Earl Warren (front center) and the rest of the U.S. Supreme Court justices, 1967

1952-1968

Soon after two new federal taxes — the tax on wagers and the wagering occupational tax — went into effect in late 1951, problems with them arose. (See Part I for a description of and impetus behind the taxes.)

First Complication To Arise

The constitutionality of the occupational tax was called into question. In May 1952 U.S. District Court Judge George A. Welsh flat out declared it federal legislators’ unconstitutional infringement on states’ power and described it as “a police measure enacted by Congress under the guise of a tax bill” (Reno Evening Gazette, May 6, 1952). This ruling came during the trial of a Philadelphia gambler charged with failure to buy the gambling tax stamp.

An editorial in Florida’s Tampa Times pointed out the gambling stamp tax was “contradictory” and “hypocritical” (March 3, 1953).

“It is a case of the federal government on one hand sanctioning gambling, while state and local law enforcement officers are expected to stamp out gambling,” it read. “Winking at gambling because it has become a federal tax revenue producer would be outright hypocritical and against the wishes of the majority of Americans.”

Other critics argued the tax violated wager-takers’ Fifth Amendment right to protection from self-incrimination. On one hand, requiring them to register forced them to provide information that could implicate them in breaking their state’s state anti-gambling law, were that in fact the case, and in doing so, invite prosecution.  Many newspapers, including The Sacramento Bee and The Indianapolis News, published the names of stamp purchasers.

On the other hand, if the wager-takers ignored the federal law, to keep their underground gambling operation secret, they risked federal prosecution for not buying the stamp and registering.

Not So Effective

A second issue was the taxes weren’t achieving the desired ends. A year in, they hadn’t significantly reduced gambling; at best, they’d slightly deterred it. They hadn’t forced gamblers out of business; instead, the operators had gone underground.

The taxes also failed to bring in anywhere near the level of revenue expected. Congress had predicted an influx of about $400 million in the first year, but the actual figure was about $9 million, not even one-third of the predicted amount.

Whereas a flurry of stamp tax buying had occurred after the Revenue Act was passed, taking total sales to over 19,000, purchases dramatically fell off in 1952.

“The professional gamblers soon wised up and developed a ‘wait and see’ attitude,” reported The Tampa Times.

The reasons for the suboptimal results, according to Frank Lohn, chief of the Internal Revenue Bureau’s intelligence division, were that the bureau lacked sufficient staff to go after unpaid gambling taxes and that the constitutionality of the special tax remained undecided.

“Many gamblers believe the high court will overturn the law, and in the meantime they are not too afraid of violating it,” reported the United Press (Reno Evening Gazette, Nov. 1, 1952).

High Court Weighs In … Twice

That was not the case, however; the U.S. Supreme Court upheld the special tax, 6 to 3, in March 1953. About a year later, it ruled that purchasing a wagering stamp tax did not make the buyer immune from possible state prosecution, thus the self-incrimination problem persisted.

Fast forward 14 years to 1967. Significantly fewer gamblers nationwide were buying a tax stamp, 5,917 in that year, for example. About 2,000 gambling tax violation cases were advancing through the courts.

Then in January 1968, in another twist, the Supreme Court, in a 7-to-1 decision, ruled that the stamp tax law violated people’s Fifth Amendment right, but the justices didn’t declare it unconstitutional. Instead, they essentially gave wage-takers a way to avoid prosecution for noncompliance: claim self-incrimination.

The sole dissenter, Chief Justice Earl Warren, said the decision made the law unenforceable and unconstitutional. Justice and treasury department officials predicted it would hamper crimefighting at the federal, state and local levels and jeopardize current prosecutions.

Fix For The Problem

In 1974, Congress passed Public Law 93-499 to replace the two wagering taxes mandated in 1951. The new statute required certain gamblers to buy a $500 (about $2,800 today) wagering tax stamp annually and pay 2 percent on all bets they take. December 1, 1974 was the effective date, and the Bureau of Alcohol, Tobacco and Firearms was tasked with enforcement.

