On January 23 and 24, 1991, the State Commis-sion of Investigation held public hearings into prob-lems relating to the illegal use of video gamblingmachines. It was a hearing that had been suggestedby officials in the Division of Criminal Justice in theAttorney General’s Department of Law and PublicSafety.

The problems with these machines were bestsummarized in a few lines of testimony from Assis-tant Attorney General Robert J. Carroll, the firstwitness at the hearing.

Today ...we find the descendents of the one-armed bandit proliferating not only in this state butin the entire nation. These electronic machines, liketheir mechanical predecessors, are capable of gen-erating millions of dollars of illegal profits fororganized criminal groups and enterprises.

. . . .

[Organized crime families] have rediscoveredthe lucrative slot machine market....Unlike the ear-lier mechanical devices, however, the new ... elec-tronic slot machines are equipped with sophisti-cated computer software. This software allows theoperators, manufacturers and distributors of themachines to inhibit law enforcement detection bymasking their true nature as illegal gambling de-vices.

Carroll’s testimony was based on his experiencesupervising several investigations from the mid-1980’s to the present.

In his opening statement at the public hearing,Chairman James R. Zazzali said :

The citizens and the lawmakers of New Jerseyare familiar with gambling. Our state has moreforms of legalized gambling than any other statein the nation. Over the years, a great deal ofattention has been focused on the subject.

Now there is something new on the horizon,gambling of a different kind. Along with faxmachines, automatic teller machines, VCR’sand personal computers, technology has broughtus a new and more convenient way to gamble —video machines. Devices formerly thought tohouse only innocent PAC-Men and Super MarioBrothers now can be made to serve a much moresinister purpose.

As difficult as it may be to believe, our testimonywill show that fortunes can be won and lost inincrements of 25 cents. The evidence will dem-onstrate that these machines also harm the youngpeople in our state — at a time in their lives whenthey ought to be spending more time in librariesthan in video arcades.

The Commission believes that there are severaldifficult and vexing public policy issues that stateofficials must soon confront. Those issues include:

• Whether to legalize the machines as part of thestate lottery in order to claim as revenue some of themoney they already generate, both because of theneed to find new sources of state revenue and in thebelief that such legalization will hurt organized crime.

• Whether to legalize the machines, allow themto remain in the private sector and regulate thembecause of the difficulties inherent in policing thedevices.

INTRODUCTION

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• Whether, by such legalization, New Jerseywould become too dependent on gambling as arevenue producer and, at the same time, cause thestate’s public image to deteriorate as it becomes thevirtual gambling capital of the nation.

• Whether more legalized gambling will createmore gamblers while also skewing our system ofvalues for ourselves and our children.

* * *

Public controversy over gambling has been withus a long time. In fact, some authorities have sodespaired of effectively enforcing laws controllinggambling that they can contemplate only legalizationas a solution. However, one probable consequenceof further legalization is an increase in the number ofpeople who gamble. The law enforcement problemswill likely remain and perhaps increase if greaternumbers of gamblers result in more offenses fromgambling-related problems.

Popular attitudes about gambling have changed.Gambling used to be considered wasteful and irre-sponsible as money wagered was often diverted fromproductive uses and support of families. Now,however, gambling is a welcome generator of publicrevenue in some quarters as policymakers view it asa cash cow for the state.

There have been many comprehensive studiesconducted in New Jersey on gambling. The Gam-bling Study Commission, formed to study “the desir-ability and feasibility of extending legalized gamblingin the State,” in its report dated February 5, 1973,gave these reasons for the interest in legalized gam-bling:

• In an era of fiscal stringency, legalized gamblingholds forth a promise of providing substantial rev-enues through as nearly “painless” a method as can beconceived;

• In an era increasingly vexed by problems of

crime and corruption, legalization of gambling issuggested as a means, 1) to undercut organizedcrime by depriving it of revenues it now derives fromillegal gambling, 2) to free law-enforcement re-sources for use against both “organized crime” andthe violent “street crime” which alarm the citizenryand undermine social order, and 3) to eliminateopportunities and temptations for the corruption ofpublic officials whose protection or connivance isnecessary to the survival of most illegal gamblingoperations;

• In an era when assertion of personal libertiesagainst state control is being more vociferouslyexpressed, the legalization of gambling would re-move restrictions on personal action which manypeople resent as puritanical, hypocritical, repressiveand archaic.

