Jul. 26--WASHINGTON--Focusing on the huge profits some investors now take from Indian-owned casinos, an angry Senator John McCain yesterday grilled two government officials on the deal-making behind the Mohegan Sun casino in Connecticut and on the Clinton administration's last-minute recognition of the Nipmuc tribe of Central Massachusetts. 

In his questioning, McCain made clear his concern that non-Indian investors at the Mohegan Sun casino dodged federal law to get hundreds of millions of dollars in extra profits that rightfully belonged to the tribe. 

"Do you find that disturbing? Outrageous, even?" McCain asked Montie Deer, the chairman of the National Indian Gaming Commission, a panel established to enforce a strict limit on casino profits for non-Indian investors. 

Deer responded that he was not in office when the Mohegan deal was approved by the commission. 

Later, under questioning from Senator Daniel Inouye, Deer acknowledged legal "loopholes" in the Indian Gaming Regulatory Act of 1988, which have been exploited by "innovative" lawyers working on behalf of investors. 

"So it could be that tribes are paying more [to investors] than they should?" asked Inouye, the chairman of the Senate Indian Affairs Committee. 

"Under the act, yes," Deer answered. 

"Are there measures to be taken so Indian Nations are not snookered?" Inouye asked. 

Deer answered that he hoped tribes would have lawyers astute enough to avoid such pitfalls. It was up to Congress to close the loopholes, Deer said, possibly through an amendment to the law. 

McCain pinpointed the Mohegan tribe's relationship with a group of investors known as Trading Cove Associates, a syndicate headed by international gambling mogul Sol Kerzner, creator of Sun City in South Africa. 

In 1988, Congress recognized that some tribes were so poor that they might agree to give as much as 90 percent of any profits to their non-Indian investors. 

Congress set 30 percent as the maximum profit margin for those investors, though in exceptional circumstances the tribes could grant up to 40 percent. The Indian Gaming Commission was charged with enforcing that limit by approving contracts between tribes and investors who would also act as casino general managers. 

The Mohegan tribe made its deal with Trading Cove Associates, which originally proposed to develop both a casino and an on-site hotel in exchange for the development rights. 

But before submitting the proposal to the National Indian Gaming Commission, Trading Cove withdrew the hotel component. The commission approved maximum compensation for Trading Cove in 1995 anyway -- an arrangement worth close to $500 million, to be paid over seven years. 

After the casino opened, Trading Cove and the tribal leadership agreed on a "buyout" whereby the tribe would take over direct management of the casino. Nevertheless, the tribe promised to pay Trading Cove in full, as if Trading Cove had continued as general manager. 

But with Trading Cove no longer managing the casino, the National Indian Gaming Commission lost authority to enforce restrictions on Trading Cove's share of profits. That was the ruling of the commission's general counsel in 1998. 

As a result, Trading Cove could then negotiate for profits above the maximum set by Congress. And it did so by selling the hotel rights back to the tribe for as much as $450 million, according to interviews and documents reviewed by the Globe. 

Trading Cove, in all, will receive an estimated $1 billion from the tribe. Trading Cove lawyers and Mohegan tribal leaders declined comment yesterday, but they have said their deal complied with all laws and that Trading Cove's compensation was fair. 

Yesterday, after setting out the details of that deal, McCain asked Deer if such an arrangement was normal. "No, it is not normal," Deer said. 

McCain, becoming more animated, wanted to know if Deer thought it was "disturbing" or "outrageous." 

"You know, hindsight is a great thing," Deer replied. "I wasn't there when this happened. I think the law was followed as written in the act." 

Deer began to cite a section of the law concerning the Gaming Commission's limited authority over the termination of contracts. But the senator cut him off, saying he was concerned the deal violated the spirit of the law. Deer answered that the Mohegan's leader approved the deal and was well represented by lawyers. 

Tribal sources, meanwhile, told the Globe that Trading Cove got more money because the leadership calculated that the matter was too expensive to litigate and could delay expansion of the casino and construction of the hotel. 

McCain then pressed for details concerning the Clinton administration's recognition of the Nipmucs and two other tribes just before the president left office. 

On his final day in office, Kevin Gover, Clinton's head of the Bureau of Indian Affairs, reversed the findings of the bureau's staff to recognize the Chinook tribe of Oregon. The staff had determined that the Chinook did not meet the criteria for recognition as a tribe. 

Similarly, Michael Anderson, while serving as acting head of the Bureau of Indian Affairs on Clinton's last day, overruled staff findings and recognized the Duwarmish tribe of Washington state. He also gave preliminary recognition to one band of the Nipmucs of central Massachusetts. 

The Nipmucs have signed a contract with an investor to build a casino, possibly along the Massachusetts-Connecticut border. 

Questioned by McCain, Sharon Blackwell, deputy commissioner of the Bureau of Indian Affairs, noted that tribal recognition is granted at the discretion of the bureau's director, but said she was not prepared to give details on the Chinook and Nipmuc decisions. 

McCain shot back that he intended to get such answers. 

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(c) 2001, The Boston Globe. Distributed by Knight Ridder/Tribune Business News.