This law avoided the Fifth Amendment issues inherent in the previous one. It did so by prohibiting the federal government from divulging, to any law enforcement agency, private group or citizen, the information gamblers gave, as required, about themselves, their partners, employees and customers.

Types of gambling exempt from the new law were casino betting, state-licensed parimutuel wagering, state lotteries and coin-operated machines on which a stamp tax was charged. 

As with the prior wagering taxes, the purpose of Public Law 93-499 was to “increase federal revenues and curtail an important source for financing criminal activities” — certain types of gambling, reported The Sun-Telegram (Jan. 19, 1975).

Part I

Sources

At a time when wide-open gambling was legal in Nevada (as of 1931), the penalty for operating a game of chance without a license was 60 days in the county jail or a $120 fine.

Photo from freeimages.com: “Jail Door” by Robin Turner

Sheriff E. Russell Trathen

1931

In April 1931, the month after the new, liberal gambling law went into effect (March 19), Washoe County Sheriff E. Russell Trathen, per his job description, collected $20,000 (about $330,000 today) in gambling license fees for the month of April from operators in Northern Nevada.

Seeking Piece Of The Pie

First, Trathen went to the Washoe County Commission (WCC) and demanded 6 percent of the total in commission, which amounted to about $720 ($11,800 today). He argued he was entitled to it based on the state’s license tax act of 1915, which afforded sheriffs a 6 percent cut of the proceeds of all business licenses (and 20% of grazing licenses) sold.

The commissioners sought a legal opinion from District Attorney Melvin Jepson, who advised them that according to the law, Trathen wasn’t owed or due any compensation for the collection of license fees. The WCC told the sheriff no.

Next Course Of Action

Trathen then retained Attorney Lester D. Summerfield. In early May, the two filed for a writ of mandamus, which is an order from a superior court to a lower court, government entity, corporation or public entity to take or not take an action, as required by law. Summerfield/Trathen asked the Nevada Supreme Court to order the county treasurer to  accept the license fees Trathen had collected minus 6 percent becuase the treasurer had refused to do so the prior month, April. (Another mandamus action related to the new gambling law was taken earlier in the month in Las Vegas.)

“The case attracted wide interest through the state, as sheriffs of other counties might be able to collect a commission on gambling licenses” the Reno Evening Gazette noted (July 8, 1931).

Not Like The Others

On July 8, 1931, the higher court dismissed the writ of mandamus and issued its ruling, which was unanimous: Nevada sheriffs aren’t authorized to retain any part of the gambling license fees they collect. They said the 1931 gambling act, unlike the 1915 law, lacked a provision for such a commission.

What the new legislation did spell out was that sheriffs were responsible for unpaid fees; they were “held liable on [their] official bond for all moneys due for such licenses remaining uncollected by reason of [their] negligence,” reported the Nevada State Journal (July 9, 1931).

Sources

Photo from Police Motor Units

Chicago Board of Trade

1870s-1920s

“I want to go short 1,000 bushels of December wheat, 1 cent on the bushel.”

This $10 bet was typical back in the heyday of bucket shops in the United States, between 1870 and 1920. People wagered on the future prices of stocks, securities and commodities — grains, cotton, oil, etc. — without actually purchasing the goods.

“The [price] quotations are used as basis of this species of betting as a gambler uses dice to decide the bet [in games like craps],” wrote John Hill in Gold Bricks of Speculation.

How It Worked

In the bucket shop, prices for various commodities were listed and updated on a blackboard as they changed according to the Chicago Board of Trade or whatever exchange was used. The shops often obtained the price quotes via telegraph.

The customer bet the shop that on a certain day or in a given month in the future a commodity would be worth a specific amount. If, at that time, it was, the wagerer won minus the shop’s commission. If it wasn’t, the shop profited. Because of the commission, which the customer paid whether they won or lost, however, the disparity between the amounts the customer and the shop made on a bet was significant, clearly favoring the house.

Say in the example above, the price of wheat was $1 a bushel, and the customer bet it would drop 3/4 of a cent. If it did, he made $5 — 3/4 of a cent minus 1/4 of a cent commission (equaling 1/2 cent), times 1,000 bushels.