* * *

After six public hearings, the Gambling StudyCommission made nine findings:

1. Gambling, legal or illegal, has been wide-spread at all times in living memory and historicalrecord, and will probably continue regardless of legalstatus;

2. Public sentiment in this state is generallyfavorable to extension of legalized gambling;

3. Scandal and abuses of gambling have consis-tently resulted not from legalization but from inade-quate controls over gambling;

4. The success of legalization, in those areaswhere it has been applied, has been related both to thestrictness of regulation and to the flexibility of theregulatory mechanism;

5. Possible revenue from legalized gambling issubstantial but has often been exaggerated, and is notthe most significant justification for legalization;

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6. Among officials involved in law enforcement,there is a general agreement that a disproportionateamount of time, manpower and other resources isdevoted to enforcement of anti-gambling laws, bothin relation to the actual benefits achieved and inrelation to the amount of such resources divertedfrom more urgent needs of public order and safety;

7. As noted, there is general agreement thatorganized crime derives considerable revenue fromillegal gambling activities, and law enforcement offi-cials agree that revenue from this source is used tofinance many other criminal endeavors, including thetakeover of legitimate businesses and the corruptionof public officials;

8. In some forms, the establishment of a legalgambling industry can be expected to have locallybeneficial economic impact, but the economic bene-fits to the State generally are more problematic;

9. Compulsive gambling is an affliction compa-rable to alcoholism, affects a significant proportionof the population and poses a problem for publicpolicy which will continue to exist regardless ofwhether gambling is legalized.

The Gambling Study Commission stated that“Gambling is a pervasive and perhaps innate form ofhuman activity....In our culture, at any rate, it seemsto be too popular to be repressed [but too] dangerousto be let run uncontrolled.”

The Study Commission ultimately concluded:

Historically, the social ills connected with gam-bling appear to have been kept within tolerablelimits only by strict regulation. Total suppressionhas been unsuccessful; indeed, such laws haveproven counterproductive in that they have led toextra-legal but accepted forms of toleration,have habituated both citizens and public officialsto such extra-legal arrangements, and have pre-pared the way for extensive corruption.

. . . .

Regulation within a framework of law is neces-sary. A prerequisite to such regulation is legali-zation of the activity to be regulated. State policyshould recognize not only the futility of totalsuppression, but also the ... social ills and cor-rupting influence which arise from attempting tomaintain a set of suppressive laws which gener-ate hypocrisy in their enforcers and resentmentamong the general citizenry.

A report issued 15 years later, the Report andRecommendations of the Governor’s Advisory Com-mission on Gambling (June 30, 1988), said of thedangers inherent in gambling:

States that have legalized, and likewise promote,gambling have a serious obligation to directsome of the funds realized from gambling intopublic education/prevention, training, treatmentand research programs. The wisdom of provid-ing funds for the “victims of public policy” isobvious. There is evidence which indicates thatthe availability of legalized gambling increasesthe risk of becoming a compulsive gambler. TheCommission on the Review of the National PolicyToward Gambling (1973 through 1976) recog-nized a direct relationship between the rate ofaddiction and increased availability. It seemsapparent, then, that by sanctioning legalized gam-bling as a revenue-raising device, the State hascontributed significantly to what is now knownto be a major societal problem. While the Stateand those who pursue profits through its variousforms of legalized gambling are not solely re-sponsible for the disease, it must accept a certainmeasure of responsibility for its cure.

Although conducted only a few years ago, thisstudy did not anticipate the problems emerging fromillegal use of video gaming devices. In the commen-tary to its conclusions, the Governor’s Commissionstated:

This Commission has heard from law enforce-ment experts in New Jersey who contend thatlegalized gaming has not only failed to curb

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illegal gambling but in fact has been conducive toits growth. While it may be surprising that theavailability of so many forms of legal gaming inNew Jersey has not cut into the appeal of theillegal gambling business, this Commissionstrongly suspects that whatever recent successeshave been realized, illegal gambling, especiallythe numbers rackets and sports betting, remainsa major problem. The reasons appear to beseveral. First, illegal gambling is a mainstay oforganized crime groups. Numbers and sportsbook traffic, considered by many as basically aninnocuous activity, is so deeply rooted in certainareas that it has become culturally acceptable aspart of the local economy in some neighbor-hoods. And finally, from a competitive perspec-tive, illegal gambling offers better odds, easiercredit and confidentiality.

As with street crime, the impact of legal gamingin all of its forms on illegal gambling may be anappropriate subject for further in-depth study aspart of the State’s continuing review of gamingpolicy issues.

Another view was expressed in an April 22,1991, column by William Safire of The New YorkTimes:

...[I]t is wrong for the state to exploit the weak-ness of its citizens. It is the more unfair andpainful form of “painless” taxation.... And gam-bling taxation feeds on itself. We cannot give upthe state income from betting, say legislatorswho feel guilty about pretending that gambling isgood, because the states have become dependenton the money, or because other states will usecasinos to lure their tourism. They have becomehooked on gambling as a source of revenue asany compulsive gambler betting the milk money.

