Boardwalk Empire: The Birth, High Times, and Corruption of Atlantic City

by Nelson Johnson

  The record presented to the Court revealed an unscrupulous politician who all but put a “For Sale” sign on his office door. As Judge Harold Ackerman stated at the time of sentencing Matthews in December 1984, “You were on the take. Anyone with an eighth grade education could reach that conclusion.” Rather than gracefully resign as mayor, he was removed from office by a recall election. In little more than two years after taking office, Michael Matthews was on his way to federal prison. By Atlantic City’s standards, Michael Matthews’ biggest sin wasn’t that he stole, but that he was so clumsy at doing it. Matthews was worse than corrupt—he was inept.

  Not everyone was as inept as Mike Matthews. After the adoption of gambling, the real Mafioso came to town, not just cops posing as them. Given the town’s history with gambling and the way things were in the past, there’s little wonder Atlantic City’s new casino industry attracted the mob and its friends. This time around the reception wasn’t so friendly. Brendan Byrne and leaders of the state legislature had meant what they said during the 1976 campaign. The mob wasn’t welcomed. Resorts International got a break, but would-be casino operators who followed them were scrutinized much closer. An example is the Perlmans.

  Clifford and Stuart Perlman were no strangers to Atlantic City. Natives of Philadelphia, they knew the resort wasn’t the “World’s Playground,” but rather the place where Philadelphians went to let it all hang out. The Perlmans got their first taste of business on the Boardwalk selling junk to visitors. A couple of decades later, they returned, lured by casino gambling. During the intervening years they had made a fortune in Las Vegas. Upon their return to Atlantic City they were hailed as marketing geniuses. They set the standard for a first-class casino resort, with Caesar’s Palace the best-known casino in the world. They were leaders in the casino industry and viewed as natural players in the new Atlantic City.

  Shortly after the adoption of the ’76 referendum the Perlmans began looking seriously at Atlantic City. Before Resorts International opened its doors, Caesar’s signed a deal to lease the Howard Johnson’s Regency, a leading local hotel. That a glitzed-up chain motor lodge was one of the city’s better hotels was proof of how badly the resort needed casino gambling. The Perlmans let the world know the Boardwalk Regency was just the beginning—a project that would allow them to open as quickly as possible. After the Boardwalk Regency started raking in cash, the Perlmans planned to reproduce their Las Vegas magic and build a Caesar’s Palace in Atlantic City. Caesar’s and the Perlmans were the type of casino operators Atlantic City wanted. But they had another side, one that had snuggled up to the mob for years. It began with hot dogs.

  In 1966, Clifford convinced Stuart to invest nearly every penny they had in a Las Vegas restaurant called Lum’s. Stuart hoped it would be a fancy place but found it was a small storefront. Unlike the nearby Forge Restaurant, which was one of Meyer Lansky’s favorite spots, Lum’s was a tiny place that specialized in hot dogs. These weren’t your average wieners though. They were boiled in beer and served with sherry-flavored sauerkraut. But Stuart didn’t share his brother’s taste. “We went and bought a couple of hot dogs and then we went outside because I didn’t want to eat in there.” The Perlmans would later claim they knew nothing of the Forge Restaurant’s infamous reputation and its notorious patron who held court there, but events convinced people otherwise.

  In 1969, Clifford led his brother into another deal, more grand than hot dogs. It was a major turning point in their careers together. The Perlmans, through Lum’s, made an offer to buy Caesar’s Palace, one of the swankiest casinos in Las Vegas, but widely known to have been built and owned by the mob. When the Perlmans took over, all they changed was the locks, leaving most of the management team in place. Caesar’s managers had a strong reputation around town, and the Perlmans saw no need to check into their backgrounds. The Caesar’s team included Jerome Zarowitz as director of casino operations. The Perlmans knew Zarowitz had a criminal record and at some point learned he had participated in the so-called Little Appalachia meeting of mob figures in Palm Springs in 1965. While the Nevada gaming regulators were concerned about Zarowitz’s suitability to run a casino, they never required him to be licensed. The Perlmans kept Zarowitz on the payroll from September 1969 through the following April. Zarowitz’s name didn’t appear as an owner, but when the Perlmans bought Caesar’s Palace, $3.5 million of the $60 million purchase price went to him.

