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Internet cafe chain leader built on a checkered bingo past

Perhaps no one has fought harder to legitimize the exploding Internet sweepstakes cafe industry in Florida than Allied Veterans of the World & Affiliates.

Allied, one of the state's largest sweepstakes cafe operators, has spent hundreds of thousands of dollars on state lobbyists and contributed $25,000 for a Gov. Rick Scott inauguration event. It has battled local sheriffs and slapped Seminole County with a federal lawsuit. Its former public relations firm was once headed by Lt. Gov. Jennifer Carroll.

Johnny E. Duncan, the non­profit's longtime national commander, is the man who steered Allied into the sweepstakes cafe business. He hands out checks given to veterans groups and poses for photos with politicians.

But Duncan used to run a different game, for a different veterans charity. It got him investigated in one state, arrested in another.

Bingo.

Duncan ran one of the largest bingo networks in South Carolina in the 1980s, a time when charities were being used as moneymaking fronts for game promoters.

A South Carolina newspaper raised questions about the legitimacy of his veterans charity and others, prompting a tax commission probe and, eventually, reform legislation that cracked down on abuses in the industry.

Then there was Florida.

In 1987, the Leon County Sheriff's Office arrested Duncan for running an illegal gambling house. Investigators found "fraudulent" documents for the veterans charity being used to run bingo games. He pleaded no contest to a charge of unlawful bingo. He got a fine and a year's probation.

But that didn't stop him from coming back — with Allied Veterans.

• • •

Duncan, 64, is in the hospital recovering from major surgery and could not be reached for comment, said his Jacksonville-based attorney, Kelly Mathis.

Mathis said his understanding from Duncan's wife, Linda, was that Duncan had been fined only for filing late paperwork in Florida. He said he could not comment on Duncan's time in South Carolina.

To critics of the Internet sweepstakes cafes, Duncan's background is ammunition.

"I'm not surprised," said state Rep. Scott Plakon, a Longwood Republican who wants to ban the Internet centers. "They're trying to portray themselves as though they're this charitable organization working for the good of humanity. What they really are is cheesy gambling joints opening up next to the Publix and the dry cleaners."

Plakon and other critics argue that the cafes are strip-mall casinos, unregulated slot machine operations targeted at senior citizens and the poor.

Cafe owners say they are nothing of the kind. They say the computers are simply revealing customers' predetermined winnings, just like pull-tabs on McDonald's fries.

Here's how the cafes works: Customers buy Internet time loaded onto a card and get free sweepstakes entries they can reveal by playing games on computer screens that mimic slot machines.

It's a big business in Florida. Since 2007, as many as 1,000 have popped up across the state, according to industry estimates, raking in $1 billion a year.

With 40 locations statewide, including four in Hillsborough, Allied is one of the largest operations. The group says it raises money for its charitable causes through the Internet centers.

How much Allied makes is hard to say.

Since 2007, tax returns show total revenue for Allied Veterans of just over $3.5 million. During the same period, the group's attorney says it made charitable contributions totaling over $6 million.

The returns also show that during each of Duncan's last two years as head of the group, 2008 and 2009, he was paid $345,000 by the nonprofit — the same years Allied operated at a loss.

Jerry Bass, the current commander, was paid $211,000 last year. Bass met Duncan around 1995, Mathis said.

In the late '90s, Bass was general manager of Slots of Fun, a 110-machine video poker parlor in Fort Mill, S.C., according to newspaper accounts. South Carolina outlawed video gambling machines in 2000.

So where is the money for Allied's contributions coming from? Mathis said most of the contributions are made by the group's "affiliates," which Allied describes as its Internet centers.

Mathis said the affiliates also are non­profits. When asked to produce copies of the federal tax forms required of nonprofits, Mathis said the affiliates do not need to file such records.

A for-profit company, Allied Veterans Management Group, provides "supervision" services to the Internet centers and paid Duncan and Bass. The officers of the for-profit company are Duncan and his wife's son-in-law, Moses Ramos of South Carolina.

At the Times' request, the America Institute of Philanthropy's president, Daniel Borochoff, reviewed federal returns filed by the nonprofit.

"Something is missing," he said.

Borochoff noted that the revenue from the cafes is not detailed on the documents, meaning it's impossible to tell if the $6 million that Allied says it has given away is significant, or just a drop in the bucket.

"Who knows what portion they're giving away?" he said. "We don't know because we only see one side of things."

Marc Dunbar, a Tallahassee lawyer who teaches gambling law at Florida State University and lobbies for the gaming industry, said Allied Veterans' affiliates should be filing paperwork if they are nonprofits.

"They're either very smart to keep it out of the public or they've been incredibly sloppy," said Dunbar.

Testimony from one Allied manager, as well as industry benchmarks, suggest the cafes are quite lucrative.

Allied manager Lee Black told Seminole County commissioners in January his cafe brought in $100,000 a week.

James Meacham, the managing director of SweepsCoach, a California-based company that provides start-up services for new sweepstakes cafes, said each terminal at a cafe can bring in $1,000 to $5,000 a month.