* * *

Because no one really knows how many illegal

video gambling machines there are in New Jersey, noone can say with any accuracy how much potentialtax revenue the state would lose by not legalizing,licensing and regulating the machines. Estimates ofpotential revenue are therefore nothing but specula-tion or wishful thinking. Nor can anyone say for surehow much money organized crime makes on themachines, although testimony before the SCI indi-cates it is virtually a torrent of cash. Only themobsters know for sure, but they’re not talking.

No one should delude himself into thinking thatlegalizing such games will have any but the slightestimpact on organized crime. Such action, however,probably will create more gamblers. Certainly it willmake gambling easier and more convenient for morepeople than driving to Atlantic City. In fact, it mayeven hurt the casinos financially, much as casinoshave hurt the racetracks.

In the view of the Commission, therefore, videoamusement devices present an extremely difficultlaw enforcement problem. But the possible solutionsto the proliferation of machines which have beendesigned for, or are easily converted to, illegal gam-bling devices, range from the impractical to theDraconian. And even at that, none seems capable ofeven coming close to ridding the state completely ofan underground industry which will inevitably grow,devastate more lives and put more money into thepockets of organized crime.

Because of the difficulty of the issues, this docu-ment is unlike many prior SCI reports in that it makesno firm recommendations. In fact, the Commission-ers themselves were of differing views about an idealsolution. Since the issues cut across so many differ-ent interests, the Commission believes that the Leg-islature and the Governor are the appropriate entitiesto resolve the complex policy considerations. TheCommission therefore cannot overstate the need forthem to undertake an immediate, comprehensiveeffort to attack this problem after carefully weighingthe complex economic, moral, social and publicsafety issues. But the Commission cautions that thearguments of both the fiscal Pollyannas and the

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doomsday moralists should be treated with equalskepticism and a final resolution based on the totalimpact on our state. For its part, the Commissionwill, in the pages that follow, attempt to aid thateffort by describing the gravity and complexity of theproblem. And it will, in its conclusion to this report,identify various responses which have been pro-posed, and offer observations as to the efficacy ofeach.

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New Jerseyans are ambivalent about gambling.On the one hand, our 1947 State Constitution pro-hibits gambling without specific authorization of thevoters in a referendum. On the other hand, theConstitution has been amended seven times to permitbingo, raffles, a state lottery and casino gaming.(Pari-mutuel horse racing had been authorized priorto the 1947 Constitution.) A referendum that wouldhave allowed casinos to be built anywhere in the statewas defeated in 1974. But a second referendum,narrowed to permit casinos only in Atlantic City, wasapproved two years later. It appears, therefore, thatwhile New Jerseyans want to gamble, they also wantsome limits on when and where they can do it.

Yet the evidence is also clear that a substantialnumber of our citizens believe that gambling is aharmless diversion that should neither be circum-scribed nor condemned. And many believe thatorganized crime is merely providing a service tothose who wish to gamble illegally, despite theavailability of numerous legal games of chance. Bydoing so, they provide the revenue that helps to feedthis cancer on the body politic.

The Legislature, time after time, has declaredorganized crime to be a menace “to the political,social and economic institutions of this State.”N.J.S.A. 2C:41-2b — the racketeering statute. Andthe laws against illegal gambling are, for the mostpart, straightforward.

New Jersey’s criminal code defines a gamblingdevice as

any device, machine, paraphernalia or equip-ment which is used or usable in the playing

phases of any gambling activity, whethersuch activity consists of gambling betweenpersons or gambling by a person involvingthe playing of a machine.... N.J.S.A. 2C:37-1e.

A slot machine is defined as

any mechanical, electrical or other device,contrivance or machine which, upon inser-tion of a coin, token or similar object therein,or upon payment of any consideration what-soever, is available to play or operate, theplay or operation of which, whether by rea-son of the skill of the operator or applicationof the element of chance, or both, may deliveror entitle the person playing or operating themachine to receive cash or tokens to beexchanged for cash, whether the payoff ismade automatically from the machine or inany other manner whatsoever. A device soconstructed, or readily adaptable or con-vertible to such use, is no less a slot machinebecause it is not in working order or becausesome mechanical act of manipulation or re-pair is required to accomplish its adaptation,conversion or workability. N.J.S.A. 2C-37-1f.

A person who,

with knowledge of the character thereof,manufactures, sells, transports, places or pos-sesses, or conducts or negotiates any trans-action affecting or designed to affect owner-ship, custody or use of a slot machine or anyother gambling device, believing that thesame is to be used in the advancement ofunlawful gambling activity

I

THE LAW

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is guilty of a disorderly persons offense. N.J.S.A.2C:27-7. Such devices are legal only in the casinosin Atlantic City under strict regulation by the Divi-sion of Gaming Enforcement and the Casino ControlCommission. Violations of this section are punish-able by a maximum of six months in jail and fines upto $1,000. N.J.S.A. 2C:37-7.

