Allied Veterans investigation spurs Legislature to target ‘Internet cafés,’ years after Jacksonville tried
About three years before state, federal and local agents raided and closed 49 Internet cafés operated by Allied Veterans of World for operating illegal gambling facilities, Jacksonville was one of many cities seeking direction on their legality.
As far back as 2010, the Jacksonville City Council had concerns about the proliferation of Internet cafés or gaming centers and, when the Legislature didn’t give them any direction, they passed a bill regulating their operation in Duval County, said Kevin Hyde, a former councilmember who helped create Jacksonville’s city ordinance.
“The genesis of the ordinance was a concern over whether the Internet cafés were, in fact, legal to operate or constituted illegal gambling activities,” said Hyde, who was on the City Council back then. “Additionally, I have had concerns about the high incidents of crime around the Internet cafés. Finally, as with the payday loan legislation I had earlier authored, I was concerned about that the Internet cafés had a ‘predatory’ nature on those who could least afford to participate.”
Councilmember John Crescimbeni said the bill was hammered out over seven months of hearings and meetings before the council decided on a compromise bill that did not ban existing Internet cafés, which sprung up like mushrooms overnight in empty storefronts across Duval County.
“My colleagues and I had no reason to suspect anything was amiss,” Crescimbeni said.
The measure set the maximum number of Internet cafés at 20, but allowed those already operating to continue. When the bill was passed, there were 52; there were only 39 operating as of March 21.
Crescimbeni said he will take a wait-and-see attitude toward what the city and state should do next.
“The Legislature may have been over-reacting,” Crescimbeni said of the rush by some to ban the gaming centers.
The House voted 108-7 on Friday, March 22, for a bill to ban Internet cafés. The measure now goes to the Florida Senate. The Allied Veterans storefronts that were closed in “Operation Reveal the Deal” represent only 5 percent of the roughly 1,000 Internet cafés in the state.
Now, lawmakers seem to be on the fast track to make the gaming centers illegal and shut them down.
“I support the current legislation in the Florida Legislature to ban Internet cafés in Florida,” said Hyde, a past president of the City Council, who served from 2003-’11.
Current City Council President Bill Bishop said, “As I understand it, only the state has the power to outlaw a type of business, so until they do, our method of regulating them is probably the best tool we have.”
Clay, St. Johns and Nassau counties have used the Jacksonville ordinance as a template, but with limits of 10 to 15 cafés.
The dragnet from a statewide investigation of Internet cafés has pulled in a Jacksonville attorney, computer geeks, two Jacksonville police union officials and leaders of Allied Veterans, and resulted in the resignation of Lt. Gov. Jennifer Carroll.
With the arrest of four more people this week, the Florida Department of Law Enforcement said all of the 57 people on their arrest list have been apprehended. They are charged with being part of a $300 million conspiracy organized by Allied Veterans of the World. At a news conference in Seminole County, investigators from federal, state and local agencies outlined “a sophisticated racketeering and money-laundering scheme.”
“Allied Veterans claimed to be a charitable veterans organization, but instead deceived the public and government while lining the pockets of its operators,” stated a released from the investigators. Allied gave only 2 percent of its earnings to veterans or veterans’ groups.
“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,” Attorney General Pam Bondi said at a news conference.
The Secret Service, the Internal Revenue Service, the Florida Attorney General’s Office, Florida Department of Law Enforcement, the Office of Statewide Prosecutor, Jacksonville Sheriff John Rutherford and several other sheriffs conducted a three-year investigation of the Internet cafés operated by Allied.
Two of Rutherford’s officers are on voluntary leave without pay. Fraternal Order of Police President Nelson Cuba and Vice President Robbie Freitas were arrested in the investigation. They allegedly received more than $500,000 through a shell corporation. Cuba and Freitas both face additional money-laundering charges of structuring transactions to evade reporting or registration requirements. Authorities seized $56,000 in U.S. currency and 5 million Iraqi dinars, or about $4,300, from a safe deposit box owned by Cuba, The Florida Times-Union reported.
Rutherford said it was difficult to deal with the officers he knew were under investigation.
“Investigating a police officer is never a happy event for us. But it is critical to our mission, to public confidence in their police, that we ensure our officers obey the law,” the sheriff said at a news conference. “Let me be clear. This investigation was not about their policing activity, but about their alleged criminal activities.
