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United States of America v. Thomas Dale Overstreet

November 29, 2012

UNITED STATES OF AMERICA,
PLAINTIFF,
v.
THOMAS DALE OVERSTREET, DEFENDANT.



The opinion of the court was delivered by: B. Lynn Winmill Chief Judge United States District Court

FINDINGS OF FACT AND CONCLUSIONS OF LAW

INTRODUCTION

On September 19 and 20, 2012, the Court conducted a two-day evidentiary hearing regarding forfeiture. The parties then submitted their briefs and proposed findings of fact and conclusions of law. The Court now issues its findings and conclusions.

The Court notes as an initial matter that the bulk of the Court's findings of fact and conclusions of law are adopted from the Government's proposed findings and conclusions because they accurately reflect the Court's findings and conclusions, and because the defendant had very limited objections. The defendant objected to only a few statements of fact as either unsupported by the evidence, inaccurate or irrelevant. The Court considered these objections in making its own findings and conclusions.

BACKGROUND

1. On August 24, 2012, the defendant pled guilty to Counts One, Five and Six of the Superseding Indictment.

2. In making the following findings pertaining to forfeiture, the Court has considered the factual basis for the defendant's guilty plea, as well as the defendant's statements in response to questions by Magistrate Judge Boyle, who conducted the actual plea colloquy.

3. During the forfeiture hearing, the Court had an opportunity to review the exhibits admitted into evidence, hear witness testimony, and observe the demeanor of testifying witnesses.

4. The Court has also considered the joint stipulations filed by the parties on September 19, 2012. Dkt. 80.

5. The Court heard testimony from six fact witnesses: Kelly Dart, Tina Youngblood, Sandra Hendry, Courtney Zitelli, Miel Snowball, and Dave Parker.

6. The Court also heard testimony from a summary expert witness, Linda Czymeres.

7. Except as otherwise noted below, the Court found the testimony of these witnesses credible.

8. The bulk of the findings of fact are based upon the testimony from these individuals.

9. The Court also reviewed a video and accompanying audio recording of a meeting between the defendant and an undercover agent with the Criminal Investigation division of the Internal Revenue Service (IRS-CI), in which the agent posed as a prospective buyer of Club 7.

10. During the forfeiture hearing, the Court listened to portions of jailhouse audio recordings made of the defendant's phone calls and jailhouse visits with friends and associates of the defendant.

FINDINGS OF FACT

Based on the defendant's change of plea hearing and the forfeiture hearing, the Court finds that the government has proved the following facts by a preponderance of evidence.

1. From approximately 2001 through June 2011, the defendant was the sole owner and operator of Club 7, a business in Fruitland, Idaho.

2. Club 7, which has since closed, was a bar located at 210 SW 3rd Street. 3. The defendant received income from the sale of goods and services at Club 7, as well as the illegal gambling business he ran out of Club 7.

4. Aside from the sale of goods and services at Club 7, and his illegal gambling business, the defendant had no other sources of income during that time period.

5. The illegal gambling business was located in Club 7 and involved the management and operation of electronic video gambling machines.

6. The games on these machines were games of chance.

7. To play the machines, customers paid cash into the machines using automatic bill feeders.

8. In violation of Idaho state law, employees of Club 7 made cash pay-outs to customers who won on the machines.

9. The defendant directed his employees and associates to make the cash pay-outs, all the while knowing that such pay-outs were illegal under Idaho state law.

10. The defendant received all profits from the illegal gambling business, of which he was the manager and owner.

11. To track the pay-outs made to customers, the defendant required his employees to keep daily records, often on a post-it or small sheet of paper, about each pay-out, including the time, machine number, customer name, credit reading on the machine, and cash paid out.

12. The defendant then compared these daily pay-out slips to the readings off meters installed on the machines, which tracked the amount of cash paid in by customers and the cash pay-outs.

13. On approximately a weekly basis, the defendant would use the meter readings to compute the profits from the illegal gambling business.

14. The IRS used the ledgers kept by the defendant, as well as the meter readings recorded on the bank of shift envelopes, to determine the total gross receipts and profits from the defendant's illegal gambling business.

15. Between mid-2003 and 2010, the defendant had gross receipts of at least $2,411,467.60 from his illegal gambling operation and made pay-outs of $1,397,699.50.

16. The defendant's profits from his illegal gambling business were $1,013,768.10. Gov't Ex. 7-1.

17. At times, associates of the defendant would assist with the management of the illegal gambling business, such as by removing the money from the machines, counting it, and reading the meters.

18. The meter readings from the machines were recorded in ledgers maintained by the defendant.

19. The defendant would reconcile the ledgers with the daily pay-out slips prepared by the Club 7 employees.

20. The defendant typically disposed of these gambling slips after performing the reconciliation.

21. Except when he was out of town, the defendant also oversaw the weekly removal and counting of cash from the gambling machines.

22. In his absence, the defendant would instruct his associates to remove and count the cash.

23. The defendant kept equally detailed records of the legal sales and expenses associated with Club 7, the gross receipts of which primarily consisted of food and alcohol sales.

24. At the defendant's direction, Club 7 generally required customers to pay cash for goods and services.

25. The defendant permitted a few patrons to pay with personal check; however, even in those cases the customers wrote checks made out to Club 7, which were then cashed by the bartender.

26. The customer would then use the cash to pay for purchases or gambling. 27. Each of the Club 7 bartenders was responsible for maintaining and accounting for payments into and out of her weekly cash register till.