  Shortly after the purchase of Caesar’s Palace, Alvin Malnik, who had ties to the mob, approached Melvin Chasens—then president of the new Caesar’s World, Inc., nee Lum’s—with an offer to sell Sky Lake North, a country club and condominium development in Dade County, Florida. The offer was rejected, but Malnik returned less than a year later. This time he made the deal too good to pass up: no money down, pay for the purchase from the sale of the condominiums, no payments on a second mortgage for three years, and interest only on a first mortgage for two years. During negotiations, Clifford Perlman and other Caesar’s officials learned more about Malnik and his partner, Samuel Cohen. A book about mob financier Meyer Lansky identified Malnik as a close associate. As for Cohen, he had a criminal record for violation of the Commodity Exchange Act. But that didn’t prevent Caesar’s from dealing with Malnik. The Perlmans wanted Sky Lake and were willing to go ahead despite Malnik’s and Cohen’s reputations.

  At the Perlmans’ prompting, Caesar’s directors approved the Sky Lake deal in July 1971 without being told that Cohen had been indicted four months earlier in a massive skimming operation at the Flamingo Casino. The Flamingo was directly across the street from Caesar’s Palace and the case drew intense publicity. The Perlmans knew Cohen was under indictment but never told Caesar’s directors, nor did they tell them that a co-defendant with Cohen was none other than Meyer Lansky. “Had this fact been disclosed at the meeting, it might well have brought the Lansky connection into sharper focus. The media allegations about Mr. Malnik and Mr. Cohen, then thought to be baseless, might not have been so readily dismissed.” Suggestions by Caesar’s legal counsel to seek advice from the U.S. Justice Department before dealing with Malnik and Cohen were also rejected. With the purchase of Sky Lake, Clifford and Stuart became increasingly involved with the mob. They already were in debt to the Teamsters Pension Fund—notoriously corrupt and controlled by the mob—from Lum’s purchase of Caesar’s. When they bought Sky Lake, they went further into debt with the same pension fund that had held the underlying mortgage for Malnik and Cohen.

  The Perlmans were warned by Nevada regulators about dealing with Malnik and Cohen following a 1972 deal with Malnik and two of Cohen’s sons for a Florida condominium project. A second warning came in 1975, prior to a deal with sons of the two men. This time, in order to raise cash, the Perlmans sold their honeymoon resorts in Pennsylvania’s Pocono Mountains to Malnik and Samuel Cohen’s sons and then leased the property back from the pair. In addition to warnings from Nevada gaming regulators, the company’s security chief told the Perlmans that Malnik was tied to the mob. He also expressed concern that a number of Teamsters Union officials with ties to the mob had received free memberships at the Sky Lake Country Club.

  This was the résumé the Perlmans brought with them when they came to Atlantic City. It proved to be fatal. At the time Caesar’s received its temporary license, the Division of Gaming forced the Perlmans to take a leave of absence pending a hearing before the Casino Control Commission. In a report to the commission, the Division concluded, “As long as it maintains a relationship with Alvin Malnik and Samuel Cohen, we do not consider Caesar’s World suitable for licensure.” When the Boardwalk Regency opened its doors in June 1979, Caesar’s agreed to “make its best efforts to terminate all of its existing relationships with Alvin I. Malnik, Samuel E. Cohen, or members of their existing families.” But it wasn’t until 16 months later, October 1980, after the commission had completed its hearing on the firm’s application, that Caesar’s finally distanced itself from Malnik and Cohen.

>   Unable to buy out Malnik and Cohen, Caesar’s agreed to establish trusts to take over the firm’s leases in the Pocono Mountains honeymoon resorts and its Florida country club. The trusts purchased bonds to generate cash to make the lease payments. Then there would be no direct dealings between Caesar’s and Malnik and the Cohens. The company also agreed to prepay the balance of a $4.8 million mortgage it owed to Malnik and Cohen. But it was too little, too late. Less than a week later, the commission ruled the Perlman brothers were unfit to be licensed. The commissioners said their repeated dealings with Malnik and Cohen made them fear “these dealings may not have been isolated transactions.” The commission found that “while it may be true that Mr. Malnik and Mr. Cohen were not literally in control of the casino, their financial arrangements provided them with an obvious opportunity to exercise economic leverage against Caesar’s World … Thus, Mr. (Clifford) Perlman in a very real sense delivered his company into the hands of Mr. Malnik, Samuel Cohen, and Mr. Cohen’s sons.”

