansky’s people found an ally in Sir Stafford Sands, the most powerful man in the Bahamas. In short order, several licenses for casinos were issued in the early 1960s to persons linked to Meyer Lansky. One of those people was convicted stock swindler Wallace Groves. When Groves opened his casino in 1964 the key positions were filled by people who had worked in Lansky’s casinos in Cuba. At about the same time Lansky’s henchmen were setting up shop, there was a legitimate investor trying, without success, to obtain a casino license. He was A&P heir Huntington Hartford. Groves, Hartford, and Mary Carter—you couldn’t find a more unlikely combination.
Crosby was introduced to the Bahamas as a place for real estate speculation in 1962 by a Miami attorney, Richard Olsen. That year, Mary Carter Paint made several purchases on Grand Bahama Island. Three years later, Olsen approached Crosby again. This time it was with Huntington Hartford’s failed resort development, Paradise Island.
Beginning in the late 1950s, Huntington Hartford had poured nearly $30 million of his personal wealth into what had previously been known as Hog Island. Hartford had done more than change the name; he had built a luxurious hotel, restaurant, golf course, tennis courts, swimming pools, and exotic terraced gardens. But without a gambling license, Hartford’s investment was doomed. After several rejected applications, he got word from the Bahamian government that in order to obtain a license he needed a suitable partner. Hartford was friendly with Richard Olsen and told him of his troubles with Sands. Olsen recalled Crosby’s interest in the Bahamas and made the contact on behalf of Hartford.
In February 1965, Crosby and company lawyer Charles Murphy met with Hartford in New York City. Hartford’s personality made the negotiations difficult, but they eventually came to an understanding. Before Crosby would put any money into Paradise Island, he needed assurances he’d receive a gambling license. Crosby went directly to Stafford Sands, who gave him the same routine he had given Hartford, namely, that a license could be obtained but that Crosby needed a suitable partner. This time Sands was more direct and told Crosby his partner would have to be Wallace Groves. Crosby agreed and after several months of negotiations in early 1966, the Mary Carter-Groves-Hartford partnership was formed.
It was necessary to create several new companies, and Stafford Sands was retained as the partnership’s lawyer. For his services, Sands was paid $250,000 by Mary Carter Paint. The arrangement engineered by Stafford Sands called for Mary Carter Paint to purchase a 75 percent interest in Paradise Island for the sum of $12.5 million. The remaining 25 percent would be retained by Hartford. As for the all-important casino, it would be operated by Groves who would own four-ninths of the business, with Crosby’s company controlling the rest. Mary Carter Paint was in the gambling business.
The machinations with Mary Carter, Groves, and Hartford didn’t go unnoticed by the United States Department of Justice. The federal government had dispatched a team of investigators to the Bahamas looking for investments in casino gambling by American organized crime families. Justice Department attorney Robert Peloquin—who later joined forces with Intertel, a security firm owned by Resorts International—reported to the government on the casino operation in which Mary Carter Paint was involved. In a memorandum that would later prove embarrassing, Peloquin detailed the arrangements made between the parties and concluded, “The atmosphere seems ripe for a Lansky skim.”
The Mary Carter Paint-Wallace Groves partnership didn’t last long. In early 1967 articles published in the Saturday Evening Post and Life Magazine exposed the corr
uption in the Bahamas casino licensing procedures. The articles focused on the criminal associations of people involved in the Bahamian casino industry, in particular Wallace Groves. Crosby was worried by the publicity and immediately obtained approval from the Bahamian government to purchase Grove’s interest. While Groves was gone, the casino staff he had hired, several with links to Meyer Lansky, remained in place running things.
As the paint business continued to dwindle and the gambling casino on Paradise Island prospered, Crosby finally left Mary Carter Paint behind. In 1968 the entire paint operation was sold and Resorts International was born. It wasn’t long before Crosby began looking elsewhere to establish new resort hotels and to expand his gambling operation. Inquiries were made around the world without success, and for the next several years Resorts International was confined to the Bahamas. But when the second gambling referendum allowing private investors surfaced in New Jersey, Crosby took a look at Atlantic City.
