Owners of dozens of Internet gambling centers in Florida were arrested Wednesday as part of a three-year investigation into Jacksonville-based Allied Veterans of the World, a purported charity group that authorities say collected millions of dollars for itself and little money for veterans.
The probe led to the arrest of 55 individuals in Florida and five other states and prompted the resignation of Lt. Gov. Jennifer Carroll. It is the "first wave" of Operation Reveal the Deal, which targets illicit slot machine operators who exploited a loophole in the state's sweepstakes laws, said Gerald Bailey, commissioner of the Florida Department of Law Enforcement at a news conference in Orlando.
Targeted in the crackdown were owners and operators of 49 gambling centers affiliated with Allied Veterans of the World, an organization registered as a charity, but which gave only 2 percent of its profits over three years to charitable causes. Carroll's consulting company had represented Allied Veterans until she became lieutenant governor in 2011. Police would not say if Carroll received payments from the group while serving as lieutenant governor.
"Their premise of charity is a lie — a lie to our citizens and a lie to our veterans,'' Bailey said. "Our investigators believe that the reality is that each gambling center is operated by the owners of for-profit agencies that funnel the bulk of the money back to themselves."
He said charges will be forthcoming next week against those in custody for illegal gambling, racketeering and money laundering. He emphasized that there will be additional probes into other Internet cafes not affiliated with Allied Veterans.
Seminole County Sheriff Donald Eslinger, who launched the initial investigations that sparked the dragnet, said the operations of other gaming centers are believed to be "contrary to the law" but police "have delayed the pursuit of criminal charges against them so as not to jeopardize this investigation."
When asked if there will be any other elected officials implicated in the probe, Bailey said: "That is one of the issues that is going to be taken up in the second wave of the operation."
Meanwhile, the investigations prompted Senate President Don Gaetz, R-Niceville, and Gaming Committee Chairman Garrett Richter, R-Naples, to introduce legislation next Monday that would ban Internet cafes in Florida. The Florida House last year passed legislation that would ban the gaming centers but the Senate, concerned about the impact on jobs, refused to go along.
Richter said the Senate leadership had been supportive of imposing a moratorium opening any new Internet cafes until the Legislature took a comprehensive look at gambling laws next year. But the revelations this week, he said, have "expedited the thinking going forward."
Although Allied Veterans is registered as a charitable organization for tax purposes, Bailey said that investigators found that only $5.8 million — from January 2008 to January 2012 — went to any charitable groups, including veterans.
By contrast, he said, "large sums of money have been spent by Allied Veterans of the World on lobbying efforts and donations to political campaigns." Law enforcement officials are in the process of seizing 292 bank accounts worth $64.7 million, 170 properties and 80 cars and boats, including Maseratis and Ferraris, they said.
"Using the word charity to cover a scheme is not only wrong but it is callous and it is despicable,'' said Attorney General Pam Bondi who has assigned her top prosecutors to the case. "Claiming to be an organization designed to help veterans in order to run an illegal scheme insults every American who ever wore a military uniform."
Allied funneled the gambling proceeds through for-profit corporations that paid some $90 million to Allied Veterans' management, its software provider and attorney. More than 100 for-profit corporations, shell companies and Internet cafes were used to hide the money produced by the gambling centers, police said.
At the center of the enterprise was Kelly Mathis, 49, a lawyer in the Jacksonville law firm of Mathis & Murphy, who serves as the registered agent for 112 of the affiliated companies in the chain. Using software technology run by an Oklahoma company, International Internet Technologies, Allied illegally operated slot machines under the guise of selling time on the Internet, Bailey said. Mathis' law firm refused comment Wednesday.
Investigators say Mathis reaped at least $6 million in illegal profits from the enterprise while the owner of the software provider, International Internet Technologies, Chase Burns, 37, collected $63 million from 2008 to 2012 for his Florida operations alone.
The two "national commanders" of Allied Veterans, Jerry Bass, 62, of Jacksonville, and John Duncan, 65, of Boiling Springs, S.C., profited $30 million, Bailey said, and the owners of the Internet cafes reaped $194 million in hidden gambling profits.
The owners of the gambling centers included Nelson Cuba, 48, the president of the Fraternal Order of Police's Jacksonville Lodge, and Robert Freitas, 47, the lodge's vice president. The pair did not own or operate the gambling operations, but investigators say they received weekly payouts totaling more than $500,000 over 18 months from a shell corporation associated with Allied Veterans.
Both face the additional charge of money laundering by structuring transactions to evade report or registration requirements. They were booked into the John E. Polk Correctional Facility in Seminole County.
Law enforcement agents in Oklahoma conducted the first arrests Monday, when they searched the offices of Burns and his wife, Kristen Burns in Fort Cobb, Oklahoma. At least 500 federal IRS, secret service agents and local and state law enforcement officials then executed 57 arrest warrants and 53 search warrants across Florida on Tuesday and Wednesday, Bailey said.
Police in Oklahoma have seized the computers from Burns' office, essentially rendering all 49 Internet cafes inoperable in Florida, said Susie Murphy, a spokeswoman for the FDLE.
For years, law enforcement officials, led by Eslinger, have warned legislators about loopholes in state sweepstakes gaming law that allowed Internet cafes to illegally operate slot machines.
During that time, Allied Veterans contributed an estimated $2 million to state and local political campaigns, investigators said. According to a preliminary analysis, Allied Veterans groups and International Internet Technologies spent $340,000 in campaign contributions in the last election cycle and $195,000 in the 2010 cycle. State lobbying compensation reports show that the organization spent $740,000 on lobbying the Legislature.
The games operate by giving customers a prepaid card to play a "sweepstakes" game on a computer that offers a game with the look and feel of a slot machine. Winners of games with names such as "Captain Cash," ''Lucky Shamrocks" and "Money Bunny" rack up winnings and then approach a cashier to cash out their winnings.
Eslinger said that those arrested are being held without bond and face charges of 57 counts of Racketeering Influence Corrupt Organization, or RICO, 57 counts of RICO conspiracy, 614 counts of illegal possession of slot machines, 614 counts of gaming violations, 614 counts of keeping a gambling house and 1,265 counts of money laundering.
Police seized computers, cash, computer servers, records and some slot machines from 40 gaming centers and a warehouse, Eslinger said.
He said the name Operation Reveal the Deal was chosen because police say a player can't distinguish between Vegas-style slot machines, in which you hit play, and the Internet cafe machines, in which you press the "reveal" button.
Contact Mary Ellen Klas at [email protected] and on Twitter @MaryEllenKlas.