  Both Perlmans were denied licenses and forced to leave the company. Their appeal to the State Supreme Court was unsuccessful despite representation by Irving Younger, one of America’s finest legal minds. While they were relicensed in Nevada and obtained a federal license to run an airline, Clifford and Stuart regretted their return to Atlantic City. After all the publicity surrounding their license denial, they could never escape the stigma attached from their dealings with the mob. And they weren’t alone. The same fate befell William T. O’Donnell, president and chairman of Bally Manufacturing Corporation.

  The Division of Gaming believed O’Donnell, like the Perlmans, had too many ties to the mob. But this time, the ties led to New Jersey. Bally Manufacturing Corporation was a giant in the slot machine, pinball, and jukebox business. It dominated the slot market, having a stranglehold on a number of Nevada casinos. While the slot machine business was profitable, O’Donnell tired of making machines for others. He wanted slot machines of his own and decided Atlantic City was the place to be. He entered the market by acquiring a long-term lease for an aging hotel on the Boardwalk.

  The Marlborough-Blenheim was one of the few remaining palatial Boardwalk hotels. The marriage of two grand old buildings—the quaint Marlborough, a wood frame hotel with deep red shingles and a slate roof, built in the Queen Anne style, and the Moorish-style Blenheim, a poured-concrete sand castle—the Marlborough-Blenheim was an architectural gem. Unfortunately, the aging hotel wasn’t adaptable for use as a casino and had to be demolished. O’Donnell and Bally’s then bought the neighboring Dennis Hotel and combined the two sites. The Dennis was gutted and renovated to provide the required 500 hotel rooms, while new construction on the site of the Marlborough-Blenheim housed the casino, restaurants, and convention space. Upon completion it became Bally’s Park Place Casino Hotel.

  While Bally’s main base of operations was Chicago, O’Donnell was no stranger to New Jersey. The company’s biggest distributor of pinball machines and amusement games was based in New Jersey. And that distributor was owned, in part, by one of the state’s most notorious mobsters, Gerardo Catena. A well-known racketeer and underboss in the Genovese crime family, it was Catena who ran the family business when Genovese went to prison on federal drug charges. The Division of Gaming received evidence suggesting that during the 1960s some of the funds skimmed from Las Vegas casinos “were ultimately funneled from Las Vegas to New Jersey, where they were shared by, among others, Gerardo Catena.”

  Runyon Sales, a vending machine company in Springfield, New Jersey, was Catena’s front. Runyon was Bally’s largest distributor, with the exclusive for New York, New Jersey, and Connecticut. Through Runyon, Bill O’Donnell had regular contact with Catena’s people, especially Abe Green. O’Donnell had met Catena during a visit to Runyon Sales and had heard rumors about his mob ties. When he asked Green about the roles of both Catena and Joseph “Doc” Stacher in Runyon, he was told they were still partners. At the time of the O’Donnell-Green conversation, Catena was in prison for contempt of court. He had been called to testify before a New Jersey grand jury hearing testimony on organized crime. Despite a grant of immunity, Catena refused to answer the grand jury’s questions and spent five years in prison.

  While Catena’s interest in Runyon linked Bally’s to the mob, there were even stronger ties. Bally’s corporate predecessor was Lion Manufacturing Corporation. When Lion’s founder died, the bank managing the estate decided to liquidate the company, creating an opportunity for O’Donnell to buy the company. His efforts to raise money failed, and he turned to Green for help. Together with five other investors, they put together a corporation known as K.O.S. Enterprises, which bought Lion for $1.2 million. Gerardo Catena acquired an interest in the company through Abe Green and Barnet Sugarman. When Sugarman died in 1964, Green and Catena acquired his interest. While Catena’s name was never listed officially as a stockholder, he owned 12.5 percent of the company. In July 1965, O’Donnell bought out Catena for $175,000, in a transaction filtered through Green. In April 1968 K.O.S. became Bally Manufacturing Corporation. O’Donnell and Green each owned 22.2 percent of the company. Sam Klein and Irving Kaye controlled the balance of the stock. Both Klein and Kaye had links with Catena through a Brooklyn-based billiard table company. These acquaintances were heavy baggage for Bill O’Donnell.

