Roosevelt Raceway, at one time the premier harness racing track in the United States, was located in the Town of Hempstead, Nassau County, New York from 1940 until its closing in 1988. The track provided enjoyment and entertainment to thousands of patrons, employment and a way of life to hundreds of workers, and a revenue source to the federal, state and local governments. The facility included barns, the track and stands, and was situated on 172 acres of property. It was reportedly the largest tract of undeveloped property in Nassau County. In 1984, the track was a subsidiary of Gulf and Western Industries, which decided to reorganize into core operations with the resultant decision to sell the track. The track sought a purchase price of $56 million and a number of bids were submitted. The successful bid was submitted by a group originally organized as Roosevelt Raceway Associates (RRA). One member of this four person group was president of the racetrack while it was owned by Madison Square Garden (MSG), a subsidiary of G&W. A potential bidder for the track, a businessman and horse owner, unsuccessfully attempted to meet and negotiate with G & W to purchase the track. He complained that his efforts to meet were rebuffed by the company. The purchasers of the track financed the purchase through the use of Industrial Development Bonds issued by the Hempstead Industrial Development Agency. $56 million dollars of tax free bonds were issued to the RRA at low interest rates. The low rates enabled the group to reduce the carrying costs, and effectively allowed them to raise the purchase price offered to G & W. In applying for the bonds, the group put up $1,000, and stated as follows in their application: 1 Roosevelt Raceway Associates is prepared to purchase the Roosevelt Raceway facility from its current owner and operator and to continue the operation of the raceway as one on New York's premier harness race tracks. ... If the Applicant is unable to purchase the raceway, there is a strong likelihood that the raceway and its surrounding property will be sold and that the raceway will be torn down to make way for commercial development. The potential negative impact of such a sale upon the employment situation of the Town of Hempstead is clear; the 110 full-time employees of the track and the 900 additional personnel employed while racing is conducted would be out of work. In addition, the various revenues associated with racing both in and around the track would be lost. ..[T]he applicant's program which will maintain with certainty the jobs of raceway personnel, tax revenues to the Town and the raceway itself cannot occur without the assistance of the IDA. The application submitted by the "Gang of Four," so labeled by Sydney Schanberg in a series of articles published in Newsday, listed the value of the property as approximately $13 million dollars despite them having received an appraisal stating that the value of the land, as developed property, was $56 million, the amount of bonds which was issued by the IDA. Legislation was passed in the U.S. Senate exempting this transaction from laws prohibiting the use of IDA funds for the purchase of gambling facilities. In accordance with the terms of the issuance of the bonds, title to the land remained with the IDA, until the bonds were redeemed. The RRA operated the track under a lease agreement with the IDA. The track continued to make a profit after RRA purchased the track. Track workers, however, testified that the owners failed to make necessary repairs and allowed the condition of the track to deteriorate. One worker testified that medical waste 2 such as syringes and blood viles were dumped at the training track, and then moved to the infield portion of the track and leveled. During this same period that routine maintenance was not performed, the rat population began to exceed the number of spectators, and one of the owners reportedly used more than $200,000 of raceway funds to renovate his private home. Workers were used to perform these services during their regularly scheduled work hours. In 1985, less than a year after the purchase of the track, the owners commissioned an appraisal of the track to determine its value as commercial real estate. In 1986, the owners reportedly had entered into negotiations with a major corporation for the sale of 50 acres of property for $50 million dollars. Also in 1986, a union representing the track workers sought to negotiate a successor collective bargaining agreement with the owners. The parties entered into negotiations. The union was advised, however, that the owners would "sweeten the pot" if their application for state tax relief was granted, and was requested to be patient and wait. The union was repeatedly given such assurances. The State did grant the owners request for tax relief, entitling them to millions of dollars in tax rebates. Rather than accept the tax relief, which would have legally required the owner to continue operation of the track, the owners closed the track. The owners paid off the IDA indebtedness, and have developed the property to be used for commercial retail stores. The reported value of the land at the time the track was closed was $1 million dollars per acre. No criminal charges were ever brought against any of the participants in the transactions surrounding the purchase 3 and closing of the track. An investigation was conducted by a state investigation commission, which found no basis to appoint a special prosecutor. 

1. What ethical, moral and legal issues, if any, are raised by this fact pattern? 

2. What parties were affected by the above events? 

3. What duties, if any, are owed, and by whom, to the affected parties? 

4. A stated above, no criminal charges were ever brought against the owners of the track. Would you have done what they did? 

5. Do you think their actions were ethical?

Answer rating: 100% (QA)

1 Ethical Moral and Legal Issues Ethical Issues The potential ethical issues include misrepresentation of property value in the bond application using ... View the full answer