As a result of those negotiations, Kelly said, Harrah's obtained a ''sweetheart" three-year contract that saved the hotel a substantial amount of money in wages. In return, the organized crime figures temporarily got control of Local 331's health and welfare fund and were given lucrative rights to run gamblers junkets to Harrah's, said Kelly.
The New Jersey State Police and the Division of Gaming Enforcement of the state attorney general's office were aware of the negotiations at Harrah's while they were under way, and took no action, Kelly said.
They knew of the mob's involvement because Kelly had given them detailed reports about it.
For five years, Kelly secretly supplied information about organized crime activities in Atlantic City to the state police, first as an executive at Harrah's and two other casinos, and then as a close associate of Nicodemo ''Little Nicky" Scarfo, boss of the Philadelphia-South Jersey crime family.
Despite its large intelligence apparatus, state police developed no significant prosecutions out of the mountain of material Kelly provided them on a number of incidents, including the Harrah's contract.
Kelly, 46, feels the state police have treated him poorly and squandered the information he gathered at great risk to himself. He is now cooperating with the FBI.
Federal agents are presenting to a federal grand jury in Newark, N.J., much of the same evidence Kelly turned over to the state police years earlier, including information on the Harrah's deal. This information is expected to be the cornerstone of major Philadelphia-Atlantic City mob prosecutions in coming months, according to well-placed sources.
Thomas Cannon, spokesman for the New Jersey Department of Law and Justice, said state officials would not comment on Kelly's disclosures. Repeated efforts to talk to individual state police officers involved with Kelly were unsuccessful. An FBI spokesman said the bureau would have no comment about Kelly.
Among those the FBI has interviewed in connection with the probe are Kelly, former Harrah's president John Allan, former Harrah's personnel director Al Humphers and Memphis, Tenn., attorney Fletcher Hudson, who once handled labor matters for Holiday Inns Inc., Harrah's parent company.
Law enforcement sources said investigators have received information that the negotiations with the organized crime figures were conducted against the advice of Hudson.
Hudson, contacted in Memphis, declined to comment.
"We are aware of an ongoing investigation by the Justice Department," a spokesman for Holiday Inns Inc., said. "Nobody here is aware of any details."
Atlantic City attorney Joseph Fusco, who represents Allan, confirms that his client has been interviewed at length by federal agents.
"He is cooperating," Allan said. "He is very concerned about his reputation, and he did nothing wrong criminally. The contract was negotiated in good faith and it was reviewed by his superiors. There were no side deals or improprieties."
Allan's name came up several times during the federal perjury trial of lawyer Robert F. Simone, which is expected to conclude this week.
On a tape recording made secretly by FBI undercover agent Ronald Moretti and introduced at the Simone trial, Allan is heard discussing the use of unlicensed junket operators to bring gamblers to Harrah's. On another tape, made by undercover informant David Kurzband on Sept. 29, 1983, reputed mob associate John Palumbo is heard describing Allan as "a friend of ours."
A POTENTIAL PROBLEM
AFTER MEETING OF MINDS
Kelly said he first learned of potential union problems at Harrah's while attending a social affair in New York City in January 1981. During the affair, he said, Bronx labor consultant Richard Costello introduced him to Angelo Commito, a partner in Labor Health Plans Inc., of Chicago.
The Pennsylvania Crime Commission observed Commito meeting with late Philadelphia mobster Frank "Frankie Flowers" D'Alfonso in July 1980, and has documented his contacts with members of the Gambino, Genovese and Bonanno organized crime families.
A crime commission report said one of Commito's partners in an Arizona health plan firm was Joseph Iatarola, bodyguard of Joseph Bonanno Sr., one of the original five major New York mob bosses.
According to Kelly, Commito informed him that trouble was brewing over the inability of the new casino hotel and warehousemen represented by Teamsters Local 331 to reach agreement on a contract.
"That was the first I'd heard of it," said Kelly. "He told me he could help resolve the problem and he said for me to go back and talk to my people about it."
Upon his return to Atlantic City, Kelly said, he mentioned Commito and Costello to personnel director Humphers and labor lawyer Hudson, who was in town working on the Teamsters problem.
"They both said no, they wouldn't deal with these people," Kelly recalled. "Then I went to John Allan and told him about Richie Costello and Commito, and exactly who they were. He said he would get back to me. He got back to me and said his superiors had given the OK. He told me to set up a meeting."
The meeting was set for Feb. 8, 1981. Hotel records examined by the Daily News show the following people were guests at Harrah's that day:
* The late Harold J. Gibbons, International Brotherhood of Teamsters vice president, listed as an occupant of a 16th-floor luxury penthouse suite. Gibbons was a close associate of the late Teamsters boss Jimmy Hoffa and served as a director of the Teamsters Central States Pension Fund, long identified as a source of funds for organized crime operations.
