Tips for Successfully Managing a Regulatory Investigation

When regulators conduct an investigation, there are a few critical items that must be taken into account. Former regulator and attorney Joseph Grad outlines these items and explains how the investigation can go smoothly.

Tips for Successfully Managing a Regulatory Investigation

Unfortunately, in the United States, investigations and enforcement actions are routine occurrences in the highly regulated, legal gaming industry especially given the depth, breadth and complexity of U.S. state gaming regulations. Even the most well-intentioned and disciplined companies are not immune. For most multi-state operators or suppliers, it is not a matter of if, but when, the company is confronted with and required to manage a regulatory investigation.

As a lawyer, advisor and consultant on numerous and diverse regulatory investigations throughout the U.S., I have been involved in gaming investigations which cover the spectrum in complexity, scope, profile and severity of the alleged misconduct. I have learned that each investigation is unique and should be managed in accordance with specific facts of the matter. However, based upon my experience in private practice and the foundational knowledge which I acquired as a U.S. gaming regulator, I believe there are several key concepts that the individual entrusted to manage a regulatory investigation should always keep in mind.

Cooperation. Simply put, if keeping the gaming license in good standing is a corporate priority, you must cooperate. Each state gaming jurisdiction has statutory or regulatory language affording the regulator plenary authority to seek whatever information it deems appropriate to obtain. Take note that proving your failure to cooperate is always easier than proving the underlying alleged violation. Appreciate the fact that many an investigator will believe that the requested but unsubmitted documents are the documents that will prove the investigator’s thesis of wrongdoing. Delaying the submission of requested documents tends to confirm in the investigator’s mind that your company has something to hide. There are times to push back on a regulator’s request for information, such as when the investigation has devolved into a fishing expedition or when the request is overtly inappropriate, but those are the exceptions to the general rule that when you push back on a regulator’s request for information you are pouring gas on a fire.

Quickly Learn the Facts. Once you receive notice that an investigation has commenced, quickly investigate and learn as much as possible about the underlying circumstances of the matter. Effective management of an investigation requires information disparity in your company’s favor. Attempting to develop optimum strategy without all the knowable facts is akin to making a chess move without having sight of the board. Learning the facts of the matter from the investigator as she uncovers them is a recipe for disaster and should be avoided at all costs.

Adopt the Correct Mindset. The novice gaming practitioner tends to be too passive or overly aggressive in responding to regulatory action. Under the passive approach, the practitioner is unreasonably deferential to agency staff, believing that pushing back, even against unjustifiable agency action, is imprudent. In contrast, but equally as unwise, the overly aggressive approach has the practitioner nitpicking or disputing each agency decision or document, regardless of relevancy. Neither the passive nor overly aggressive approach will best serve your company. So how do you apply the selectively aggressive approach in the context of a regulatory investigation? First, take an honest assessment of the facts and the applicable gaming regulations. If your company clearly committed the alleged violation, seek the most favorable settlement with the regulator as there is no value to mounting a meritless defense.

Likewise, there is also little value to mounting a defense to a regulatory action that is immaterial. Avoid pyrrhic victories. In any dispute with a regulator, you must not only consider the facts and applicable regulations in the specific matter, but also the big picture and how a particular course of action will affect your company’s relationship with the regulator moving forward. In sum, appreciate that pushing back against a regulator strains the relationship and burns equity and should be considered only when there is a material issue at stake and there are solid grounds on which to challenge the regulatory action. You want the regulator to understand that when your company contests a regulatory action, there is always a sound and principled reason for doing so.

Be Patient. The typical reaction of a company or individual facing a regulatory investigation, especially if new to the experience, is a strong desire to resolve the matter as soon as possible. I understand. Facing a serious regulatory investigation brings uncertainty and anxiety, and human nature wants to alleviate and lift such unpleasant feelings as quickly as possible. The problem with that approach is two-fold. First, a knee-jerk admission to a violation may lead to inquiries from other jurisdictions as your company will need to report it so your goal of getting the matter behind the company may be short lived. Second, this approach will yield the worst result. In this context, I often instruct clients that quick decisions from a regulator are typically bad and good outcomes need time. This is true because of the axiom that it is difficult to prove a negative. That is, at times it is difficult for a company to prove to a regulator that it didn’t engage in the conduct which constitutes the alleged violation. The stark reality is that the regulator will most often only move on without filing an enforcement action after every stone has been turned and every document requested has been submitted and reviewed, a process which simply takes time to complete. The novice or non-gaming attorney often seeks a dramatic, quick and clear vindication of the alleged violation by the regulator which is extremely rare. In reality, the best outcome to an investigation usually occurs when the investigation runs out of steam and the matter fades away at the discretion of the regulator.

Search for “Win-Win” Solutions. The novice or non-gaming attorney tends incorrectly to view the regulator-licensee relationship as a “zero sum game” whereby if the regulator’s goals are achieved the licensee is worse off. That is simply not the case and reflects a misunderstanding of the regulator’s role and analytical framework. The regulator has a set of priorities, principles, concerns, and goals. It is of critical importance not only to understand the regulator’s mindset but also to appreciate that you are unlikely to change it. Although the regulator is unlikely to bend her perspective, she will be open-minded to solutions. A full discussion of the regulatory mindset is beyond the scope of this article, but the perspective is always one that seeks a balance between competing objectives and regulatory concerns. Your job, therefore, is to offer solutions which comport with your client’s goals and satisfy the regulator. Be creative, hunt for solutions, and engage with the regulator about your proposed ideas for a win-win solution.

Joseph W. Grad is a partner and co-founder of Hensel Grad P.C. (, a law and consultancy firm focused on gaming clients. Grad is a former attorney for the Pennsylvania Gaming Control Board. He has been a speaker and contributor to gambling conferences around the world and has served as an advisor to U.S. state gaming authorities, including a recent appointment to the Colorado Sports Betting Working Group.