Latest account of gaming totals suggests fraud, DA says

Middle Georgia players fed more than $201 million into coin-operated gaming machines in the last year, figures from new reporting regulations show.

Before July 1, 2015, store and machine owners self-reported tallies of the money played, prizes redeemed and profits. On that date, though, all of the 20,000 or so machines operated across Georgia were connected to a new central computer system administered by the Georgia Lottery, the state agency that regulates the games.

Disparities in the self-reported totals and the new figures pulled directly from the machines in the past fiscal year, which ended June 30, are prompting law enforcement officials to question the veracity of past years’ reports.

Statewide, players pumped more than $2 billion into the machines during the fiscal year that ended June 30, said John Heinen, vice president of the lottery’s coin-operated amusement machine division.

By comparison, machine owners self-reported that a little more than $1.3 billion was played during the prior year. Store owners reported that play totaled about $1.1 billion, he said.

While more people may be playing the games now, Heinen said, “We can conclusively say there was under-reporting during the self-reporting years.”

The Telegraph requested data for Bibb, Crawford, Jones, Monroe, Peach and Twiggs counties for fiscal 2016 as a follow-up to a 2015 Telegraph investigation into local game playing. That report showed that stores were making illegal cash payouts despite recent raids.

Numbers provided by the lottery showed that people played about $201,550,000 at Middle Georgia stores during fiscal 2016, an increase of more than $70 million over what store and machine owners self-reported in calendar year 2014.

Prize redemptions were about $40 million higher, and profits more than doubled to about $60 million. By law, winnings can only be paid in the form of store credit, gas, merchandise or lottery tickets. Payouts in cash, or redemptions for alcohol or tobacco, are prohibited.

Since a 2014 raid closed 10 Bibb County stores, sparking a racketeering suit that resulted in nearly $1.2 million in settlements, prosecutors in the Macon Judicial Circuit have filed similar cases in Crawford and Peach counties, along with taking the lead in a statewide case that includes stores in 31 counties.

Criminal charges stemming from all the cases are pending.

After reviewing The Telegraph’s analysis of lottery data, District Attorney David Cooke said, “Looking at the disparity in the numbers, any reasonable person would conclude that fraud is involved.”

Cooke said the volume of money funneled into the games shows why many people have asked him to “do something” about a relative who’s “gambling away the mortgage.”

Also, he said, people involved in commercial gambling typically don’t pay taxes as they should.

“It’s my job to enforce those laws and to make sure taxpayers aren’t left holding the bag,” he said.

Heinen said lottery inspectors conducted more than 5,000 site inspections last year, issuing 540 warnings and 419 citations, some for multiple offenses.

The number of license revocations has increased, in part due to the increased staffing of inspectors, and also with information gathered from the central reporting system. Licenses are required to operate the games legally in the state.

Paul Oeland, an attorney who has represented companies and individuals in the gaming machine industry for 15 years, said the games went quickly from being loosely regulated to a highly regulated industry after new legislation was signed into law in 2013. The law transferred regulatory duties to the Georgia Lottery from the Georgia Department of Revenue.

Regulations have been tweaked annually, and the transition has been “painful” with significant growing pains, he said.

“The learning curve for the people that work day to day in this industry has been enormous,” Oeland said. “There are some that have grasped that learning curve. … There are some that are still struggling.”

Representing about a dozen companies in the industry on a regular basis, Oeland said he doesn’t think it’s fair to “paint with broad strokes and say everybody is doing the same thing” when it comes to the alleged under-reporting of figures in past years.

“I don’t think it’s industrywide,” he said.

Discrepancies in reporting

While the lottery wouldn’t provide the specific locations of the highest grossing stores across Middle Georgia, they did provide data by ZIP code.

Stores in south Macon’s 31206 ZIP code took in the most money in game play in fiscal 2016 — nearly $37 million — in all of the midstate and paid out more than $26 million in prizes. By comparison, in calendar year 2014, players fed more than $21 million into the machines and won nearly $17 million.

Each of the top three stores in 31206 took in more than $2 million in game play in fiscal 2016 and paid out between $1.7 and $1.9 million.

An analysis of lottery data showed figures for Fort Valley’s 31030 ZIP code tripled between calendar year 2014 and fiscal 2016, taking in about $12,730,000 in game play in fiscal 2016. Profits and winnings also were about triple what was self-reported in 2014.

Several other ZIP codes’ figures doubled.

In October, just months after the new reporting method went into use, Cooke filed a multijurisdictional lawsuit alleging racketeering and illegal gambling involving more than 85 convenience stores, 69 people and Forest Park-based Sudama Resorts LLC, which owns more than 600 gaming machines.

In the suit, prosecutors said records from the new accounting system showed customers played more than $12 million alone between July 1, 2015, and Sept. 30, 2015, compared with a total of $15 million self-reported for all of calendar year 2014.

In the same period, the computer records showed customers won about $8 million, compared with $8 million self-reported for all of 2014.

Net profits for the three months were $4 million, compared with $3 million self-reported in 2014.

Several defendants in the case have entered into settlement agreements.

Sudama Resorts, Sandip Patel, Rohini Patel and Nishita Patel agreed to a settlement, but later backed out. The agreement would have involved the forfeiture of more than $2.6 million and the sale of the company’s machine license by a court-appointed attorney who’s managing Sudama’s assets, according to Bibb County Superior Court records.

Prosecutors sought an emergency hearing earlier this month to ask a judge to enforce the agreement, arguing that the company’s machine license is an asset that could be revoked by the Georgia Lottery, deeming it worthless, if it’s not sold by the end of August, according to a motion filed in the case.

The hearing was scheduled, but it has been postponed.

Cooke has come under fire as a defendant in a federal lawsuit filed earlier this month by Ronnie and Lee Bartlett, owners of the now-shuttered Captain Jack’s Crab Shack in Byron.

The district attorney’s office filed a racketeering suit against the business’ owners last year after a May 5, 2015, gambling raid turned up alleged evidence of illegal gambling.

The Bartletts contend that Cooke and others involved in the case fabricated evidence and violated their civil rights.

Cooke has said the claims of misconduct are false.

The civil case against the Bartletts includes a fight in U.S. Bankruptcy Court, where prosecutors are fighting the couple’s Chapter 11 petition, maintaining that they’ve failed to disclose the location of $2.3 million in cash allegedly collected through gaming machine proceeds in the year before their bankruptcy filing.

A hearing is set for next month for a judge to consider Cooke’s motion.

This story was originally published August 26, 2016 at 6:34 PM with the headline "Latest account of gaming totals suggests fraud, DA says."