Suffolk Regional OTB sues after its $4M Paycheck Protection Program loan is not forgiven

Suffolk OTB is suing the federal government because its $4 million pandemic relief loan wasn’t forgiven while those of four other off-track betting corporations in the state were, according to court documents.

The operator of Jake's 58 Casino in Islandia filed a complaint in federal court in Central Islip accusing the U.S. Small Business Administration and its leader, Isabel Casillas Guzman, of acting in an "arbitrary" and "capricious" manner by denying the OTB’s application for forgiveness of its 2020 Paycheck Protection Program loan.

In the 31-page lawsuit, OTB attorney Elliot A. Hallak wrote that the SBA rejected the application last year, stating that OTB should’ve never received the loan because as "a government-owned entity" it was ineligible.

However, Nassau OTB’s $2.2 million PPP loan was forgiven, according to SBA data obtained by Newsday under the Freedom of Information Law. The same is true for OTBs in Albany, Buffalo and the Hudson Valley.

But that could change, according to a Suffolk OTB employee who requested anonymity on Thursday.

SBA "did originally forgive the other loans, but we're hearing they will go after those OTBs in the future" and demand repayment, the employee told Newsday. "That could have a detrimental effect on the finances of some of the OTBs."

An SBA spokeswoman didn’t respond to a request for comment.

In the suit, Suffolk OTB officials said it was qualified for the PPP, which was the federal government’s marquee initiative to help businesses and nonprofits retain their employees while the economy was shut down four years ago to slow the coronavirus’ spread.

"Any business concern ... shall be eligible to receive a covered loan" if it has fewer than 500 workers, states the suit, citing the 2020 Coronavirus Aid, Relief, and Economic Security Act, or CARES, which established the PPP.

The suit also cites rulemaking by the SBA: "A business that is otherwise eligible for a PPP loan is not rendered ineligible due to its receipt of legal gaming revenues."

Hallak, the OTB attorney, said it receives no government funding and operates independently from Suffolk County government.

"The PPP was a lifeline" for the Suffolk Regional Off-Track Betting Corp. as it was forced to close completely at the pandemic’s height in March-August 2020, he said in the suit, which was filed on Monday.

OTB "would have had no choice but to lay off hundreds of employees and cease health insurance coverage" had the PPP loan not been approved in July 2020, Hallak said.

The bank loans, up to $10 million each, are forgivable if the borrower shows that it used at least 60% of the money to retain workers or bring them back on to the payroll within eight to 24 weeks of receiving the help, based on SBA documents.

More than 90% of PPP loans have been forgiven, according to the federal Pandemic Response Accountability Committee in Washington. Newsday’s $10 million loan was forgiven.

OTB submitted its forgiveness application in January 2021 but was turned down in May 2023. An appeal also was denied on Aug. 6 by the SBA.

"The manner in which [SBA] applied the ineligibility criteria to [Suffolk OTB] was arbitrary, capricious and contrary to law," Hallak said.

As a result, OTB must repay $5.3 million to the federal government, which includes the PPP loan amount plus fees, penalties and interest, states the suit.

OTB said it incurred the additional expense in part because it wasn’t notified by PPP lender Community Federal Savings Bank that the forgiveness application had been turned down, according to the suit. A bank representative didn’t immediately respond to a request for comment on Thursday.

By James T. Madore

james.madore@newsday.comJamesTMadore

James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.