* Commito, who was convicted in 1979 and placed on two years' probation for failing to file income tax returns for three years, listed as an occupant of suite 1523-25.
* Costello, identified by Lt. Remo Franceschini, head of the organized crime squad of the Queens County, N.Y., DA's office, as being associated with Local 4, Office and Professional Employees Union of the Bronx, a union with ties to the Bonanno crime family. Other law enforcement sources said Costello is associated with the Gambino family.
* John Allu, of New York, identified by Franceschini as an associate of the Gambino crime family. Allu was driving a brown Lincoln Versailles registered to Labor Health Plans Inc. of New York that day.
* Frank "Frankie Daps" D'Apolito, vice president of Teamsters Local 854 in New York, identified by Franceschini as a member of the Gambino family, and by other law enforcement sources as a top member of that family.
Gibbons, Commito, Costello and D'Apolito all participated in the meeting with Allan and Kelly, according to Kelly and the Pennsylvania Crime
Robert Cericola, then Local 331's president, sat in on the discussion, which was held in Gibbons' suite, but Cericola, Kelly and Allan all said the principal negotiator was Gibbons.
Cericola said Commito did not sit in on negotiating sessions he attended. ''There was an Angelo there, staying at the hotel," he said. "But I don't know his last name."
Cericola said he didn't know Costello, D'Apolito or Allu.
During the negotiations, Gibbons agreed to accept a company offer raising the warehousemen's pay from $5.75 to $8 an hour over a three-year period, according to Kelly. Initially, the union had been seeking an increase to $12 an hour, which was the prevailing union wage nationally.
In addition, the company agreed to pay $1.65 per hour for each worker into the union's health and welfare fund.
"The benefit package is sensational," Cericola said at the time.
Gibbons, Kelly said, informed Allan that the Teamsters would end attempts to organize car jockeys and front desk personnel. Gibbons also withdrew a threat of promised sympathy strikes and other work disruptions at Holiday Inn locations all over the country, according to Kelly.
After the contract terms had been agreed to, Kelly said, D'Apolito told Allan that the company "should" appoint Kelly as management trustee for the employees' health and welfare fund, to work with Cericola, who would be the union trustee.
Health and welfare fund records show that Kelly was, indeed, appointed trustee by Allan.
"John Allan's role in that has never been crystal-clear," said Fusco, Allan's attorney.
Together, Kelly and Cericola named Commito's firm to administer the health and welfare plan. Commito selected two Maryland doctors to run the medical program, a New Jersey dentist to operate the dental program, and a Philadelphia mob associate to write insurance coverage and control the severance-pay fund.
Medical and dental plans over the past decade have been a major source of
funds for labor unions. When the Harrah's contract was signed, Cericola estimated that his union would have 10,000 members in Atlantic City by 1990, and he envisioned them all as participants in Local 331's health and welfare fund.
With employer contributions of $1.65 an hour into benefit programs, a 10,000-member Local 331 would be receiving more than $34 million annually in health, welfare and pension funds.
And organized crime, through the person of Angelo Commito, was getting in on the ground floor of that.
"We will take the best deal we can get for our members," Cericola said, when asked about Commito's background at that time. "If somebody wants to say so-and-so is connected to somebody in Arizona, let them. We don't check their backgrounds. It's the service we're interested in."
At the time he was meeting with these people, Allan's application for a casino license was pending before the Casino Control Commission.
In a brief interview at the time of the negotiations, Allan said that ''Gibbons came in to see us. He wanted to deal with the senior executive and I was the senior executive. Over two weeks we met on several occasions and negotiated a settlement.
Allan said Commito was introduced to him as a consultant who had put together "benefit packages" for other Teamsters locals. Allan said he was unaware of the backgrounds of Commito and D'Apolito, and didn't remember meeting Allu.
"This Frankie (D'Apolito) guy I met once," he said. "I had a cup of coffee with him. Whoever introduced me said he was involved with some New York union."
Costello, Allan said, was at Harrah's "primarily" as a gambler who had been invited by Kelly.
Although the labor dispute was resolved without a strike, it generated enormous tension between Allan and Kelly, according to Kelly. Allan was questioned by the Pennsylvania Crime Commission about the Harrah's negotiations and that fact became public.
"He knew he did something he shouldn't have and he wanted to blame somebody for it, so he blamed me," Kelly said.
In the summer of 1981, Kelly quit Harrah's to go to work for Playboy as assistant to the vice president for casino operations.
Allan chose Toms River, N.J., attorney Joseph Nolan to replace Kelly as the management trustee of the union health and welfare fund.
Nolan ordered an audit of the fund and subsequently insisted that Commito's firm be replaced as administrator. It was.