But if it went up that much, the bettor lost and the house made $10 — 3/4 of a cent plus 1/4 of a cent for commission (equaling 1 cent), times 1,000 bushels.

“These ‘bucket shops’ flourish for the most part upon the patronage of men and women of small means who imbued with the get rich quick idea, venture or risk that which they can ill afford to and which, once being deprived of, entails hardship and privation upon themselves and their families,” noted the San Francisco Call (Jan. 4, 1911).

Bucket shoppers, or owners of these gambling businesses, often cheated by fabricating the exchange’s price quotes to their advantage to garner profits because patrons couldn’t or wouldn’t try to verify them. Some capitalized on their clients’ naiveté, encouraging them to repeatedly add money to their original stake. Others welched on paying out winnings.

One such San Francisco, California bucket shopper who found himself frequently in the news was Henry A. Moss. 

Eradication Efforts

In the late 1800s/early 1900s, numerous city and state governments banned bucket shops, including those of Chicago, Los Angeles, Missouri, New York and North Carolina. San Francisco outlawed them in 1911. In 1909, the U.S. Congress passed amendments — an Act to Prohibit Bucketing and Bucket Shopping and to Abolish Bucket Shops — to the 1901 Act to Establish a Code of Law for the District of Washington, D.C.

The federal statute “was enacted as a part of President William Taft’s war on the meanest of all the sure thing gambling systems,” reported the San Francisco Call (March 18, 1911).

Not only were bucket shops considered to be a gambling evil, but they also were blamed for contributing to the 1870s agricultural depression and the 1901 and 1907 U.S. stock market crashes because they created “a powerful concentrated interest for the depression of values,” (San Francisco Call, Feb. 4, 1892).

Sources

Photo from Acme Newspapers

1960-1963

Twins, Reginald “Reggie” and Ronald “Ronnie” Kray, gained notoriety as powerful and murderous gangsters in London, England in the 1950s and 1960s. During their reign of terror, their involvement in organized crime included protection rackets, drug running, money laundering and even gambling. (The 2015 movie, Legend, which features actor Tom Hardy as both men, depicts their story.)

By 1962, the Krays would own a casino, Esmeralda’s Barn, in the West End.

Typical Shady Activity

The events leading to it began when Reggie, the “more reasonable” of the two — Ronnie was a paranoid schizophrenic frequently off of his requisite medication — was serving a sentence in the prison at Wandsworth.

Ronnie crashed a party to extort Peter Rachman, a West London extortionist himself who was profiting off of charging tenants exorbitant rental rates. Ronnie demanded Rachman pay him £5,000 (about $14,000 then, $114,000 today) immediately or he’d take over Rachman’s Notting Hill territory; Ronnie would have his own heavies force out, violently of course, Rachman’s rent collectors and take their place. Rachman gave Ronnie a check for £1,000 (about $2,800 then, $23,000 today).

When Ronnie went to cash it the next morning, it bounced. He was irate; no one played him like that. With a Luger in hand, he went looking for Rachman but couldn’t find him. So Ronnie did as promised, and his men assaulted Rachman’s thugs.

The Olive Branch

Knowing his life was at stake, Rachman devised a way to make it up to Ronnie. He got word to him about a legitimately owned casino in the West End that just might be of interest. It was Esmeralda’s Barn, on the Knightsbridge end of Wilton Place. It’d begun in the 1950s as a nightclub but when the United Kingdom legalized gambling in 1960 via the Betting and Gaming Act, the owner, Stefan de Faye, had turned it into a casino.

Usurping The Business

On the veiled threat they’d might kill or maim de Faye if he refused, the Krays, through their soon-to-be full-time advisor Leslie Payne, forced de Faye to sell Esmeralda’s to them for £1,000.

De Faye and the other directors could maintain their positions and profits but essentially were stripped of any control. In reality, they wouldn’t get a penny, and in a short time, the Krays would oust those men entirely from the business.

