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Judge Puts Teeth In His Poker Ruling Anderson Orders Five Major Operators To Track Their PayoutsCLIF LeBLANC and DOUGLAS PARDUE, Staff Writers A federal judge Tuesday gave the state a tool for stripping the video poker industry of its biggest gambling lure and handed regulators a way to check the numbers. But Gov. Jim Hodges said that tool presents practical problems, and that only swift, comprehensive legislative action can deal effectively with the growing $2.5 billion industry. U.S. District Judge Joe Anderson ordered video poker king Fred Collins and four other key gaming operators to stop paying jackpots that exceed the state's $125 daily winnings cap. And Anderson's order also creates a paper trail to enforce the winnings cap, which regulators and Hodges have said is unenforceable. In addition, the paper trail could help tax collectors monitor operators as well as gamblers who should pay taxes on winnings. Industry lawyers have complained that stripping poker of its jackpots would break the back of the gaming business. Anderson's directive takes effect in about two weeks. The delay would allow the companies time to prepare for the court-imposed business practices. Lawyers for the poker operators said they will appeal. But only a three-judge panel from the 4th Circuit Court of Appeals can block Anderson's order. Anderson instructed five selected poker companies to pay winners no more than $125 daily, to prominently advertise that limit and to keep a log of every payout. If they don't, the judge could hold them in contempt, which can result in fines or jail time. "This is a giant win. Bigger than big," said attorney Larry Richter, one of the lawyers for the addicted gamblers who sued the industry in Anderson's court. "This sets the baseline of adherence to the law. Hopefully, the proper agencies will enforce this." Richter said he will ask Anderson to widen his order to cover all 45 companies named in the suit. No end in sight. Dwight Drake predicted Anderson's ruling will be overturned. The dispute will be in court for years, said Drake, an attorney who represents the S.C. Coin Operators Association, which is not affected by the judge's order. About 25 percent of the more than 400 poker operators in the state are association members. The order covers Collins Entertainment, by far the state's biggest poker operation. Collins has 3,843 machine licenses in 1,100 locations around the state. He did not return a phone call to his Greenville office Tuesday. The others are:
Henry Ingram, owner of Ingram Investments, said: "I'm sending out letters to all my locations, 'Don't pay out more than $125.' " He says he doubts it will affect gambling very much. "People will still play." He does plan to appeal. But David Belding, an attorney for another company affected by the ruling, said Anderson's order puts the targeted operators at a major disadvantage. Gamblers are likely to go to operators not covered by the strict $125 cap, he said. Anderson ruled that it is unfair, deceptive and unethical for the companies to evade the 1993 state law that established the cap. He cited the state's Unfair Trade Practices Act. "The defendants' inventive means of seeking to evade (the cap) constitute unfair trade practices because they violate clearly expressed public policy, causing harm to the public," Anderson said. The violations "are repeated daily," he said. The judge rejected the tactics the industry has used to get around the cap through a series of $125 payments or subtracting the wager from winnings. Those schemes force players to lie about their winnings, which are taxable, he said. "I think that it's unethical . and then draws the players into false claims," Anderson said. In requiring payout logs, he exposes operators and gamblers to audits by poker regulators, tax collectors and the State Law Enforcement Division. They can make spot checks and demand the logs, Anderson said. The paper trail also must be shown to the court and to attorneys for the gamblers. Lead lawyer Richard Gergel said he plans to check for violations by using small video cameras and other means he would not specify. "A control mechanism has been handed to the Department of Revenue," Gergel said. "There's no reason they shouldn't implement this across the board. It's laid at their feet. They have a public trust. What they do with it is up to them." 