28. At the end of each shift, the bartender would fill out a daily till sheet and envelope, on which the bartender performed a basic reconciliation, showing the cash paid in and out during that shift.

29. Until the defendant received a citation for illegal gambling in August 2005, the bartenders would record cash pay-outs for the illegal gambling business made from their cash register till on this paperwork.

30. The bartenders would also include the gambling payout sheet showing the cash pay-outs made during their shift, thereby accounting for the till's shortfall caused by the gambling pay-outs.

31. The defendant abandoned this accounting system after the Attorney General's Office for the State of Idaho sought to suspend Club 7's liquor license based on the defendant's illegal gambling business.

32. In that action, the defendant was charged with violating Title 23, Section 928(2) of the Alcohol Beverage Code by allowing gambling and gambling pay-offs to occur in Club 7.

33. The case was resolved with a fine and stipulation, in which the defendant admitted to allowing gambling activities to take place at Club 7, in violation of Idaho Code 23-928.

34. Pursuant to the agreement, the defendant paid a fine of $3,000 to Alcohol Beverage Control.

35. Although the defendant paid a fine for his illegal gambling business, he did not take the machines out of Club 7, nor did he stop making cash pay-outs.

36. Even while the administrative proceeding was pending, the illegal gambling business continued at the defendant's direction.

37. The defendant changed his procedures to reduce the visibility of the illegal gambling business, particularly the cash pay-outs.

38. These measures included additional scrutiny of customers who wanted to gamble, creation of a back room that housed most of the electronic video gambling machines and required a key for access, a new system for tracking gambling pay-outs, and destruction of pay-out records after compilation and review by the defendant.

39. At the defendant's direction, the bartenders no longer put the daily pay-out slips tracking gambling pay-outs with their shift envelopes.

40. Rather, bartenders were instructed to keep the daily pay-out slip on their person, and then pass the daily payout slip to the next bartender at the end of the shift.

41. Because gambling pay-outs were made from the bartender's cash register till, the defendant directed his employees to erase the shortfall created by the pay-outs at the end of each shift by having the incoming bartender provide money from her till equal to the amount of cash pay-outs shown on the daily pay-out slip.

42. As a result, the outgoing bartender's till would reconcile with the amount of food and alcohol sales, thus making it appear that no gambling pay-outs had been made.

43. At the end of the evening, the defendant or one of his associates would reimburse the bartender working the last shift for the total amount of gambling pay-outs made over the course of that day.

44. On an approximately weekly basis, the defendant and his associates would count the cash proceeds from the illegal gambling business and the sale of goods and services at Club 7.

45. The money was collected and counted in the bar, or the defendant's personal residence in Club 7.

46. At the defendant's direction, the cash proceeds from the illegal gambling business would then be combined with the legal-source proceeds from Club 7, and then used to make up the new cash register tills used by Club 7 bartenders.

47. Some of the cash would be separated out and earmarked for immediate or future restocking of the ATM in Club 7.

48. Any remaining cash would be placed in the safe in the defendant's personal residence, which was located above the bar.

49. The cash in these new "tills" would be used by the bartenders during the upcoming week for food and alcohol sales, gambling pay-outs, and check cashing.

50. The evidence shows that the defendant knew about the relative profitability (or lack thereof) associated with the food, alcohol and legal entertainment sales at Club 7, along with the illegal gambling business.

51. By using the defendant's records, including expense receipts that the defendant sorted and maintained in separate manila envelopes by month, the IRS reconstructed the cash flow and profits of the defendant's legal and illegal businesses.

52. These calculations show that while the bar generated significant gross receipts, it also had significant overhead.

53. The illegal gambling business, in contrast, had no overhead aside from the cost of cash pay-outs on customer winnings.

54. For each of the years at issue, the evidence shows that the defendant's profits came overwhelmingly, if not entirely, from his illegal gambling business.

55. Even in the bar's more profitable years, the illegal source profits from gambling exceeded any bar profits by almost a 2:1 ratio.

56. The IRS calculations are consistent with profit/loss calculations that the defendant prepared for Club 7 and his illegal gambling business.

57. Profit and loss calculations prepared by the defendant were provided to a company called Affiliated Business Consultants ("ABC"), which the defendant hired to help him sell Club 7.

58. On those handwritten statements, the defendant's calculations show that his profits are primarily from his illegal gambling business.

59. More recently, when speaking to his girlfriend after his arrest in this case, the defendant noted that without the illegal gambling business, Club 7 was not profitable and would be forced to close: "without the machines, it's just a slow downhill ride . . . without the machines, it [Club 7] don't make no money."

60. The Court finds that the defendant knew throughout the period in question that his gambling business was profitable, and that without it Club 7 would -- at best -- break even.

61. The profitability of the two ventures matters because it is probative of the defendant's purpose and rationale for his other business practices, namely, the check cashing service and automated teller machine (ATM) that defendant set up and operated at Club 7.

62. Throughout the period in question, the defendant had one business checking account for Club 7.

63. Despite operating an essentially all-cash business, the defendant deposited almost no cash into the Club 7 bank account: Between 2004 and 2011, $4,738,395.48 was deposited into the Club 7 bank account.

64. Of the more than $4.73 million in deposits, only $25,520.21 -- less than 0.53% -- were cash deposits.

65. In some years, including 2005, 2006 and 2009, there were no cash deposits. 66. When an undercover agent met with the defendant in April 2011, the defendant admitted that he avoided depositing cash so as to avoid the ...


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