The city that Jim Crosby found waiting for him in the winter of 1976 was a bleak place, but the locals still knew how to roll out the carpet. When Crosby and his key associates toured Atlantic City for the first time, they were welcomed like conquering heroes. Arrangements were made for the contingent from the Bahamas to ride in a caravan of limousines escorted by local police. No one was sure why the locals were making such a fuss. What mattered was that the resort had an out-of-towner with money.
The squalor and desolation that greeted Crosby was a sobering experience. Within sight of the famed Boardwalk, there were entire city blocks that had been leveled with no signs of rebuilding—acres and acres of trash and rubble. There were hundreds of burned-out buildings and scores of rundown boardinghouses, occupied by poor, frightened old people. The Boardwalk hotels, which were of prime interest to Crosby, resembled huge abandoned caverns. None of them had turned a profit in years. For most of them, there wasn’t even enough money to knock them down. A person had to be either a visionary or a fool to see an investment prospect in Atlantic City. Crosby may have been a little of each. He decided Atlantic City would be the place for Resorts’ first expansion. Mary Carter Paint was coming back to New Jersey.
Characteristic of moves he made in the past, Crosby didn’t dabble when it came to sinking down roots in Atlantic City. He jumped in feet first. Within a short time, Resorts International signed a contract to purchase the Chalfonte-Haddon Hall, an aging, but still salvageable, 1,000-room hotel on the Boardwalk. Crosby’s company took title to the property prior to the gambling referendum and paid a purchase price of approximately $7 million. They also took an option on a 55-acre Boardwalk-front tract that had been condemned by the city. More important than its investments was Resorts International’s role in the 1976 campaign; C.R.A.C. would never have gotten off the ground but for upfront money contributed by Crosby’s firm.
Immediately following the referendum victory, Resorts International moved to secure its position in Trenton. Crosby hired the right people to guarantee he would be plugged into the state house as it began working on the legislation to regulate gambling. Three of the attorneys representing his interests in Trenton were Patrick McGahn, brother of State Senator Joseph McGahn; Marvin Perskie, uncle of Assemblyman Steven Perskie; and Joel Sterns, chief legal counsel to former Governor Richard Hughes and counsel to “Democrats for Byrne” in Brendan Byrne’s successful gubernatorial campaign.
By the time the legislature had finished its work, Crosby had little to complain about. Worries over tight controls on casino credit, complimentary liquor, hours, and minimum bets never became a reality. Each of these points was important to casino operators. They understood the psychology of gambling and feared tight controls would hurt the house’s take. When the Casino Control Act became law in June 1977, credit for gamblers was easy, drinks for players were permitted free of charge, casinos could operate 18 hours per day on weekdays and 20 hours on weekends, and minimum bets would be dealt with by the newly created Casino Control Commission through regulations that would benefit the casino industry.
There were also proposals talked about in the legislature, which Resorts International fought from becoming law. One early suggestion was that no casino should be permitted to open until a minimum of three casinos were ready for operation. Crosby’s lobbyists made sure this never saw the light of day. However short-lived its monopoly might be, Resorts International wanted to reap the profits from being the first casino to open in Atlantic City. Another provision originally discussed, but left out of the Casino Control Act, was language intended to prevent an Atlantic City casino from maintaining another operation outside of New Jersey. Resorts was permitted to continue with its Paradise Island casino, despite its questionable associations in the Bahamas.
A final issue vital to Resorts International was permission to use an existing hotel, the Chalfonte-Haddon Hall, as the site for a casino, rather than being required to construct a new facility. There were still those who believed the purpose of legalizing gambling was to spur the construction of new hotel facilities, not the renovation of old ones. But in the end, no one, not the legislature, the governor, nor the critics of casino gambling could overlook Resorts’ willingness to gamble on Atlantic City prior to the ’76 referendum. Resorts International would be open long before anyone else. But what Jim Crosby hadn’t bargained for was New Jersey’s bureaucracy.