'Significant enforcement problems.' Hodges and members of his administration, however, said it would be impractical to try to use that mechanism to control the whole industry. "The log system proposed by the judge has significant enforcement problems," said State Law Enforcement Division Chief Robert Stewart. "It must rely on the low-paid employee keeping honest records and the gambler presenting truthful, accurate information, and then tying all that (paperwork) back together with 8,000 locations in the state of South Carolina to see if one person won more than $125 in a 24-hour period." Moreover, Hodges said, it would take too long to pass the regulations required to put the log system in place. "If there is some suggestion that that could be done quickly by the Department of Revenue, I think that's incorrect," said Hodges, who was elected with the financial backing of the industry. "It would be sometime next year before that process could be handled. "If you want quick action, it needs to be done legislatively," he said. He renewed his call for a referendum on the fate of the industry in November 2000, too. "In the interim let's go ahead and put (legislatively passed) regulations in place that are consistent with what other states do," he said. Lawyers for the gamblers have criticized the Revenue Department for not enforcing the cap and other poker laws. Revenue Director Elizabeth Carpentier said Anderson's ruling will have little impact on enforcement of regulations on the industry as a whole. The judge's interpretation of the $125 cap is "the same thing we've been doing since Day One," she said. The problem, Carpentier said, is "You have to catch them in the act." The cases then end up in lengthy appeals, she added. Carpentier and Hodges support replacing the $125 cap with limits on the size of each bet. The state's computer-monitoring system eventually will effectively track those payouts, she said. That's scheduled for May 31, but may be delayed until at least the end of the year. Critics say that Hodges' approach amounts to unlimited gambling. SLED 'in front.' Carpentier emphasized that actual enforcement of the law is up to SLED. "We're not the ones out in front," she said. "SLED does the enforcement." In court Tuesday, Anderson criticized Revenue regulators and SLED for lax enforcement. He noted that the state has put no violator out of business for exceeding the payout cap. SLED has launched spot checks of poker machines across the state to compare the machines' computer-accounting tapes with the quarterly reports that poker operators must file with the Revenue Department. The purpose is to determine whether poker operators are under-reporting the money they keep and the amount they pay out. If any irregularities are discovered, she said, audits will be conducted. Gergel said the judge's log makes those comparisons much easier and should serve as a model for regulators. Tax collectors have long suspected underreporting. In 1995, former state tax commissioner Crawford Clarkson Jr. estimated that the industry was underreporting bets by half. Clarkson estimated the total at $4.4 billion. Today, with about 10,000 more poker machines in the state, the industry reports that $2.5 billion went through he machines last year. Carpentier said she has to assume that the industry is reporting accurately, but will go after companies if audits show discrepancies. She said the state will be in a much better position to monitor the amount of money when the state's central computer monitoring system goes into effect. Poker ruling at a glance The law: A 1993 state law set a limit on video poker winnings at $125 daily per player per gambling location. The problem: The law has been widely unenforced as video poker operators advertise multithousand-dollar jackpots and pay winners with a variety of schemes to skirt the daily limit. The lawsuit: In 1997, addicted gamblers sued 45 video poker operators to recoup hundreds of thousands of dollars they lost to poker machines they contend are operating illegally and lured them to pour in money. The ruling: A federal judge sided with the gamblers and ordered strict enforcement of the $125 cap on five selected poker companies. He ordered the operators to post signs saying that nobody will be given more than $125 in a jackpot no matter how much they bet. The five operators also must keep a daily log of winnings paid. And individual winners must provide their name, Social Security number and address and sign for each payout under penalty of perjury. The judge postponed deciding whether illegal payouts are crimes. What the ruling means: For gamblers, it means keep your winning records for next year's tax forms. For the five video poker operators affected by the ruling, it means SLED and tax agents will have an easier time keeping tabs. What's next. The order takes effect 10 days after it's filed with the court, which will be late this week or early next week. After that, machine operators are subject to contempt of court if they don't comply. Lawyers for the gamblers want to extend the order to all 45 of the companies named in the lawsuit. Poker operators say they will appeal. The judge's order will likely affect legislative debate about poker regulation because it creates a way to enforce the $125 cap. Staff writer Chuck Carroll contributed to this article. Call Clif LeBlanc at (803) 771-8664. Call Douglas Pardue at (803) 771-8684. Copyright 1999, The State Reprinted from The State newspaper |