(The twins’ older brother, Charlie Kray, who also was involved in their underhanded dealings, later said it was he who negotiated the purchase of Esmeralda’s, for £2,000 [about $5,700 then, $46,000 today], and Rachman never was involved.)

Start Of New Venture

After the one-sided deal was done, the Krays (Reggie then was out of prison on bail) with Payne, visited their new casino, in 1961, for the first time.

“It was an interesting evening; interesting for the twins, who gazed with mounting avarice and awe as the earliest of the night’s gamblers seated themselves at the rich baize of the tables and the chips began travelling; interesting for the club’s manager and principal shareholder who was waiting to meet the night’s big punters, ignorant of what had happened; most interesting of all for Leslie Payne, who held the company minutes of Hotel Organisation Ltd. [de Faye’s company] in his ever-present briefcase, and was waiting for a good moment to tell the manager and his co-directors that they had some new and unexpected partners,” wrote John Pearson in From The Profession of Violence: The Rise and Fall of the Kray Twins.

The casino boomed, thanks to the savvy manager, Laurie O’Leary, his rich friends and the way he ran the operation. The Krays gave O’Leary 50 percent of the profits and kept the rest.

This successful arrangement, however, wouldn’t last.

(As a bonus post, we’ll release Part II this Friday.)

Sources

Japanese police emblem

1974-1975

For many Japan-based businessmen, gambling trips to Caesars Palace in Las Vegas, Nevada turned nightmarish.

Kikumaru Okuda, 46, also a resident of the Land of the Rising Sun, and a film producer with Toho Film Company, organized numerous trips on behalf of the Nevada hotel-casino, at the request of its president, Harry Wald. Caesars Palace paid Okuda, who’d met all of Nevada’s requirements for junketeers, $3,000 ($15,000 today) a month for his services.

The agreement with junket guests, which was typical, was that the resort would pay their airfare and hotel bills in exchange for them gambling a certain number of games while in Sin City. If they won, the casino would pay them in U.S. dollars on site. If they lost, the guests would pay in yen what they owed after returning to Japan.

Illegal Collections

In the case of a 32-year-old, Yokohama dry goods dealer, upon his return home, Okuda told him he owed $93,000 (about $455,000 today) and demanded payment. (It’s likely the man hadn’t known the size of his marker or how fast it had grown when he was in Vegas.) He refused to pay.

Soon after, Okuda’s partners —Yoshihisa Kuroda, 45, and Manabu Nakajima, 40, both corporate executives — told the debtor they had Mafia and Yakuza (Japanese organized crime members) associates who’d “liquidate” him if he didn’t pay immediately (Las Vegas Sun, July 17, 1975). He gave them $18,000 (probably all he could at the time) then reported the incident to police. (Such extortion by junketeers is why the state of Nevada, in 1972, had augmented its regulations concerning junkets.)

Consequently, in 1975, members of the Tokyo Metropolitan Police Department (MPD) investigated possible links between organized crime and gambling junkets to Las Vegas.

“In general, the situation occurred at about the same time as the movie, The Godfather, was being run in Japan, and from the point of view of the Japanese the entire affair appeared to have been engineered by organized crime interests,” wrote Jerome Skolnick in House of Cards.

Police discovered other victims, including:

• A golf course proprietor who was forced to repay $670,000 ($3.3 million today)
• A nightclub owner who had to come up with $100,000 ($490,000)
• A Tokyo jeweler who’d lost $50,000 and paid about $10,000 ($49,000)

They learned Okuda had begun the junket enterprise in January of 1974 and since then, had taken to Las Vegas 85 men, whose gambling losses had totaled $83 million ($407 million today)! Okuda had collected about $600,000 ($3 million today), two-thirds of which he’d sent to the casino through a U.S. attorney living in Japan.

The MPD arrested Okuda, Kuroda and Nakajima on charges of extorting millions of yen from Japanese citizens.

