AG Kane quashed subpoenas in casino investigation, sources say

Pennsylvania Attorney General Kathleen Kane quashed key subpoenas in a move that aides said undermined an investigation of a former state gaming official with ties to Louis DeNaples, a politically connected Scranton-area millionaire, The Inquirer has learned.

Just months after taking office in 2013, according to people familiar with the matter, Kane revoked subpoenas already delivered to former casino owner DeNaples and William Conaboy, another political power player in Northeastern Pennsylvania, Kane's home turf.

Though one of her most senior aides had approved questioning the two men, Kane told colleagues that the prosecutor running the case was being "too aggressive" and was placing an unfair burden on DeNaples and Conaboy, a person familiar with the case said.

Five months after the subpoenas were withdrawn, public records show, DeNaples, through his Pocono Gardens Realty business, contributed $25,000 to Kane's campaign fund - a contribution she ended up returning later that year.

Through an aide, Kane declined to comment Wednesday. To do so "would be a violation of grand jury secrecy rules," her top aide, Bruce Beemer, said in a statement.

The 2013 casino investigation was one of two significant public-corruption cases that Kane failed to pursue in her first year in office. She also shut down an undercover sting operation that had caught Democratic officials in Philadelphia pocketing cash.

Philadelphia's district attorney resurrected that case and had six former and current officials arrested.

In the investigation of the former gaming official, DeNaples, 74, and Conaboy, 55, were witnesses, not targets.

State prosecutors wanted to question them as they tried to make a corruption case against Donald Shiffer, 40, an assistant counsel at Pennsylvania's Gaming Control Board from 2005 to 2007.

Investigators believed that Shiffer, while working for the gaming board, served as a spy for DeNaples, feeding him information about the review of his bid to win a casino license. They were considering charging him with committing perjury and violating the state's conflict-of-interest law.

In the end, Shiffer was not charged with a crime.

In an interview this week, Shiffer called allegations that he was a spy "totally absurd" and a "gross mischaracterization" of his tenure at the gaming agency. He said he knew nothing about subpoenas issued to DeNaples and Conaboy.

The Inquirer has reconstructed Kane's decision to limit the scope of the investigation, drawing upon interviews with numerous people familiar with the case, as well as campaign-finance records and a grand jury report that scrutinized Shiffer's conduct.

The 2013 investigation of Shiffer was a follow-up to the previous grand jury report. That 2011 report cited telephone records and other evidence to suggest that Shiffer spent months feeding inside information to DeNaples, squirreling away documents that he had no right to, and giving DeNaples, through the casino owner's daughter, the scoop on how regulators were reviewing his bid.

And after DeNaples won a license in 2006, Shiffer in 2008 became the general counsel of DeNaples' $400 million Mount Airy Casino Resort in the Poconos.

In 2009, DeNaples gave up his ownership of the Poconos casino, shifting his stake to his daughter, in a deal with prosecutors in Dauphin County who had charged him with perjury in a separate case.

They said he lied to the gaming agency about his ties to organized crime. The charges were dropped as part of the agreement.

Shiffer is no longer with the casino. After rising to vice president, he quit in 2010. He left while the gaming board was conducting the required review to see if he was suitable to help run a casino.

DeNaples did not return calls. Lisa DeNaples, his daughter, declined to comment. William Costopoulos, the lawyer for DeNaples, his daughter, and Shiffer, did not return repeated calls.

Conaboy also did not return calls. Lawyer Lawrence Moran, who sources said represented Conaboy in 2013, declined to confirm that, but said: "I was not aware that subpoenas were quashed or issued."

In the 2011 grand jury report, jurors sharply criticized the entire process by which Pennsylvania awarded casino licenses after it legalized gambling. Some of the most stinging language questioned the decision to let DeNaples open Mount Airy Casino Resort.

"The disappointment expressed [by staff investigators and lawyers] before the grand jury ranged from outright disbelief, anger and embarrassment to statements that they would not themselves have granted Mt. Airy a license," the grand jury report said.

DeNaples made a fortune in landfills, auto parts, real estate, and banking. He has been a philanthropist and a major campaign donor, giving well more than $1 million to both Democratic and Republican candidates in the last 15 years.

DeNaples was the only casino applicant with a felony conviction, the report said.

He pleaded no contest in 1978 to a federal fraud charge. Authorities said he submitted inflated invoices for cleanup work after the flood brought on by Hurricane Agnes in 1972.

There were also persistent concerns during the casino licensing process about DeNaples' dealings with organized-crime figures.

In the perjury case that later emerged in Dauphin County, a different grand jury said DeNaples lied to gaming regulators about his contacts with two mobsters, the late Russell Bufalino, and his alleged successor as head of the mob in the Scranton area, Billy D'Elia.

DeNaples swore under oath that he knew Bufalino only by reputation. But D'Elia - then facing charges of money-laundering and scheming to have witnesses killed - told jurors that DeNaples and Bufalino had held meetings. DeNaples also accepted gifts from the mob boss before his death in 1994, the jury said.

D'Elia and other witnesses told the grand jury that DeNaples met with D'Elia frequently and did business with him.

DeNaples was a guest at the 1999 wedding of D'Elia's daughter, along with Philadelphia organized-crime figures Joey Merlino and Joseph Ligambi, the grand jury reported.

As for Shiffer, he joined the gaming board staff in 2005, "with the assistance" of Conaboy, who was then a gaming control board commissioner, according to the grand jury report.

Conaboy, who now heads a Scranton health-care nonprofit, and DeNaples have had a 25-year professional relationship. The have served on boards together, and Conaboy has worked as DeNaples' lawyer.