In addition to these offenses, illegal use of videogambling machines can be prosecuted as promotinggambling, N.J.S.A. 2C:37-2, punishable by up to sixmonths in jail and a fine up to $10,000, or maintaininga gambling resort, N.J.S.A. 2C:37-4, punishable byup to 18 months in jail and a fine up to $15,000.

To the extent that prosecutors can prove organ-ized crime involvement in schemes involving theillegal distribution or use of such machines, violatorsare subject to the provisions of the racketeeringstatute, which allows the imposition of severe eco-nomic penalties as well as substantial prison terms.

The law pertaining to forfeiture, N.J.S.A. 2C:64et sec, provides greater potential economic punish-ment than do the gambling statutes. For instance, theforfeiture law designates any “illegally possessedgambling device” as “prima facie contraband,” sub-ject to seizure and in which no property right exists.

In addition to the seizure of gambling devices,the State may also seek possession and title to:

• All property which has been, or is intended tobe, utilized in furtherance of an unlawful activity,including, but not limited to, conveyances in-tended to facilitate the perpetration of illegalacts, or buildings or premises maintained for thepurpose of committing offenses against the State.N.J.S.A. 2C:64-1.a(2).

• Property which has become or is intended tobecome an integral part of illegal activity, includ-ing, but not limited to, money which is earmarkedfor use as financing for an illegal gambling enter-prise. N.J.S.A. 2C:64-1.a(3).

• Proceeds of illegal activities, including, butnot limited to, property or money obtained as aresult of the sale of prima facie contraband aswell as proceeds of illegal gambling, prostitution,bribery and extortion. N.J.S.A. 2C:64-1.a(4).

When the State seeks to take title to propertyother than prima facie contraband, it must, in a civilaction in Superior Court, show that the property wasused in criminal activity or was purchased with theproceeds of such activity. In other words, the Statemust prove the underlying crime alleged. But in acivil action, the State’s burden of proof is less de-manding than in a criminal proceeding, where adefendant’s liberty may be at stake. For instance, ina civil trial, the State must prove its case only by a“preponderance of the evidence” rather than thehigher standard of “beyond a reasonable doubt,”which is required in a criminal prosecution.

Thus, the forfeiture statute provides prosecutorsa more potent weapon against those involved in theillegal use of video gaming machines than the gam-bling statutes. Although there will be details later inthe report about this issue, suffice it to say here thatthese machines have been placed in locations such asbars, candy stores and even funeral parlors. Underthe forfeiture statute, therefore, the machines them-selves are subject to seizure as prima facie contra-band and the business establishments from whichthey were seized are also subject to forfeiture in acivil action.

Using this statute, the Attorney General’s officeon November 19, 1990, filed a major civil forfeitureaction seeking to take title to Grayhound Electron-ics, Inc. of Toms River, a manufacturer of amuse-ment games. The complaint alleges that the firm was“created by and is controlled by associates of” the LaCosa Nostra family of Nicodemo Scarfo and theirdesignees.

According to the complaint, Grayhound manu-factured or assembled video slot and poker devicesand distributed them to firms in New Jersey as wellas in Philadelphia, California, Florida, Michigan andNew York. These distributors, in turn, placed the

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machines in establishments where they were usedillegally as gambling devices. Law enforcementagents in those states have taken action against suchestablishments and have seized the machines.

The complaint alleges that revenue from thedevices was shared equally between owners of estab-lishments and the distributor of the machines who, inturn, gave half his share to the Scarfo family. Ac-cording to the complaint, Alan Cifelli, a representa-tive of the distributor, B & C, visited each establish-ment weekly to take the money out of the

machines. He gave half to the owners and took therest to Grayhound offices.

Every two weeks, George Fresolone, once anassociate but later a member of the Scarfo family,visited Grayhound and picked up half the money

Cifelli had turned in earlier. This money, or 25 percent of the total proceeds of each machine, wasturned over to Nicodemo Scarfo, Jr., whose father,the family boss, is now in federal prison on extortion,racketeering and murder charges.

8

While the wording of the statutes may be clear,practical applications in law enforcement have runhead-on against rapidly advancing technology. Tounderstand the problem, however, one must under-stand the types of machines and their potential uses.The machines are categorized here based on the typeof regulation.

The clearest category is that of slot machines thatare legal in Atlantic City and are, of course, tightlyregulated. A second category is that of the amuse-ment-only machines operated at boardwalk arcadesand some amusement parks. These are licensed andregulated by the Director of the Division of AlcoholicBeverage Control (ABC) who, by statute, also servesas the Amusement Games of Chance Control Com-missioner. These machines include the cranes thatpick up toys, skill ball and others, as well as variousvideo games such as Pac- Man and draw poker. Thethird category includes all the other machines — theones in shopping center arcades, bars and illegalgambling parlors.