Nothing Doing

Nevada Gaming Control Board (NGCB) agents also looked into the allegation, in the United States and in Japan. When they questioned Wald, he said he was clueless as to the intimidation tactics Okuda had been using. Further, he claimed Okuda had offered to take over junket debt collection, but Okuda asserted Wald had asked him to do it. (Caesars Palace already had been in the NGCB’s crosshairs over junkets in 1969.)

When overseas, Japanese police prevented NGCB agents from reviewing any and all related documents, saying they were being held as evidence for the trio’s upcoming trial.

Back home, Nevada gambling regulators noted that opposition to and a major media campaign against gambling and junkets was growing in Japan and said the climate there toward the U.S. industry was “economically and emotionally bad” (Reno Evening Gazette, Aug. 19, 1975). Silver State officials were displeased with the circumstances surrounding the junkets from Japan and the resulting strained relations with the country.

As for Okuda, the Tokyo MPD arrested him a second-time in 1975 on different junket-related charges, but what ultimately happened to him, his henchmen and Caesars Palace — if anything — is unknown.

Sources

Art from Wikimedia Commons: by Mononomic

Headline, Nevada State Journal, January 26, 1939

1937-1939

A ticket would cost $1 (about $17 today). A drawing would be held at least every 90 days, maybe monthly if demand was great enough, on the last Saturday night of the month. It would alternate between all Nevada towns, starting with Reno, then Las Vegas.

This was the proposal for a Nevada lottery made by Senator William A. Marsh (D-Nye County) and Assemblyman Patrick Cline (D-Clark County) in 1937, at a time when the state constitution prohibited this game of chance but allowed numerous others. The first such attempt to institute this gambling type, which had failed, had been in 1888 when “state finances were in a parlous* condition” (Reno Evening Gazette, Nov. 22, 1928).

“We are living in a liberal state where we do not presume to be our brother’s keeper, and that is as it should be. We believe that if anyone wants to gamble a dollar on a lottery ticket and stand a chance of winning from $150,000 ($2.5 million today) down to $1,000 (about $17,000 today), he should be able to buy that ticket from the state of Nevada,” Marsh and Cline said in a joint statement.

They added that Americans spend $250 million ($4.2 billion today) each year on lottery/ sweepstakes tickets, and that money was going to Ireland, Mexico and Canada rather than staying at home.

Big, Big Picture

The duo estimated with the new scheme that ultimately $1 million worth of Nevada tickets ($16.8 million today) would be purchased per month, 90 percent of them by out-of-staters despite sales being limited to within The Silver State’s borders. After expenses, the net monthly profit would be $450,000 ($7.5 million today), which would be distributed as follows with the ultimate goal of eliminating property taxes:

• To reducing property taxes, $325,000 ($5.5 million today)
• To the state’s school fund, $50,000 ($838,000 today)
• To a pension plan for seniors, $50,000
• To building and maintaining a hospital for children with disabilities, $50,000
• To the University of Nevada, $25,000 ($419,000 today)

Winnings would be dispersed this way:

• First prize, $150,000 ($2.5 million today)
• Second prize, $75,000 ($1.3 million today)
• Third prize, $60,000 ($1 million today)
• Ten prizes, each $10,000 ($168,000 today)
• Ten prizes, each $5,000 ($83,000 today)
• Twenty-five prizes, each $1,000 ($17,000 today)

The proposal also included the establishment of a lottery commission comprised of three legislature-appointed, nonpartisan men who’d administer the game according to the law, answering to the state controller and treasurer only.

Opposing Views

Several individuals publicly criticized the idea and vowed to fight it. Here are their arguments:

• Slippery Slope: If petitions are circulated to legalize a state lottery by an amendment to the constitution, a similar move will be started against all forms of gambling, Rev. Brewster Adams of the Baptist Church said.

• Goes Too Far: “While this state is liberal, there is a limit to liberality and nothing destroys tolerance as much as abuse, which this proposal certainly is,” said Mrs. Clara Angell, president of the Reno chapter of the Women’s Christian Temperance Union (Nevada State Journal, Jan. 7, 1937).

