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WHISTLE-BLOWER COMPLAINT

A credible and anonymous whistle-blowing complaint had recently reached the regulator, from a possible former director or officer.

Chessfield was not a publicly traded company, but was in an industry that was highly regulated, given the potential for misuse of information and cash receipts, as well as the potential for harm (of patrons) and for organized crime.

The regulator had concerns about the compensation awarded to the CEO being approximately four times that of comparable industry peers, and potentially creating an incentive for undue risk taking; the apparent lack of internal controls over material risks, including operational risks; and possible impropriety by certain directors in using their positions for self-gain.

MESSAGE FROM THE CEO REQUESTING TO MEET THE AUTHOR

Chessfield's CEO e-mailed the author when the author was in Dallas, Texas, at a conference, asking for a meeting within 24 hours if possible. At that meeting in New York, with the CEO and Chessfield's legal counsel, the author was told that the company had just been put under regulatory investigation.

The author was asked whether he could assist by reviewing Chessfield's overall governance, and, in particular, risk management and compliance practices. The board chair had recommended the author to the regulator because the author had assessed a previous board on which the chair served at the time, and the author was independent.

The author agreed to conduct the governance review of Chessfield for a mutually agreed fee under two conditions. He made it clear to the board chair, CEO, and general counsel that:

1. He would be entitled to any document or access to any personnel he requested.

2. He must have a direct reporting line to the regulator, including separate meetings without the presence of any director or officer.

All parties agreed, including the regulator. The author was to have separate meetings with both the regulator and the New York Police Department official conducting the investigation.

 
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