  Before Bally’s could be licensed to sell slot machines in Las Vegas, Nevada’s regulators demanded O’Donnell and Bally sever ties from Catena, Green, and Kaye. Nevada later forced Sam Klein to leave the company after he had been seen playing golf with Catena in Florida. Even though Bally’s wasn’t supposed to use Klein in any capacity, he was the one who approached Caesar’s Palace President William Weinberger to see if he’d be interested in running Bally’s new casino in Atlantic City. Klein also tried to put together a deal for Bally’s to buy the Howard Johnson’s Regency Hotel. While the deal never went through—the property was bought by the Perlmans—O’Donnell had promised Klein a “finder’s fee” if it had. Abe Green also kept doing business with Bally’s despite the Nevada Gaming Commission’s ruling.

  Green’s son, Irving, formed a company called Coin-Op, which was separate from Runyon and in which his father owned no interest. New Jersey regulators claimed that the younger Green told O’Donnell that the new company was just another name for Runyon. That was true. Bally’s kept receiving purchase orders from Runyon and listed it on service orders, even though the bills went to Coin-Op, whose offices were next to Runyon’s. In late 1977 to ’78, at the time Bally’s was beginning construction of its new casino, Coin-Op physically separated itself from Runyon, but Runyon remained its only customer. And if Coin-Op/Runyon weren’t enough, there was Dino Cellini. O’Donnell had hired him as a slot salesman despite the fact that Cellini had run a casino in Cuba for Meyer Lansky—even more baggage. O’Donnell had to know he’d have big problems being licensed.

  Despite his many ties with unsavory people, Bill O’Donnell refused to go quietly. At the hearing on his application, he offered an impressive parade of character witnesses to convince the commission he should be licensed. The witnesses included the former head of the Chicago Strike Force; a retired agent in charge of the FBI’s Chicago office; and a former U.S. Attorney with a record of prosecuting organized crime. Touching every base he called a federal judge, two Jesuit priests, and a half dozen bankers who tried to convince the regulators O’Donnell should be licensed. The commission members were impressed. They found, “He is obviously a man with many fine attributes, including those of kindness, generosity, loyalty, intelligence, and leadership ability.” But it wasn’t enough. The taint of dealing with the mob was too much. Like the Perlmans, O’Donnell was forced to leave Bally’s before the casino could be permanently licensed.

  Setbacks with the Perlmans and O’Donnell didn’t discourage the mob. They tried to infiltrate casinos that had already been licensed. Golden Nugget, Inc. was an example.

  Golden Nugget Chairman Stephen Wynn represented the new, mo
b-free Las Vegas, and when he decided to branch out to Atlantic City he was licensed without a hitch. Wynn had visited the resort shortly after the 1976 referendum. He was one of a large number of out-of-town investors who came to town to size things up, but most of them couldn’t see past the burned out buildings and squalor. They went away—Wynn included—believing it was a big joke, satisfied that Atlantic City could never compete with Las Vegas.

  Shortly after Crosby and friends opened Resorts International, Wynn made a return visit. He was dumbfounded by the thousands of people waiting in line for hours to get onto the casino floor. The line went through the hotel lobby and out the door, spilling onto the Boardwalk where police were needed to control the crowd. Once inside, there was pushing and shoving for seats at the blackjack tables. Wynn was in awe of Resorts’ success. “I had never seen anything like it. It made Caesar’s Palace on New Year’s Eve look like it was closed for lunch.”

  The unexpected success of Atlantic City’s first casino was like an explosion. It sent out shock waves that stirred interest across the nation. Not since the coming of the railroad had Absecon Island been such hot property. Within no time, there were dozens of firms beating a path to the resort, investing fortunes and gobbling up real estate.

  Steve Wynn is typical of the “moneymen” lured to Atlantic City by the news of Resorts International’s profits. Handsome, charming, articulate, and polished, Wynn is a gambling prodigy. His entire life has been involved with gambling. “Since the day I took my first breath I have been a kid who has never had a meal, a dollar for tuition, or a piece of clothing on my back that didn’t come from gambling.” The son of a bingo parlor manager who grew up in suburban Maryland watching his father gamble away his earnings, Wynn learned an important lesson while still a child. “One thing my father’s gambling did was that it showed me at a very early age that if you wanted to make money in a casino the answer was to own one.”