Testimony at the SCI hearing revealed that gamessuch as Joker Poker, Draw Poker, Top Draw, GrandPrix, keno and eight liners, all of which are conduciveto gambling, are being used as gambling devices.Some machines may be changed from, say, PAC-Man into one of these other games by a switch or aremote control device. Police cannot seize suchmachines as illegal gambling devices unless they seethem being used illegally — that is, being used togenerate cash payoffs.

One method by which the machines are usedillegally is detailed in the forfeiture complaint filed bythe Attorney General’s office. For instance, themachines contain electronic boards programmed

with “dual capabilities” permitting them to be usedeither as amusement games or gambling devices.Many can be switched remotely from one mode tothe other “to avoid detection and prosecution of theillegal gambling.” In the gambling mode, players buycredits which are displayed on the device and whichare won or lost as play progresses. Unplayed creditsare paid off in cash by the person running the estab-lishment; these unplayed credits can be “knockedoff” by the establishment to return the machines tozero after the payouts. But the machines have aninternal accounting program to keep track of plays,as well as credits earned and paid, so that revenue canbe calculated. The devices can also be adjustedinternally to regulate the percentage of winninghands. They also have bill acceptor devices so thatplayers may buy credits directly from the machineswith bills as large as $100. The forfeiture complaintis pending in Superior Court.

In legal, regulated amusement games, a playercan “bet” credits on the outcome of a poker hand, forexample, and receive additional credits if he wins.Credits can either be used to play more games orexchanged for tokens or merchandise. The cashvalue of the merchandise is limited by state regulationat no more than $500. The tokens cannot lawfully beexchanged for cash. This is the most obvious legaldifference from a slot machine. The law thus allowspeople to amuse themselves in video arcades withwinnings which differ more in degree than in kindfrom those offered by slot machines. A n ymachine used outside the confines of the regulatedamusement parks or boardwalks would be illegal ifused to pay out any money or prizes.

While video games vary, the cabinets holdingthem are essentially identical. The key componentsare simply a box holding a flashy TV-like screen with

II

THE MACHINES

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internal electronics that cause the machine to operateas well as provide bells, whistles, lights and othereffects. There is at present no statewide regulationof all amusement-only machines. The SCI is un-aware of any reliable estimate of the number of videomachines in operation, where they are located or howmuch money is made from them.

Atlantic City casinos, on the other hand, haveapproximately 23,000 slot machines in operation atany given time. Slot machines provide the majorityof casino industry revenue. Licensed manufacturersof slot machines sell their products to the casinos.The Division of Gaming Enforcement (DGE) main-tains a comprehensively staffed and equipped labora-tory within blocks of Atlantic City’s casinos to“fingerprint,” test and track all slot machines in thecasinos.

Video gaming devices are relatively simple bycurrent measures of technological complexity. At itspublic hearing, the Commission heard testimonyfrom State Police Captain Stefano Gelardi, whoheads the DGE laboratory. A slot machine expert,Captain Gelardi demonstrated the operation both ofa slot machine and of his lab’s testing equipment.

Gelardi testified that the only visible differencebetween a slot machine and a modern video gamingdevice used illegally is that the slot machine has a trayinto which winnings drop; the illegal video gamingdevice does not. Because there is no tray into whichthe winnings may drop, the video game used illegallyneeds to be manned by someone who will make thepayoffs to the players. If there is no payoff, there isno crime.

Captain Gelardi told the Commission that theheart of each slot/video machine is an “erasableprogrammable read-only memory” chip — anEPROM, which controls all the essential functions ofthe machine. The EPROM determines the win ratio,which by law must be 83 per cent in the casinos. Onthe other hand, testimony from witnesses before theCommission showed that win ratios for illegal videogambling machines hovered in the area of 50 per

cent. It also determines whether a machine hasfeatures which allow it to be used for gambling.EPROMs provide one key to controlling illegal use.The DGE lab verifies the program of every EPROMused in casino slot machines. Each EPROM hasunique identifiers which are cataloged as the device's“fingerprint”. Once installed in the machine, theEPROM is sealed and its exact geographic locationis tracked. If the seal is tampered with, the machineno longer has integrity.

Many machines are turned over by the casinosevery year as old machines are replaced with newones. Once a machine is mustered out of a casino, theDGE lab no longer has an interest in it and ceasestracking it. The machines are frequently recycled asamusement-only machines with new, differentEPROMs. However, if an EPROM that is pro-grammed for gambling is installed in a refurbisheddevice from a casino, that device can operate illegallyas a slot machine.

It is important to realize that the machines usedlegally in arcades can be and are used to gamble. Thefeatures which are essential for an operator to use thedevice in an arcade are the same features which allowthe device to be used for illegal gambling. Themachine is not “bad” and not per se illegal. It is themanner of its use which brings it under the criminallaw.

