A Santa Ana alcohol rehabilitation center that runs a multimillion-dollar charity bingo operation in this tiny city illegally paid nearly $100,000 in wages with money it made from the games, the state attorney general's office has charged.
Attorney general officials contend state law prohibits charities such as Cooper Fellowship Inc. from paying their employees with bingo proceeds, although the profits can go toward other operating expenses of the charity.
In a March 1 letter to Hawaiian Gardens officials, Deputy Atty. Gen. James Cordi outlined five specific charges detailed in an audit of the nonprofit alcohol rehabilitation center and the bingo hall it operates to raise funds. A copy of the letter and 18-page audit report were obtained by The Times.
Besides the wage dispute, the letter alleges Cooper Fellowship broke the law by borrowing about $200,000 to set up the bingo parlor and using $70,000 in profits to repave a parking lot outside the Hawaiian Gardens facility. In addition, it alleges about 30% of the bingo workers are not members of the charitable organization, as required by law. Finally, it criticized the group's bookkeeping practices, saying they make it difficult to control skimming.
Say They've Been Singled Out
Cooper Fellowship leaders countered the charges and denied any wrongdoing, saying attorney general officials have misinterpreted state laws and singled out their bingo operation simply because it has been successful.
The group made a point-by-point denial of each of the allegations through its lawyer and in a five-page public statement from executive director Jack Blackburn.
"I honestly think they have strong feelings about a big bingo game," said Ronald Davis, a Santa Ana attorney who represents Cooper Fellowship. "They have a concern that other small cities who need to raise money will see this as a viable way of raising revenue and bingo will spread."
Cooper Fellowship's charity bingo operation in Hawaiian Gardens--a mile-square municipality that is the state's smallest city--is believed to be the most profitable bingo operation in California, with gross revenues exceeding those of even the largest poker clubs in the state, law enforcement officials say.
The bingo parlor, which opened its doors in February, 1984, grossed more than $11 million last year. In recent months, the operation has been even more profitable, grossing about $1.5 million a month. The city gets 1% of the receipts, which amounts to about $15,000 a month.
600 Players Nightly
As many as 600 people flood the Hawaiian Gardens bingo hall where the games are held nightly. A $250 prize is awarded the winner of each game, with 60 to 100 games a night. The bingo parlor is operated out of a single-story commercial shopping center on Pioneer Avenue; inner walls of several small shops were torn down to create the hall.
"It's a very big operation," said Cordi, who oversees the Los Angeles division of the attorney general's charitable trust section. "In fact, Cooper's the biggest bingo game I know of in the state."
Under California law, the city has the power to revoke the bingo parlor's business license and shut down the games. Although the attorney general's office can file a civil suit in Los Angeles Superior Court asking that the bingo parlor stop paying wages or that it be shut down, Cordi refused to speculate whether his office would take action.
"The city is taking the allegations seriously," City Manager Douglas Dunlap said. "It's pretty clear to me that the attorney general wants us to shut them down."
Dunlap said the city may hire an accounting firm to conduct an independent audit of Cooper's operations.
For Hawaiian Gardens, bingo has been an economic bonanza. The city's 1% take of the gross receipts amounted to about $117,000 last year, or 10% of the general operating fund, officials said. In addition, Cooper Fellowship has been giving the city an extra $2,500 a month to fund a food bank program. The City Council approved a business license for the parlor in September, 1983, on a 3 to 2 vote.
Cooper Fellowship officials say profits from the bingo parlor are the major source of operating funds for the alcohol rehabilitation center, and acknowledge that the game is a pivotal part of the fellowship's operations. They would not, however, supply a financial breakdown of their operation. Nor did the audit separate the revenues and expenses of operating the bingo game from those of the alcohol rehabilitation activities of Cooper Fellowship.
Davis, the group's attorney, said the center is the largest nonprofit alcohol rehabilitation facility in California that is run solely on donations and bingo proceeds.
"They have a fantastic program and nobody is focusing on that," he said.
With the large crowds and cash prizes, the bingo parlor has attracted the attention of the Los Angeles district attorney's office. Deputy Dist. Atty. Steve Sowders, head of the special investigation division, said a probe was launched in April, 1984, and "is ongoing."