Nobody’s above the law. If we get evidence, we go after it. We always have. Nobody gets a pass.”
Investigators called Jacksonville attorney Kelly Mathis one of the masterminds of the scheme, saying he made as much as $7 million. He has claimed he was only representing his clients and will work to clear his name.
“I’m a lawyer. I fight hard for my clients. I fight hard for all my clients,” Mathis told the Associated Press. “I try to be very hard-working, and I try to be a good lawyer.”
Mathis is the lawyer registered for Children’s Cancer Cooperative in Florida, Texas, Alabama, North Carolina, Kentucky, Virginia and Iowa. Investigators are looking into how much money was raised and how much went to charities. The South Carolina-based cooperative collected cash from more than 200 Florida gaming centers, the Associated Press reported.
Rutherford and Mathis have been battling over gaming as far back as 2007. The sheriff ordered “adult arcades” to shut down slot-machine-like games that he said were based on luck, not ones that require skill. Mathis argued that the games were no different than those at Dave & Busters and Chuck E. Cheese, the Times-Union reported.
Though she hasn’t been charged, Carroll resigned after she was questioned by investigators about the consulting work she had done for Allied.
Carroll, who lives in Clay County, ran a public relations firm, 3N&JC, which did consulting work for Allied Veterans. She also appeared in a 2010 TV commercial, touting a program in which families of veterans were being allowed to call their loved ones overseas via Skype at the businesses.
Prior to the session, legislative leaders said they wanted to take a year to investigate Florida’s convoluted gambling laws, but a week after the session started, the allegations against Allied were unveiled.
“They are the unsavory part of the market,” Robert Jarvis, a law professor and gambling expert at Nova Southeastern University said about the gaming centers. “They are like cockroaches. Internet cafés are living on borrowed time.”
The people who’ve run these storefronts have argued for years that they were not gambling, contending they were sweepstakes — much like McDonald’s Monopoly games.
Customers would pay for Internet time and then could check their computer terminal to determine if they’d won a prize. Investigators have said that process differs very little from slot machines.
Arrest warrants were issued in 23 Florida counties and five states, including two arrests in Oklahoma at Internet Technologies, which provided the software used in the gaming machines.
“There is probable cause to believe that Allied Veterans were involved in conducting, financing, managing, directing and owning illegal gambling businesses in Florida involving slot machines that earned, after deducting prize-outs, over $290 million from 2007 to present,” IRS Special Agent Michael Favors said in a sworn statement seeking a warrant to search International Internet Technologies, located in Anadarko, Okla., according to the Tampa Bay Times.
Internet Technologies spent $740,000 lobbying in Tallahassee last year, according to lobbyist compensation reports filed with the state.
Sarah Bascom, who runs a public relations firm in Tallahassee and has worked for state Sen. John Thrasher and the campaign of state Sen. Aaron Bean, served as a spokesperson for the Coalition of Florida’s Internet Cafés. She said she quickly ended her relationship with the group of more than 1,000 Internet cafés and International Internet Technologies.
“I terminated by representation of IIT yesterday, based on their misrepresentation to me or that company,” Bascom said in an email. “It is important to clarify that we were not a corporate spokesperson for IIT or Allied as a company, they were simply a member of a coalition that we represented.”
John Daigle of Daigle Creative said his firm helped Allied with some marketing and public relations when the City Council was working to write an ordinance regulating Internet cafés. Several other PR executives worked on the same job, he said.
Calvin Smith, owner of a Jacksonville gaming center, was fined $7,100 for operating games without a city permit. His lawyer, James Lewis, entered a no-contest plea, arguing that Smith’s business, Smitty’s Internet Bar, had no connection to Allied Veterans, the Times-Union reported. Smith has asked for leniency.
Just before the start of the legislative session, powerful Republican leader state Sen. John Thrasher filed a bill that would prevent any new Internet cafés from setting up, but would allow those already in place by June 30 to continue to operate for two years. Thrasher said the move was to give the Legislature time to deal with Florida’s gambling laws as a whole before tackling Internet cafés. But when the charges were filed and the investigation was revealed, Thrasher called for their immediate closure.
Gov. Rick Scott came out against Internet cafés as far back as mid-January and said they should be permanently shut down.
“I don’t believe that the Internet locations are legal or should be legal. It’s an area that I think doesn’t make sense,” Scott told a group of reporters at the Capitol, according to the Miami Herald.