"I remember cleaning house," Nolan said. "I got rid of those two doctors
Nolan said all of his records dealing with the health and welfare fund have been subpoenaed by the Justice Department and he has been interviewed by the FBI about Harrah's.
Commito and D'Apolito did not return calls placed to their offices. Costello and Allu could not be reached for comment.
After the contract was settled, Harrah's awarded lucrative junketing privileges to a Bronx firm, Sorella Tours, according to Casino Control
Richard Costello was the hidden owner of Sorella Tours, law enforcement sources said.
Sorella Tours was paid by Harrah's to deliver busloads of gamblers to the bayside casino. The firm received $4 for every gambler it delivered, plus $400 for each bus.
"They did better than six figures a year," said Kelly. "They were being paid to bring in gamblers and they brought guys in who didn't gamble. They (also) got paid for people they never brought in, phantoms."
Fusco, Allan's lawyer, said there was "no question" that Allan "came to meet and know" Costello while Allan was employed by Harrah's.
Fusco added that Allan was not "directly" involved in awarding junketing privileges to Sorella Tours. He said that while Allan was aware that Costello had "either a sister or a girlfriend who operated bus trips to Harrah's," he was not aware of Costello's ownership interest.
Fusco said his own research shows that Sorella Tours applied to the Casino Control Commission for permission to run buses to Harrah's on Feb. 24, 1981, 16 days after the meeting in the Harrah's suite. Permission was granted and Sorella started doing business with Harrah's in mid-June 1981, he said. The firm stopped busing to Harrah's in the fall of 1984, about the time Allan left Harrah's.
Allan's application for a casino gaming license subsequently was approved by the Casino Control Commission, with no objections being raised by the Division of Gaming Enforcement or the state police.
The director of the Division of Gaming Enforcement during the period the Harrah's contract was negotiated was G. Michael Brown.
In the spring of 1983, about a year after he left as director of DGE Brown was retained by Harrah's of Nevada to represent it in negotiating to buy a casino in the Bahamas.
The New Jersey Executive Commission on Ethical Standards, which inquired into the matter to see if Brown was in violation of state restrictions against former casino regulators going to work for Atlantic City casinos within two years of leaving state employment, ruled on June 15, 1983, that he was not.
The commission found that Harrah's of Nevada was a separate corporate entity from Marina Associates Inc., operators of Harrah's Marina Hotel Casino in Atlantic City.
Brown now has a law practice in Atlantic City. One of his clients is Harrah's Marina.
Allan, who left the Harrah's organization last year, now works as a casino consultant in Australia. One of his employees is former state police Detective Sgt. Joseph Calabrese.
Calabrese was one of the primary officers in the Casino Intelligence Unit with whom Kelly dealt. The others were William Sullivan, now a captain in the intelligence division, and Joseph Guzzardo, now the lieutenant in charge of the division's Absecon office.
All three worked for Lt. Col. Justin Dintino, second in command in the state police. Dintino, who took a job as chief investigator for the State
Commission of Investigation when he retired from the state police last year, is a member of the President's Commission on Organized Crime and has a national reputation as an enemy of the mob.
Dintino, Sullivan and Guzzardo refused to discuss Kelly or his contention that they squandered the information he gave them. Calabrese could not be reached for comment.
PLAYING COPS & MOBSTERS:
FROM THE GOOD LIFE
TO THE WORLD OF SHADOWS
Francis James Kelly was not Kelly's real name.
It was an amalgamation of names he had used before entering the FBI's Witness Protection Program in 1972 after his testimony put the members of a Baltimore-based, mob-controlled pornography ring in prison.
Because of his extensive association with criminals, Kelly ordinarily could not have qualified for a casino gaming license when Resorts International offered him a job in 1978.
Kelly said he received his license after the state police and Division of Gaming Enforcement withheld evidence of his background from the Casino Control
Commission, the licensing agency.
Even though his double role as casino executive and Scarfo mob watcher continued at the Playboy Hotel & Casino after Kelly left Harrah's and was the source of enormous pressures on his life, he loved casino work and the
But his days as a casino bigshot were coming to an end.
Early in 1982, the Pennsylvania Crime Commission issued a report on mob infiltration of union health plans and it mentioned Kelly as having arranged the Feb. 8, 1981, meeting with the mobsters.
Neither the Crime Commission nor Playboy, which was sold and renamed the Atlantis in 1984, knew that Kelly was working for the state police.
And Playboy, which was having difficulty winning approval of the Casino Control Commission gaming license it needed to operate, decided Kelly had to be fired.
Playboy refused to budge on Kelly's firing even after Brown, then Division of Gaming Enforcement director, wrote a letter assuring Playboy that Kelly's presence on its payroll would not hurt its chances of getting the gaming license.
In April 1982, Playboy fired Kelly.
His next employer was Nicodemo "Little Nicky" Scarfo.