• Negative Publicity: “It would be a sad reflection on the state of Nevada if we were not able to raise enough money to run the state,” said Robert M. Price, Reno attorney. “The government of Nevada is doing very well with the present taxes and it would be poor advertising to let other states think that we need to resort to gambling.”

• Morally Wrong: Gambling is the hardest vice to eliminate, said Reverend William Moll Case. “The proposal is foolish.”

Looking Good

The Assembly voted against the resolution to amend the constitution to permit operation of a state lottery. The Senate, however, did the opposite and then returned the bill to its counterpart for reconsideration. On its subsequent vote, the lower house passed it by a single aye.

This, however, was only the first step. To create a lottery, state lawmakers would have to pass the bill in the next legislative session (1939), and then Nevadans would have to vote to approve it.

Final Curtain

When 1939 rolled around, Cline no longer was in office, and Marsh had passed away the year before.

Again, the Nevada Senate passed the bill. The Assembly returned it to the Senate in error, but the latter again voted in favor of it. Then the Assembly refused to consider it, thereby killing it during the last week the lawmakers convened.

The local media outlets offered little explanation for the Assembly’s non-action other than reporting the lottery plan had been called “immoral and illegal” (Nevada State Journal, March 19, 1939).

The question of legality was a legitimate one, on both federal, state and public policy levels, according to then U.S. District Attorney William S. Boyle. Boyle believed tickets would have to be sold in other states for it to produce significant revenue for Nevada. Because U.S. government law forbade all interstate transportation of lottery materials and because most states at the time had their own anti-lottery laws, tickets couldn’t be sold outside of The Silver State without conflicting with those.

A second problem was within Nevada. Although the state had legalized gambling in 1931, public policy remained opposed to it, as evidenced by the courts’ refusal to hear any case involving gambling debts. Thus, no lawsuit involving a lottery payout would be allowed in The Silver State. The federal courts wouldn’t be an option either due to the above-mentioned regulations, Title 18, Sections 1301 and 1302 of the U.S. Code.

The idea of a Nevada lottery remained dead for 36 years, until lawmakers introduced two new bills in 1975 that revived the idea, which, again, didn’t pass. The state still doesn’t have a lottery today.

————————

* Parlous = perilous, dangerous

Sources

1947-1970

For some businesses, the Red Line was beneficial; for others, detrimental.

The Red Line designated a rectangular region of downtown Reno, Nevada in which casinos with unlimited gambling could exist. Clubs offering gambling outside the designated area were limited to 20 slot machines and three blackjack tables.

The city council officially created this district in 1947 via ordinance 791 as a way to control gambling. Once the industry had been legalized in 1931, new clubs had sprung up and existing illegal casinos had moved to operate in the light — all over downtown Reno. So many places had opened so quickly that business and property owners had feared land values would soar, making it no longer economically viable to run small non-gaming operations in the city core.

The name came from the red line that was used to indicate the boundaries on a map. Those were roughly Sierra Street on the west, Commercial Row on the north, Lake Street on the east and Second Street on the South. The governing body adjusted the zone slightly over the years due to pressure by various groups.

Tested In The Courts

The Red Line became one of Reno’s highly controversial and contested issues.

Over the decades, several individuals and groups protested the Red Line, some even demanding the city council repeal the ordinance. For example, Ernest J. Primm, owner of Club Primadonna, who wanted to expand his place beyond the Red Line, took the matter to the Nevada Supreme Court in the late 1940s. He argued the city council’s denial of his request was discriminatory and arbitrary. The higher court, however, also ruled against Primm.

In 1961, the city council expanded the zone but only for some. To encourage construction of fancy hotels, it exempted from the Red Line law those in downtown Reno with more than 100 rooms.

The issue again heated up in that decade. Critics argued the Red Line continued to hurt Reno in that a few major operations monopolized downtown, squeezing out potential smaller gambling businesses.

In mid-1969, the city council again denied a request to eradicate the Red Line. Soon after, owners of the Colony Casino, located just outside the Red Line, sued the city of Reno and its councilmen and manager, claiming the gambling boundary was unconstitutional and the city lacked the authority to pass such an ordinance.

