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Undercurrents: Gaming? Gambling? Lottery? Slots?

A regular Source feature, Undercurrents explores issues, ideas and events as they develop beneath the surface in the Virgin Islands community.

What’s the difference between video lottery and a virtual casino?

Nothing, according to a complaint that has been sitting largely unnoticed in District Court for the last two years.

The case challenges the legality and implementation of a 2003 contract with the Virgin Islands Lottery that resulted in the proliferation of gaming machines known as video lottery terminals or VLTs crowding into St. Thomas and St. John restaurants, bars and hotels where they are available to tourists and to local residents.

The complaint alleges that Southland Gaming of the Virgin Islands Inc., its affiliate Southland Amusement and Vending Inc., and their owner and Chief Executive Officer Robert Huckabee III have made millions of dollars operating what amounts to slot machines in a V.I. district that does not allow gambling, and that they have done so with insufficient oversight by the local government.

Southland and Huckabee have responded with motions asking for the case to be dismissed and calling its allegations “redundant, immaterial, impertinent, scandalous, unsubstantiated, clearly false and prejudicial to (the defendant’s) reputation.”

St. Croix attorney (and former U.S. Attorney in the Virgin Islands) David Marshall Nissman filed the complaint as a False Claims qui tam action on Feb. 3, 2011. Also listed as a plaintiff is Angela Tyson-Floyd of the U.S. Department of Justice.

The federal False Claims Act – sometimes called the Whistleblowers Act – provides a monetary incentive for people with knowledge about companies or individuals who have defrauded the government to come forward and relate that information and to file court actions on behalf of the government against those companies and/or individuals.

If the case concludes in the government’s favor and there is a monetary award, the individual who brought the case gets a percentage of the money. That individual is known as a “relator.”

Nissman lobbied for a V.I. version of the False Claims Act last year and the Legislature passed such a law in November 2012, but Gov. John deJongh Jr. vetoed the bill in December, saying it was not needed and would create unnecessary work for the attorney general, investigating qui tam actions.

The complaint against Southland alleges that the Lottery Commission doesn’t even have the authority to allow VLTs because lottery terminals are a form of gambling and gambling is illegal in the Virgin Islands except on St. Croix.

Moreover the complaint argues that while the V.I. Casino Commission is charged with licensing and carefully controlling all VLTs and slot machines in Crucian casinos, no one is looking over Southland’s shoulder.

“SGVI maintains control of the risks, the costs, the rewards, the central computer and the operation of the video lottery,” the complaint states. The Casino Commission holds keys to the slot machine cash boxes on St. Croix, and those boxes are opened jointly by the regulator and the operator, but on St. Thomas and St. John, Southland holds the keys to machines in its entertainment centers and it tells the government how much money it takes in.

The complaint relies heavily on a 2007 federal audit by the U.S. Department of Interior’s Inspector General’s Office that was critical of the arrangement between Southland and the V.I. Lottery. That report concluded that the accounting was suspect and that the V.I. government had no way of verifying the numbers.

Rather the government relied on Southland to remit the government’s share of proceeds to the V.I. Lottery, that audit concluded.

The complaint also quotes from public testimony of Lottery officials at the Legislature.

In its motion for dismissal of the complaint, Southland argues that the case lacks subject matter jurisdiction, that the plaintiff does not have standing, and that the complaint fails to state a claim for relief.

The complaint contends that “any fraud against the Virgin Islands directly affects the United States Treasury because the Virgin Islands coffers are funded and replenished by the United States or by virtue of federal legislation allowing the Virgin Islands to raise money.”

But Southland counters that – because the case involves local, not federal, funds – it can’t be brought in federal court under the federal False Claims Act.

Southland also argues that the “plaintiff is not the original source of any of the information” in the complaint and thus is not a “relator,” and so has no standing to bring the case.

The case was filed in St. Croix and assigned to Judge Wilma A. Lewis. Southland has requested it be transferred to St. Thomas, if it is not dismissed.

According to online court records, there has been no decision on the motion for dismissal or for transfer. The last filing in the case was in April of last year.

The V.I. Lottery’s contract with Southland went into effect July 29, 2003. It automatically renews every five years and did so in 2008, and is scheduled to renew again this year. The contract can be terminated if Southland decides not to renew it or if the V.I. government finds that Southland has defaulted.

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