A medium-size cafe holds about 100 computers, meaning 40 similar cafes could generate at least $48 million a year.

"The business can do extremely well," Meacham said.

• • •

Before it became an Internet center powerhouse in Florida, Allied Veterans started with a World War II airman running a Panhandle bingo hall.

The central character in getting from that point to now? Johnny Duncan.

He came with some hard-earned lessons in the bingo world. One of those was in June 1987, when Leon County deputies raided a bingo game he was running in Tallahassee.

Investigators said Duncan and two other men had concocted a fake branch of a charity called Army & Navy Union, records show.

By law, bingo games have to be run by nonprofit groups that have been in existence for at least three years. All proceeds after expenses have to go back to the sponsors.

Investigators found backdated Army & Navy charters filled with names that could never be verified. And some of those people listed as the charity's officers said they had never been to a meeting — and only recently learned of the group.

"There is no evidence that any of the money collected was used for a charitable purpose," said an affidavit filed by the Leon County State Attorney's Office.

Randy Brazier, a co-defendant, told the Times he didn't know how much money the bingo brought in. The hall held 300 people, and usually was filled.

"Johnny . . . had a demeanor that would attract anybody," Brazier recalled. "He seemed as honest as Jesus Christ. I guess that's why my dumb a-- fell into all of this."

Duncan pleaded no contest in 1988 to a misdemeanor count of operating an unlawful bingo game. A condition of his probation: He could not operate bingo games in Florida. Prosecutor Willie Meggs said that ban pertained only to the one-year probation.

• • •

The Tallahassee bingo operation was peanuts compared to Duncan's efforts in South Carolina.

By 1989, Duncan was running a $10-million-a-year bingo network in South Carolina, also under the name Army & Navy Union.

Duncan, then the owner of the Miscue Lounge in Spartanburg, S.C., helped obtain the national charters and state permits that allowed the games to operate as charitable activities, free from state and federal income taxes, reported the State, a newspaper based in Columbia, S.C.

But the newspaper found that a number of people listed on South Carolina permits as Army & Navy Union garrison officers were surprised at the news.

"I never heard of it," Richard Bullwinkel, who was listed as a "historian" on one garrison charter, told the newspaper. He recognized another name as the bartender at a lounge where he sometimes played bingo.

• • •

Around the early 1990s, Duncan walked into a bingo hall in Fort Walton Beach, his daughter-in-law, Dana, recalled. The operation was run by V.B.G. 451st, Inc., a group that would later change its name to Allied Veterans.

The man in charge was a World War II airman named Harold Grossman. Duncan was a military veteran, too. He served in the U.S. Navy from 1965 to 1969 and in the U.S. Naval Reserves from 1969 to 1971, military records show.

"Johnny went in, they made some type of business deal and it took off," said Dana Duncan.

Allied opened bingo centers in the Panhandle area, and near Jacksonville.

Johnny Duncan used a strategy to run as many bingo games as possible, she recalled: They stacked games, each sponsored by a different charity.

That meant they could run far more games a night — and take in more money — than if they were running under a single charity.

This had become a common tactic to comply with state law, which says charities may sponsor no more than two bingo sessions a week and offer no more than three jackpots per session.

Dana Duncan, who managed Allied's bingo hall in Hilliard, Fla., said she and workers at other centers joined the sponsoring charities to comply with the law. For instance, she was the representative for a Hilliard senior citizens group and a St. Augustine youth group.

"I went to nursing homes," she said. "I spent plenty of time dressed in an Easter Bunny suit, sweating."

In 2005, she spoke out against new bingo regulations in St. Johns County, identifying herself only as a representative of a youth charity that benefited from bingo games — not as a manager of an Allied bingo hall, according to minutes of that meeting.

Dana Duncan would not say how much money her Hilliard post brought in every week from bingo. But she said her job was to put the cash in a briefcase and drive it to St. Augustine, where Duncan was based.

"I would have a lot of money," she said. "I didn't like traveling alone."

• • •

Grossman, Allied's founding father, died in 2004. Soon after that, Johnny Duncan was leading Allied from bingo to Internet cafes.

Even before his death, Grossman had become disillusioned with Allied's growth, said Dana Duncan.

"In later years, I think Harold had a resentment to it," she said. "I think instead of it being a charitable thing, it had become something bigger than what he thought it should be."

Grossman's stepson, John Belcher, said his stepfather would have disapproved of the transition to Internet sweepstakes cafes.

"I seriously doubt my dad would've let that happen with Allied Veterans," said Belcher, of St. Augustine.

Not long ago, Dana Duncan said her husband came to Florida to check out Allied's operations. Things had changed since the group's bingo days.

"He laughed and said, 'Dana, there's no more brief case runs,' " she recalled.

Now, she said, they use armored trucks.

Jodie Tillman can be reached at jtillman@sptimes.com or (813) 226-3374. John Martin can be reached at jmartin@sptimes.com or (813) 226-3372. Elisabeth Parker can be reached at eparker@sptimes.com or (813) 226-3431.

Internet cafe chain leader built on a checkered bingo past 10/21/11 [Last modified: Saturday, October 22, 2011 4:55pm]

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