The investigative agency, the Division of Gaming Enforcement, was created to screen casino applicants and report to the regulatory agency, the Casino Control Commission. From its inception, the Division was handicapped by internal disputes, questions about the competence of its staff, and friction between the Division and the Commission. Most of the investigators hired by the Division were former state troopers who didn’t have the background needed to pursue the questions raised by Crosby and Resorts’ financial practices. The skills needed weren’t those of a police officer, but rather the experience of an FBI or IRS agent. Working with these police officers was a collection of accountants, lawyers, and administrative personnel all equally inexperienced in the intricacies of a gambling operation. As the months wore on and the Division’s bureaucrats sank their teeth into the application process, it seemed their review would go on forever.
By early 1978, some 16 months after the voters had said YES, Resorts was still being investigated. Jim Crosby was upset. The length of the investigation began to draw criticism from the politicians and the media. To the average person, the delay in getting casinos going was bureaucratic foot-dragging. The fact that Resorts International was a complicated financial entity with a long history, various subsidiaries, and some shady relationships in the past meant nothing. The pressure mounted and Resorts’ lawyers persuaded the legislature that it had to act. The plan, for which Joel Sterns is given credit, was to give Resorts a temporary license to operate a casino.
Crosby’s company was given a six-month permit, renewable for 90 days, while the investigation continued. Having succeeded in making an end-run on the review process, Resorts opened its doors on May 28, 1978, to thousands of customers, literally waiting in line. Within several months time, Resorts International emerged as the most profitable casino in the world. In 220 days of business in 1978, Resorts had gross winnings exceeding $134 million. In 1979, its first full year of operation, Resorts grossed an incredible $232 million.
During the time Resorts was the only game in town, customer demand was phenomenal. Hordes of eager patrons waited in line for hours, in all kinds of weather, for the privilege of gambling. It was a sight to see. Resorts had no marketing problems. Its only concerns were logistical: crowd control, security, staffing, clean up, and counting money.
Resorts International had pulled off one of the biggest business coups ever. It was beyond anything Crosby had imagined.
While the temporary license proved to be a boon to Resorts, it was a nightmare to the Division. Under the Casino Control Act, the Anglo-Saxon tradition of presuming a person innocent until proven guilty is reversed. In order f
or Resorts’ application to be approved, it was supposed to show it was worthy of a license, namely, that it was free from any wrongful conduct or associations that might lessen the public’s confidence in its ability to run a casino honestly. However, once the temporary license was granted, the burden of proof was effectively reversed. It was thrown back on the Division to show Resorts was unfit.
The Division’s report was submitted to the Commission in December 1978, more than six months after the public had begun gambling in Atlantic City’s first casino. To the dismay of the procasino forces and the outrage of Jim Crosby, the Division recommended denial of a permanent license. In its report, the Division cited 17 “exceptions”—investigative findings—comprising the basis for its decision to oppose the granting of a license to Resorts International. A majority of the 17 exceptions dealt with Mary Carter Paint’s and Resorts International’s activities in the Bahamas. The report detailed Resorts dealings with Wallace Groves and the payments to Bahamian government strong man, Sir Stafford Sands. The Division charged that in establishing the Paradise Island Casino, Crosby’s firm had secured financing through persons of unsuitable character, including several whose licenses as stockbrokers had been revoked for manipulating the stock of Mary Carter Paint. There were others who had been disciplined for violating criminal banking laws.
The Division claimed that in operating Paradise Island, Resorts had continued its association with people linked to the underworld after informing the Bahamian government it had ended such relationships. The report accused Resorts of maintaining an unrecorded cash fund from which it made payments to government officials in the Bahamas in exchange for what Resorts described as “goodwill” treatment. Finally, the Division was critical of Resorts’s accounting and internal controls for both the Paradise Island and the “temporary” Atlantic City casino.
Boardwalk Empire: The Birth, High Times, and Corruption of Atlantic City Page 26