But, like with Primm’s case, the judge ruled the ordinance was constitutional and a proper exercise of power.

Council Takes Action

In spring 1970, the city council passed an ordinance that eliminated the Red Line and, instead, replaced it with a 100-room mandate.

Under the new regulation, all businesses that wanted to offer unrestricted gambling could, anywhere in Reno, not just downtown, but had to have 100 or more lodging rooms on offer. Previously, that hadn’t been the case for properties within the designated zone.

Seventeen downtown casinos were grandfathered in under the new law; if they were to expand their casinos, they wouldn’t have to construct 100 rooms if the added space adjoined their existing gambling facility.

The new ordinance, which seemed more restrictive than the original, came under attack. But it stood.

Sources

Trailways bus parked at the Golden Nugget Casino in Sparks, Nevada, 1970

1969-present

When executives of Caesars Palace in Las Vegas, Nevada hosted 12 people from Kansas City in 1969 as part of a gambling junket, it unexpectedly backfired.

When their guests, after four days at the resort, boarded the plane to return home, Clark County sheriff’s deputies arrested all of them on charges of vagrancy because they were believed to be mobsters or associates.

The Nevada Gaming Control Board (NGCB) recommended that each of Caesars’ 59 shareholders be fined up to $50,000 and the casino, $10,000.

“Catering to persons of notorious or unsavory reputation or to persons who have extensive police records reflects or tends to reflect discredit upon the State of Nevada and the gaming industry and is a violation of the regulations in that it is an unsuitable method of operation,” the NGCB’s complaint noted  (Nevada State Journal, June 13, 1969).

Throughout the 1960s, these strategic trips brought hundreds of thousands of tourists to The Silver State to gamble. Under this type of arrangement, an employee or, most often, an independent operator, frequently out of state, found people with a good credit rating and a desire to gamble (some casinos required that visitors be able to lose $2,500) then transported them to a hotel-casino for a few days to play.

The gambling licensee assumed all costs of transportation, meals and accommodations in the hopes the guests would lose money — lots of it — in his casino. The junket organizer received about $50 per person per junket.

“The casinos spend millions for the trips from as far away as New York and try to recoup the money from patrons at the gambling tables,” reported the Reno Evening Gazette (February 17, 1967).

If a junket gambler exceeded his credit, the casino might give them a marker, or written IOU. Typically, the coordinator, or junketeer, was responsible for collecting that money for the casino once the guest got home.

Cheating, Extortion, Murder

The lack of rules governing these trips led to abuses by junketeers. Some were involved with organized crime. Some enlisted people who couldn’t meet the credit requirements, then loaned them money at exorbitant rates. Some skimmed off the debts they collected before turning the money over to the casino. Via phone, some threatened junket participants who owed money.

In early 1970, the Nevada Gaming Commission (NGC) proposed regulations that addressed these problems. Soon after, Harry Otake, 46, who’d facilitated many gambling junkets from Hawaii to Las Vegas and Lake Tahoe hotel-casinos, was found lifeless in the trunk of a car, having been strangled.

Police theorized that gangsters had murdered him, gamblers who’d lost significant amounts or from whom he’d attempted to collect on debts. Robbery was another possible motive, as Otake allegedly had $95,000 in his possession before his death.

Shaken by this homicide, NGC members got all casinos in the state to stop voluntarily all junkets run by non-employee agents until governing rules could be established.

Nevada Takes Control

That same year, after months of discussions and six drafts, the NGC adopted a rule calling for punishment, even potential gaming license revocation, of any casino doing business with unsavory junketeers.

In 1972, the NGC added further stipulations, which comprised Regulation 25. Among them, all junketeers, now called independent agents, had to register with the NGCB, and licensees could work only with those whom the board had approved.

All junketeers, now called independent agents, must register with the NGCB and provide certain documentation, including a copy of the agreement between the agent and the gaming licensee, financial info if the agent is to give money to the licensee and a designation of secondary representatives. Licensees had to report quarterly what agents they’d worked with during the previous three months.