It is also important to remember that these de-vices will look the same whether used legally orillegally. The outside of the box will not give awayits use. If an inquisitive police officer opened up thebox, all he would see would be circuitry commonboth to legal and illegal machines.

Captain Gelardi emphasized that prevention ofslot machine crimes (and by inference those involv-ing their electronic counterpart video gaming de-vices) is so difficult that it is not even attempted.Instead, the DGE lab has developed means of detect-ing a crime after it has been committed. Violators arepunished, usually with administrative sanctions, which

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are often more devastating for a casino licensee thancriminal penalties. Bear in mind, however, that theenvironment in which the DGE lab presently func-tions is limited — a small number of highly regulatedcasinos with large investments at stake, all located

within a small geographic area and all using machinesmanufactured by a few companies.

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The first witness before the Commission wasAssistant Attorney General Robert Carroll. Carrollhas been in law enforcement for almost 17 yearsduring which he has worked for the Essex CountyProsecutor and the Attorney General. When he leftEssex County, he became Chief of Special Prosecu-tions in the Division of Criminal Justice, investigat-ing racketeering and organized crime. He is nowChief of the Organized Crime and RacketeeringBureau.

Carroll related to the Commission his early in-volvement in Project Ocean, a 1985 investigationbegun by the Essex County Prosecutor’s Office andsubsequently joined by the New Jersey State Police.He began with an historical outline. He was ques-tioned by SCI Executive Director James J. Morley.

In the early 1980s, law enforcement detected aresurgence of the use of sophisticated equipmentas slot machines and gambling devices. Thisactivity bore a striking resemblance to the rack-eteering activities of the 1920s and ’30s, whichcentered on the one-armed bandit mechanicalslot machine.

. . . .

It is interesting to note that the modern daycriminal enterprises which operate video gam-bling devices also trace their ancestral origin tothe outlaw groups which terrorized the UnitedStates earlier in this century. Members of theGenovese/Gambino/Lucchese and Bruno [nowScarfo] crime families not only still exist, buthave rediscovered the lucrative slot machinemarket. These enterprises, like their roaring

twenties counterparts, also participate in re-lated conspiratorial criminal activities such asextortion, theft, physical assaults, bribery, offi-cial misconduct, criminal usury or loan-shark-ing and even murder to protect their illicit op-erations.

Why A Priority?

Carroll told the Commission how illegal videogambling first came to his attention.

In the early 1980s...we started to receive infor-mation from citizens within [Essex] county, par-ticularly parents of juveniles who started tocomplain that there were these video slot ma-chines which, at that time, were genericallyknown as Joker Poker machines.

. . . .

Those parents would contact our office and askabout ... the legality of the machines, and sec-ondly, what could be done about having agelimitations put on so that their children could notbe sucked into becoming habitual and compul-sive gamblers at an early age.

Carroll described the early responses of theProsecutor’s office to these complaints.

From a priority point of view, it’s not somethingthat looks terribly attractive. However, when westarted receiving multiple complaints, and at thesame time, we had agents out there working,doing surveillances of traditional organizedcrime gambling operations and we started to seeoverlays and patterns, we would observe that thepersons who were involved in picking up tradi-

III

THE MOB

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tional lottery and bookmaking activity wouldalso be making stops at these video poker ma-chines and making pickups, and these are per-sons who had long records of organized crimeassociation.

So combining the two factors, the organizedcrime participation that we suspected at thebeginning, coupled with the citizen complaints,we decided that we should take a good, long,hard look at the problem to determine what wasthis new form of gambling that seemed to beproliferating.

Carroll said the office recognized early that on atransactional basis alone, video gaming offenses didnot merit a substantial commitment of law enforce-ment resources. However, because video gamingdevices were apparently employed by organizedcrime to victimize minors, the benefits of prosecutionoutweighed the cost. As he discovered, however, themachines were more numerous than at first thought,and the investment in police resources increased.Undercover State Police detectives and Essex Countyinvestigators began to play the machines in candystores, liquor stores, social clubs and wherever elsethey could be found.

We went so far as to establish a sting operationfront business known as Jedi Vending, and byuse of that we were able to make incursions intothe organized crime control and networking thatwe suspected existed.

We used extensively electronic surveillance, andI might add, without electronic surveillance,Project Ocean could not have succeeded.

Because there is no judicial interpretation of thelaw which allows law enforcement personnel toidentify video gaming devices as slot machines,the devices could not be deemed per se illegal.As a consequence, Project Ocean forces werecompelled to prove that the devices were used togamble with.