Though Shiffer was assigned to examine the application of Mount Airy's competitor, he worked at every turn to obtain information about Mount Airy, the report said.

He requested several times to be assigned to the DeNaples application, and when turned down, asked the counsel assigned to it to "swap applicants with him."

At one point, the other counsel could not locate a box of documents relating to Mount Airy and ended up finding it under Shiffer's desk, the report said.

"At the time that the box went missing, Shiffer was not assigned to any portion of the investigation and had no reason to be in possession of the documents," the grand jury report said.

Through phone records, investigators found that Shiffer and Lisa DeNaples exchanged nearly 100 calls during the licensing process, usually on days that the Gaming Control Board was meeting.

It found that Shiffer's colleagues became suspicious, "because he was always on stage, and everybody knew he was there for Louie DeNaples."

DeNaples was awarded a casino license in December 2006. In August 2007, Shiffer left the Gaming Control Board, landing a job at the Scranton law firm that represented Mount Airy during the licensing process. His client was the casino; his office was in the casino.

Not long afterward, Shiffer began working directly for DeNaples as the casino's general counsel and later vice president.

In the interview this week, Shiffer said he was hired by an independent trustee brought in to run the casino while DeNaples faced the perjury charge. The trustee, Anthony Ceddia, confirmed this.

Still, the grand jury found that Shiffer's initial position with the law firm was a "subterfuge" to hide a plan for him to eventually join the casino.

It did not, however, recommend charges against him. But the case wasn't over.

Senior Deputy Attorney General Laurel Brandstetter led the grand jury probe that examined the casino licenses.

In the months after the grand jury report was issued, public records show, Brandstetter turned to other investigations.

In early 2012 she successfully prosecuted a former state legislator on charges of misspending money from a taxpayer-financed nonprofit. Next, she lost a case in which a county sheriff had been charged with threatening a blogger.

Most of her time in 2012 was spent investigating corruption at the Pennsylvania Turnpike Commission, a case that led to sweeping charges against the turnpike's top command and major contractors in March 2013.

Brandstetter refocused on Shiffer.

Time was short. The grand jury she was using was running out of its legal time to operate.

In April 2013, Brandstetter issued the two subpoenas in the Shiffer case: one for DeNaples, the other for Conaboy. Top prosecutor Beemer, then in charge of the office's criminal-prosecutions section, signed off beforehand, according to people familiar with the decision.

He is now Kane's first deputy. Beemer declined to comment.

So did Brandstetter, who left the Attorney General's Office last summer, ending a 14-year career as a state and county prosecutor. Through a spokesman, Brandstetter said she was "ethically and legally obligated to uphold the confidentiality requirements" of her former office.

The planned interviews with DeNaples and Conaboy were to be the final investigative step before prosecutors decided whether to charge Shiffer with conflict of interest and perjury, according to the people familiar with the matter. They said DeNaples and Conaboy were viewed as witnesses, not as targets for prosecution.

"They were bookends to Shiffer. Conaboy helped Shiffer get the job in gaming," one knowledgeable source said. "DeNaples is the one, when it reached its end, all of a sudden he gets him this six-figure job as the attorney for the casino."

Once Kane learned about the subpoenas, the investigation became the subject of repeated debate in the Harrisburg office, one that pitted Kane against aides who wanted the case to go forward unfettered. Kane raised questions about Brandstetter's style and was sympathetic to DeNaples, sources said.

"It was clear that she didn't want it to go forward," according to someone familiar with prosecutors' decision-making.

Still, in response to the subpoenas, DeNaples and Conaboy agreed to come in to be interviewed by Brandstetter, according to sources. The discussion was to be a precursor to their grand jury appearance.

The interviews never happened. Before the interview dates, the subpoenas were nullified.

"They never showed," a source said. "It was like it just died in the water."

Brandstetter was told the interviews had been canceled, but was never given a reason, sources said. According to one source, all she could learn was that Kane held a dim view of the probe, that "she didn't like the case."

Said another person: "The word was, 'This is over.' "

Once Kane blocked the subpoenas, aides urged her to consider another approach. The sources said she acquiesced and agreed that the office could pursue a perjury case against Shiffer, who prosecutors believed had lied about how he ended up working for DeNaples.

But Kane ruled out a companion charge alleging that Shiffer had violated the state's conflict-of-interest law.

Perjury, the theory went, could be proven without testimony from DeNaples and Conaboy. In mounting a more complex conflict-of-interest case, their testimony would have been needed so authorities could demonstrate that Shiffer had fed information to DeNaples in return for the promise of a lucrative job.

In the end, prosecutors never brought any charges against Shiffer, believing a stand-alone perjury charge would likely fail because it would be difficult to prove that Shiffer had lied without presenting evidence about his motive to do so.

By the summer of 2013, the Shiffer case had withered.

On Oct 3, 2013, campaign records show, DeNaples made a $25,000 contribution to Kane through a business entity called Pocono Gardens Realty.

The $25,000 was the only campaign contribution Pocono Gardens made since it was founded in 2009, campaign-finance records show.

Kane returned the contribution on Dec. 30, 2013, the records show. No reason was given.

Asked about the donation Wednesday, a spokeswoman for Kane e-mailed this reply: "Please contact the campaign for questions about donations."

Kane's campaign treasurer did not return telephone calls.

By late 2013, meanwhile, the Shiffer investigation was dead. The grand jury that had been examining evidence in the case had expired.

215-854-4821 @CraigRMcCoy