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Nevada Gaming Commission Approves $650,000 Settlement Against Operators
of the Hard Rock Hotel for Violating Regulations Related to Illegal Drug Use

By Richard N. Velotta, Las Vegas SunMcClatchy-Tribune Regional News

Jan. 27, 2011--The Nevada Gaming Commission today unanimously approved the settlement of a complaint by the state Gaming Control Board against operators of the Hard Rock Hotel for violating regulations related to illegal drug use at the property.

The settlement included a fine of $650,000 -- the third-highest ever approved by the commission and the largest involving operations by a third-party company contracted by a licensee.

The commission could have rejected the settlement and conducted a hearing to change the amount of the fine or consider revoking the Hard Rock's gaming license.

Hard Rock representatives appeared before the commission and conceded to the violation of regulations, but told commissioners it is virtually impossible to prevent rogue employees from violating those laws.

Fred Kleisner, president of Hard Rock Holding Co., a corporate subsidiary that operates the property, and Steve DuCharme, a former Gaming Control Board chairman who is now a member of the Hard Rock's regulatory compliance committee, explained how Hard Rock executives have tried to prevent employees from breaking the law.

Kleisner said that when he began management of the property last March, he stressed a zero-tolerance policy on the use of illegal drugs and told managers to report matters involving alcohol consumption and drug use on the property. He said every personnel file was reviewed to find indications of prior drug use problems.

"We were aggressively thorough," Kleisner said. "We said, 'If you have so much as an aspirin tablet, dump it in the bin and leave.'"

Weeks later, the company conducted a surprise drug test on all employees. Of the property's 600 employees, 13 failed the tests and were terminated immediately. Eight worked in nightclub venues and five in security. One of them was a supervisor.

But four months before Kleisner's arrival, Control Board and Metro agents began working under cover, leading to the filing of the complaint.

According to the eight-count complaint filed by the Control Board on Dec. 29, the Hard Rock violated two regulations related to illegal or unsuitable activities occurring at Hard Rock clubs on seven occasions. Those activities were discovered during undercover operations by board and Metro officers.

In each case, agents saw Hard Rock or contracted employees selling controlled substances or providing access to private restrooms for customers for sex or to use the illegal drugs.

According to the complaint, activities were observed Nov. 6-7, and Nov. 20-21, 2009, and Jan. 30-31, 2010, at or near the property's Body English nightclub; on June 18-19, June 25-26, July 8-9, Aug. 13 and Aug. 27-28 at or near the property's Vanity nightclub and on June 18-19 in a parking garage.

Undercover officers interviewed current and past employees as well as observed security officers and hosts who arranged the sale of marijuana, ecstasy and cocaine to customers.

In one instance, a Metro narcotics detective said that for $80, he was provided a locked private restroom by a security officer to consume marijuana. The detective said when he was escorted back to his nightclub table, the security officer told him that the next time, he wanted a "hit" of marijuana.

DuCharme, who formerly worked as an undercover narcotics agent for Metro, told board members that despite all the security cameras in casinos, it's a challenge to comply with the regulations.

"No matter how secure you are, if you have rogue employees determined to violate the law, it is almost impossible to stop," DuCharme said.

Gaming attorney Frank Schreck, who represented the Hard Rock in the hearing, said Hard Rock executives have been vigilant in trying to stop illegal drug use on the property. He noted that a Hard Rock security officer held entertainer Bruno Mars for law enforcement authorities when the singer was suspected of using illegal drugs at the property. Schreck said that sent a shockwave that hurt the property's ability to book some acts.

While commissioners were unanimous in approving the settlement, they made it clear how close the Hard Rock came to facing a license revocation hearing.

"There was no compromise of the games and no (illegal drug) activity on the casino floor," Commission Chairman Peter Bernhard said. "Had this involved the gaming side, license revocation would be on the table."

But Bernhard also said he was disappointed that undercover officers discovered illegal activity at the Hard Rock even after Kleisner took over at the property.

Commissioners also said they believed the amount of the fine would send a message to the industry that regulators won't tolerate illegal drug use at casinos.

The fine was painful enough to the Hard Rock that the stipulation allows the company to pay the fine over five payments through the end of May. The fine includes a $500,000 penalty and a $150,000 reimbursement -- $75,000 each to the Control Board and Metro -- to cover the cost of the investigation.

The Mirage was fined $5 million in a money-laundering complaint in 2003 and Las Vegas Sands was fined $1 million in 2004 for rigging the results of a contest.

There was no indication whether the fine would impact lawsuits filed over the Hard Rock name. The owner of the Hard Rock brand, Hard Rock Cafe International, owned by Florida's Seminole Indian Tribe, filed suit in U.S. District Court in New York accusing Hard Rock Hotel Holdings of harming the brand with alcohol and sex-fueled conduct at the hotel's pool parties, depicted on the reality television show "Rehab: Party at the Hard Rock Hotel." The hotel operators have countersued the tribe over the allegations.

The tribe has argued that activities at the hotel have harmed the reputation of the brand and the properties it owns.


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Copyright (c) 2011, Las Vegas Sun

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