The tack that we followed through Project Oceanand in later investigations when we would havean undercover agent go in, frequent a place fora day or two and then play a machine, hopefullybe fortunate enough to accumulate some creditsand be paid off by the bartender or shopkeeper,and the credits would be knocked off. It was atthat point that we felt we had satisfied theelements of a gambling offense. Beyond that, itwas the more traditional types of investigativetechniques that had to be used. We had to dovisual surveillances, we had to follow the per-sons who made the pickups on the money, utilizeelectronic surveillance, we had to take the li-cense plates and do the legwork and everythingelse. It was very, very resource consuming, ifthat’s a proper characterization. But because ofthe presence of a lot of these documented crimi-nal figures, we felt that it was necessary to do so.

. . . .

You can imagine, you know, how much it wouldcost if we had to send undercovers into everystore that has a machine in this state and try tomake a case. Necessarily, we’ve confined our-selves to the larger enterprises, but it’s ex-tremely difficult to make these cases.

Project Ocean thus revealed for the first time thatpersons affiliated with organized crime were deeplyinvolved in the video gaming business. Carrolltestified:

What has to be emphasized here is that this is notsimply an isolated problem; that is, someoneplaying a slot machine on their own and some-one happening to profit over it. What I’m talkingabout ... here has been the unification of theorganized criminal networks and the enterprisesinto this area which bring with it the violence, theconversion of the gambling-developed moneyinto the narcotics purchasing power.... This isone of the sources of their life blood.

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Territoriality was ... enforced. Tributes had tobe paid if you went into another person’s areaand that person had no connection with you atall. There would have to be sit-downs andmeetings among representatives of the organ-ized crime networks so that they could work outhow the profit would be divided....

MR. MORLEY:

Do you conclude from the fact that the territoriesare so closely and jealously guarded by thesegroups ... that these machines present a signifi-cant income potential to organized crime?

MR. CARROLL:

Without question....this new form [of gambling]is very lucrative. It provides them with even lessexposure, and that’s something organized crimi-nal networks are always concerned with — expo-sure, both public exposure and criminal expo-sure. When you can do something in an elec-tronic medium -- derive great profits from it --and never have to go down and touch the ma-chine, you’ve achieved a pretty good degree ofinsulation. And that’s the type of thing that wehave to penetrate in order to make the casesagainst these people who are involved in thistype of activity.

* * *

The profits were so great, in fact, that organizedcrime families vied with one another for control ofvideo game manufacturing companies. At least onemurder was committed because an organized crimefigure refused to share the tribute from one of thesecompanies with his mob superiors.

Despite traditional efforts by the organized crimebosses to insulate themselves from daily street activi-ties, there were witnesses who could break down theinsulation. The Commission heard from three whohad first-hand experience with the involvement of

organized crime in the operation of video gamingdevices.

• Joseph Fay operated a vending machinedistribution company in Essex and Passaic Counties.Fay was not a member or an associate of an organizedcrime family but was more of a victim, even thoughhe profited from the association. He broke the lawand cooperated with organized crime members in thedistribution of video gaming devices. Through a highschool acquaintance, Fay came under the dominationof a particularly ruthless man named Robert Bisaccia,known on the street as "Cabert." Cabert was identi-fied in the SCI’s 1989 Annual Report as a powerfulmember of the Gambino/Gotti LCN family and itsmost significant figure in New Jersey. For securityreasons, Fay’s testimony had been video-taped be-forehand and played in the hearing room. He wasquestioned by Counsel James F. Villere, Jr.

• John Januska was well integrated into theBruno/Scarfo family. He testified that he would havebeen "made" a sworn member of the organizationhad he been of Italian rather than Polish extraction.(Being “made” describes a ritualistic rite of passagefrom mere “association” with to membership in anorganized crime family.) Januska distributed andreceived profits from video gaming devices and heengaged in some of the activities identified by Carroll.Januska testified from a remote location, with hisvoice and video image disguised for security reasons.The questioning was conducted by SCI DeputyDirector Robert J. Clark.

• George Fresolone was a “made” member of theBruno/Scarfo crime family who acted in a managerialrole within the organization and oversaw the opera-tions of a corrupt manufacturer/distributor of videogaming devices. He testified about the revenuewhich could be had from those devices. Like Januska,Fresolone testified from a remote location, respond-ing to questions from Counsel Villere.

14

How Organized Crime Moves In

Fay testified he had been in the vending machinebusiness for about a year when he was invited to asocial club in Essex County to meet “Cabert” (Bisac-cia). Fay related that Bisaccia told him he had beensummoned because, while canvassing for new loca-tions for his vending machines, he had approachedbusinesses where Bisaccia already had the account.Asked if he was told the consequences of suchcompetitive activities, Fay responded that Bisacciatold him his (Fay’s) legs would be broken.

Q. While you were meeting with Cabert were youdeveloping any feelings about who in generalterms he might be or about his background or hislifestyle?A. At that point, I really couldn’t figure him out,you know. I really didn’t know what was goingon then, but I just figured he owned the vendingcompany.