Although no action has been taken against Cooper Fellowship, a search of the bingo parlor conducted by district attorney's investigators in September led to the arrest of Blackburn, the center's founder and executive director, on cocaine possession charges.
For Blackburn, who is to go to trial April 1 in Los Angeles Superior Court, it was not his first bingo-related arrest. While operating an Anaheim bingo game in 1980, Blackburn pleaded guilty to charges of laundering campaign contributions to a group trying to recall two Anaheim City Council members who favored limits on bingo. That same year, Blackburn was acquitted on charges that a Fontana bingo game he helped run was being operated illegally.
Incorporated in 1981
Cooper Fellowship was incorporated in January, 1981. The center, which houses more than 60 recovering alcoholics, is operated out of six family-style houses in a quiet residential neighborhood in Santa Ana. The program's counselors conduct daily therapy sessions following the model of Alcoholics Anonymous.
Among those who were paid weekly salaries from bingo proceeds were Blackburn and Cooper Fellowship business manager Larry Davis (no relation to attorney Ronald Davis), the attorney general's audit said.
According to a salary sheet for Cooper Fellowship attached to the Jan. 9 audit report, Blackburn was paid $700 a week as executive director, while Larry Davis received $750 as business manager. The salary sheet lists 22 others who were paid wages ranging from $100 to $500 a week. One employee is listed as a janitor for the bingo hall, while others carry titles such as counselor, house manager, cook, kitchen helper, carpenter or maintenance worker.
In addition, the audit report says Cooper Fellowship paid former Anaheim City Councilman W.J. (Bill) Thom $10,400 for "community and public and professional services" based on weekly invoices of $800 he submitted. Thom represented Cooper Fellowship when the group applied for a business license in late 1983 to begin operating the bingo hall in Hawaiian Gardens.
Larry Davis could not be reached for comment. Thom would say only that the $10,400 the audit alleges he was paid was not an accurate figure. Blackburn, meanwhile, responded to the attorney general's allegations with his five-page statement.
The crux of the attorney general's position is that state law is meant to keep charity bingo games small, to have all profits spent for the charity's work, and to staff the games with volunteers rather than paid employees. The state penal code says it is a misdemeanor "for any person to receive or pay a profit, wage, or salary from any bingo game."
If the attorney general is correct, Blackburn said in the letter, "every organization conducting these games would be prohibited from spending any of the money raised" from bingo for basic supplies, services or food. All of those things, he reasoned, are created by people who are paid wages.
To back that, Blackburn pointed to a March 15 legal opinion issued by Bion Gregory, general counsel to the state Legislature, at the request of state Sen. Paul B. Carpenter (D-Cypress).
Gregory wrote that tax-exempt organizations such as Cooper Fellowship can use bingo profits to pay employees if they are not helping to run the games. The legal opinion said that banning such use of bingo profits "would defeat the purpose of the statute, which is to allow bingo profits to be used for charitable purposes."
Cordi said he disagrees with Gregory's opinion, arguing that "the plain meaning" of state law is more restrictive, prohibiting the use of bingo profits to pay wages--even to people employed by charities in jobs not associated with bingo.
"The law was designed and intended to make it impossible to run a big bingo game," Cordi said.
The letter's second allegation is that Cooper Fellowship broke the law when it used bingo profits to repay--in some cases with interest--the nearly $200,000 in loans it used to start the parlor. Cordi said the loans gave the lenders "a financial interest" in the games, which is prohibited.
According to the audit report, Santa Ana real estate agent Tom D'Alessandro loaned Cooper Fellowship $82,500; John Zeolla, owner of North Hollywood Marble Co., loaned $75,000; Robert Ellis, a Cooper resident and employee, loaned about $25,000; and Larry Hayden, another resident of the rehabilitation facility, loaned $15,000.
Zeolla and D'Alessandro received 15% interest and the loans were repaid in full by August, 1984, the audit report said. Zeolla got $4,477.09 in interest, while D'Alessandro received $4,924.79 for the loan, according to the report.
