For U.S. investors, reclaiming money is tough

McClatchy NewspapersNovember 22, 2011 

PHOENIX — It seemed like a chance of a lifetime. William Andrew Graven had in his hands an offer to stake a claim on Mexico's future in gambling just as casinos were opening their doors.

"We were giddy," Graven recalled. "It was a chance to be sort of the first to really open up casinos in the premier cities around Mexico."

Only thing was, it was a scam. The Mexican operator offering the venture emptied Graven's wallet of some $3 million, then said goodbye. When Graven traveled to Monterrey to press his case, a posse of armed men surrounded his vehicle and ordered him to leave.

Graven is one of numerous investors who say Juan Jose Rojas-Cardona, a former University of Iowa student now known in his home country as the "casino czar," picked their pockets of tens of millions of dollars.

Graven, a 59-year-old former downhill ski racer, was flying high back in 2006 when the proposal arrived. He said he had two Lear jets and was majority owner of miles of beachfront property in Baja California and a thriving construction firm in Phoenix.

A local lawyer who knew Rojas-Cardona put Graven in touch with the casino operator. The two moguls stretched hands in Los Cabos on Aug. 11, 2006.

"He flew over in his plane and I flew down in mine. I showed him the land," Graven recalled. A big deal was in the offing. All told, Graven and his backers were prepared to put up $180 million, a little more than $100 million of it in beachfront property for resort casinos.

In return, they'd get a share of casinos going up in 16 cities scattered about Mexico. Among them were casinos in resort destinations like Cabo San Lucas, Mazatlan, Acapulco and Puerto Vallarta. But they'd also see action in bigger inland cities like Hermosillo, Morelia, Queretaro, Merida and Guadalajara.

Rojas-Cardona's professional business plans showed the demographics and income levels of each city, and included artist sketches of each proposed casino and blueprints of how slot machines would be distributed.

"The casinos were getting opened for modest amounts of money, three million bucks. All he (Rojas-Cardona) had to do was pay his rent, and the (slot) machine companies would carry him," Graven said.

Luckily for Graven, he moved slowly on the investment. He took $2 million from a Michigan Indian tribe, the Lac Vieux Desert Band, that wanted to piggyback on the deal, and put in a little less than $1 million himself, he said.

When Graven pressed Rojas-Cardona for copies of the permits and concessionary rights, the Mexican stalled, all the while saying powerful Mexican politicians were behind him, people he referred to as the "12 Men Behind the Curtain," a Wizard of Oz reference to hidden powerbrokers.

"These were the people who kept him protected. They were the people he made payments to," Graven said, adding that "it was all quite hush-hush."

By late 2006, Graven said he realized that Rojas-Cardona had scammed him and the Indian tribe.

"Looking back now, he's a master con artist. He could sell a $10 bill for $50."

In the murky legal environment surrounding Mexico's gambling industry, established international gaming companies stay away.

"Potential market demand for casino gaming entertainment in Mexico is significant, but no high-quality investor will build a large project in an environment of corruption and political instability," Jonathan Galaviz, a gaming industry analyst with Galaviz & Co., said in an email from Singapore, where he is temporarily based.

Galaviz said large U.S. casino operators would keep away from Mexico until "it legalizes and regulates casino gaming in a way that would pass muster with U.S. state regulators, such as Nevada."

Mexico's casinos and gaming halls already have some 75,000 slot and bingo machines, slightly under half the 164,000 machines in the state of Nevada, said Todd Eilers, an analyst at Roth Capital Partners of Newport Beach, Calif. But the slots and gaming machines in Mexico earn far less than those in more developed, wealthier markets, sometimes returning only $4 to $5 a day to the supplier.

"It is way, way, way lower than the U.S. market," Eilers said.

Unlike the big U.S. operators, companies that manufacture slot machines and electronic table games have entered — carefully. One small manufacturer of automated poker tables, PokerTec Inc. of the Charlotte suburb of Matthews, N.C., said it had 76 electronic table games around Mexico as of late June.

When Mexico's interior ministry ordered electronic table games pulled from casinos Sept. 23, a month after a horrific firebombing of a Monterrey casino, some domestic casino operators ignored the order, a sign of the Wild West mentality in the industry. PokerTec complied, yanking its tables out of the casinos immediately.

As legal disputes have arisen, few litigants find satisfaction in U.S. or Mexican courts, which operate under different legal systems. While the U.S. judiciary is based on British common law, the Mexican system is based on the Napoleonic code.

Routine matters such as serving a defendant across the border with legal papers, and translating court documents, makes civil lawsuits costly.

"We can't serve these guys because they are in Mexico, and prosecuting them in the U.S. is a complicated legal matter," said Preston Henrichson, an attorney in Edinburg, Texas, who represents two Mexican brothers claiming in a lawsuit to have been defrauded of $7.25 million by Rojas-Cardona in a casino deal.

Graven, for his part, never filed suit against Rojas-Cardona.

"It wasn't going to take long before there were $3 million spent just on legal fees," he said.

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McClatchy Newspapers 2011

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