Some minor additions in 1992 aimed to ensure agents and licensees were made aware of the rule’s requirements. Regulation 25 remains in effect today.

As for Caesars Palace, for some reason, the state dropped the matter, leaving the resort’s shareholders free from reprisal.

Sources

1935

Although it was a Ponzi scheme, its lure of big money was too strong for many Renoites to resist. One chain letter business, the Opportunity Club, popped up overnight as part of the nationwide craze in 1935. In five days, it garnered more than 5,000 participants (about one-quarter of Reno, Nevada’s population then).

“The business has been well organized and every section of the town has been invaded with ‘investors’ seeking to attract their friends into a ‘sure thing,’” reported the Nevada State Journal (May 15, 1935).

How did it work? A customer bought two copies of a letter from a broker for $5 (an $86 value today). He then sold them to two people who signed for and received two more letters from the broker. Each of those two sold their letters to two other individuals and so on. Each letter contained six names. The payout for the top name getting 64 people to buy each of his two letters was $256 ($4,400 today). That amount was $320 minus the per-letter 20 percent broker fee of $32. One name moving to the top of a letter would put $12,288 in the company’s coffers.

While it sounded enticing for the public, it wasn’t. The deal depended on an individual getting 128 (64 per letter) people to pay the $5 apiece at the broker’s office. That would move him up one spot on each letter. The payout also required 128 people for each of the other five names on the letter, or 640 individuals, also paid $5 apiece in person Further, an individual couldn’t get the reward until he advanced to the top of two letters.

The Weak Link

When District Attorney Ernest Brown learned of the racket, he demanded the Opportunity Club cease operations immediately and threatened its manager, Ralph C. Perrin, and other principals with prosecution if they didn’t comply. Brown declared such a business fraudulent because it involved an element of chance and, therefore, violated Nevada’s anti-lottery law, in which it defined:

“A lottery is any scheme for the disposal or distribution of property, by chance, among persons who have paid or promised to pay any valuable consideration for the chance of obtaining such property, or a portion of it, or for any share or any interest in such property upon any agreement, understanding, or expectation that it is to be distributed or disposed of by lot or chance, whether called a lottery, raffle or gift enterprise, or by whatever name may be known.”

The following morning, Perrin applied for a gambling license. That night, the sheriff noted a sign on the club’s door, “Operating with Permission of the Sheriff” — a false statement. On the D.A.’s orders, the sheriff closed the club and arrested Perrin and three others. All were arraigned and released on their own recognizance pending an upcoming jury trial.

A second chain letter brokerage — the Golden Chain Letter Club — was about to open but given the heat on Opportunity never did.

Perrin asserted the chain letter business:

• Wasn’t a lottery as chance didn’t play a role
• Didn’t have the chance of any investor losing (ha!)
• Didn’t involve a drawing

If the business were a lottery, they argued, then so were other types of currently licensed games, such as roulette, keno, 21, horse racing, etc.

They gathered petition signatures of people who believed similarly. Perrin claimed to have received 1,500 signatures from less than one day’s effort. In the meantime, many who’d bought letters asked the D.A.’s office what would happen. Would officials ensure the investors got what the broker promised them? Would they lose their money? At that point, it totaled about $25,000, which Perrin said was being held for investors in a trust.

Taken To A Jury

Five days after Brown ordered the club closed and with chain letter activities finally halted, the Opportunity Club trial began. Two days in, Justice of the Peace James Sullivan declared Brown’s complaint against the defendants defective, thus ending the case. Brown said he’d issue a new complaint against the men only if they restarted the business. Opportunity’s lawyer said the men intended to operate if the city granted them a gambling license — a long shot.

Three days later, the city council, also believing the chain letter gig was a lottery, denied Perrin a gambling license. He then tried to obtain one from the neighboring city and his hometown, Sparks. It, too, for the same reason, refused to grant it. That was the final break in Northern Nevada’s chain of chain letter enterprises. It’s unknown what happened to the money investors already had paid to Opportunity.

Photo from pond5.com: “JOIN Chain Links” by 5@iqoncep

Sources