Some $100,000 of the loans went to the owners of the building that acts as the bingo hall to pay "the consideration of the lease," the audit report said, while the rest of the money was used to purchase supplies and office equipment, pay legal fees and rent, and finance improvements to the bingo hall.
Cordi said in an interview this week that the $100,000 payment was made in addition to the usual rent to the owners of the building Cooper Fellowship uses for bingo.
"It strikes us as being pretty unusual," Cordi said. "Usually, someone signs a lease and pays rent. In this case, they paid the rental plus an up-front consideration. We would certainly question the necessity and reasonableness of that."
In his written response, Blackburn said the attorney general was misinterpreting what it means to have a financial interest in an organization. "Financial interest means ownership interest," Blackburn said. An owner has a level of control over an operation, something the lenders lacked, he said.
Hayden and Ellis would not comment on the matter, but Zeolla said in an interview last week that he was not aware he was loaning the money to Cooper Fellowship to help start a bingo operation.
"I don't know anything about bingo," Zeolla said. "I was donating to an alcoholic rehabilitation center."
Zeolla said he met an official from Cooper Fellowship during a party at the home of D'Alessandro, a family friend. He could not recall the name of the Cooper official.
The man told Zeolla that Cooper Fellowship "needed the money to fix up some property he bought so he could rehabilitate more alcoholics," the 53-year-old businessman said. "I don't get involved in any gambling. I don't know anything about that."
Real Estate Deal
In an interview last week, D'Alessandro said he loaned the money to Cooper Fellowship as part of a real estate deal involving the houses it uses for the rehabilitation center.
D'Alessandro said Cooper Fellowship purchased the Santa Ana houses from him in 1980. As part of the sale, D'Alessandro said he assumed a second trust deed that was to be repaid after three years. But when the deed came due in 1983, Cooper officials were unable to pay and asked D'Alessandro about getting a second loan to start the bingo operation, he said.
"They approached me about the loan, and I saw (the bingo operation) as a way to get back the money I was owed," D'Alessandro said. "Once they started the bingo, they'd be able to pay off their debts."
The attorney general's audit also alleges Cooper Fellowship used bingo profits to repave a parking lot adjacent to the parlor, a violation of state laws requiring that money from the game be used solely for charitable purposes. In addition, the audit says the lease Cooper Fellowship signed stipulated that the parking lot improvements would be made by the building's owners.
$70,000 Spent on Paving
Blackburn said the parking lot improvements helped increase patronage at the bingo hall. Because of that, the $70,000 spent on paving the lot was used for a charitable purpose, he argued. In addition, he maintained that many other nonprofit organizations offering bingo games in Los Angeles County use proceeds "to improve and enhance their facilities."
According to the audit report, the building Cooper Fellowship uses for its bingo operations is owned by Harold Clayton and Charles Anderson. Clayton and Anderson, who were killed in a helicopter crash in November, helped the Morongo Indian tribe start a bingo parlor on their reservation in Riverside County.
Blackburn said the attorney general's claim that about 30% of the bingo workers have no connection with Cooper Fellowship is untrue.
The audit attributes the figure to Larry Davis, Cooper Fellowship business manager, and states that "it is easy" to get volunteers to work at the bingo games because the volunteers receive an average of $30 in tips nightly from players. State law requires that a bingo game must be staffed by members of the charitable group.
Blackburn said that while 70% of the workers live at the group's Santa Ana center, the other 30% of the bingo work force are members of the organization who live elsewhere but participate in therapy sessions.
Finally, the attorney general's March 1 letter contends the bingo operation kept "inadequate records of its cash receipts" and provided "no documentary 'audit trail' from which to verify cash receipts from the time of receipts until they are subsequently deposited in the bank."
"A serious practical consequence of such inadequate record-keeping is that it is very difficult to control attempts by anyone with access to bingo receipts to 'skim' cash surreptitiously," the letter said.
Blackburn argued that the bingo operation has a good accounting system because "all cash is counted in the presence of an independent security guard" who verifies the amount and signs a deposit slip before the money is taken to the bank.