Q. Did you ever have any conversations withanybody, for example, Scocca [Fay’s high schoolfriend, Dominick Scocca] or anybody else, toconfirm, to help you identify what Cabert was allabout?A. Yes, later on I finally figured it out.

Q. How did you figure it out?A. Well, just by being around him and thepeople, you know. They would call him the bossand you know, just — after awhile, you knew.

Q. Did you have any other conversations withCabert on that day or any other day regardingyour staying away from his locations and himtelling you what would happen if you didn’t?....What did he tell you?A. “These are my locations and if anybody goesin there they are going to have a problem.”

Fay testified, “he [Bisaccia] thought I was a realnice guy and he liked me and any locations that hedidn’t want, he would just give to me.” Fay learnedquickly that Bisaccia did not "give” anything. In fact

Bisaccia eventually made himself a “partner” in theenterprise.

Fay Has To Pay — Dearly

Unfortunately for Fay, the primary beneficiary ofthis partnership was Bisaccia. Fay learned within afew weeks that he would be required to make pay-ments to the mobsters. There was no schedule orprocedure followed. Whenever Bisaccia wantedmoney, wherever he happened to be at the time, hewould contact Fay for payment.

Q. Did you and Scocca ever discuss betweenyourselves about what this money was for?A. Not really. If it was for Bobby, you didn’t askany questions.

Q. Why did you bring that money to Bobby...somebody you hardly knew...?A. Because I didn’t want to get my legs broken.

Q. You were afraid of him, then?A. Yes.

Q. Did you consider any alternative to doingbusiness with Cabert?A. Yes, but I didn’t know how [to do it].

. . . .

Q. Do you recall what kind of arrangement youtypically had with the owner of any of the loca-tions where you had the machines?A. 50/50 split on the profits at the end of theweek....

Q. Did you negotiate ever with anybody aboutthe percentage or was it always 50/50?A. Always 50/50. People tried to get 60/40 butI only did 50/50.

Q. From the time that you first began yourbusiness up until early 1985, what was the peaknumber of locations that you had at any time?

15

A. 60, 70.

Q. How much money — again, we’re talkingabout prior to 1985 — were you taking homeafter you made the split and taking care of yourother expenses?A. About $500.

Q. And that’s on a weekly basis?A. Yes.

Q. How much money were you making after youhad taken care of the locations?A. Gross?

Q. Yes.A. About $10,000.

Q. What kind of expenses did you have after youpaid off the locations?A. Well, you always had to buy new machines,and you had to repair the machines, give moneyfor contracts, vehicles, gas, payroll and the bigone was Bobby. That was the big expense.

Q. When you say you had to give money forcontracts, what do you mean by that?A. Well, after awhile, in the beginning, we wereable to put these Joker Poker machines outanywhere, see, and after the people knew that itwas so lucrative, the vendors would start givingout bonuses or gifts. It started out $1,000 for ayear contract and then it got up to $10-$20,000they would give the location just to get in there,to put our machines in.

Q. So did it end up that at most locations you hadto provide some money up front in addition to thesplit in order to get in?A. Towards the end, every location. Yes.

From a gross of $10,000 per week, Fay wasnetting only $500. Once his machines were adaptedto accept paper currency instead of just quarters,however, his receipts increased. His top week, hisshare was between $35,000 and $36,000. Fay was

asked to estimate how much money he paid to Cabertover the term of their relationship.

A. Just estimating, I don’t know — $600,000-$700,000 — maybe more, I don’t know.

Q. Do you recall the largest [single] paymentthat you ever made to Cabert?

. . . .

A. $10,000.

Q. Did it always follow that you’d get a phonecall from Scocca who would tell you that youhad to make a payment?A. Just in the beginning.

Q. Did you always make these payments directlyto Bobby, whether he came to you or you went tohim, did it always mean that you made thepayments to him directly, or to someone else?A. Well, I knew I made the payment even if I gaveit to somebody else. I knew that Bobby would getit because, you know, my beeper would stopbeeping. He would beep me so much I’d gothrough 3-4 batteries a day until I’d bring himthe money. He’d call me, I just couldn’t hide,you know. It’s unbelievable.

Q. Did he call you personally?A. Sometimes.

Q. Did he have other people call you, too?A. Yes.

Q. Did Cabert find any other locations for youbeyond the two ... that we just spoke about?A. A few...eight or 10.

Q. Would you consider the locations that Bobbyfound for you to be good locations?A. Maybe one or two.

. . . .

Q. Over the course of years, you had businesswith him for seven or eight years, and you gave

16

him six or seven or eight hundred thousand[dollars] and you also said that out of that yougot only one good location, is that correct?A. One that I thought was good, yeah.... I hadother good locations.

Q. But they were not from Bobby?A. Definitely not. Why would he give them tome?

Unfair Advantage

Despite the drawbacks, Fay learned that, incertain circumstances, he could benefit from therelationship. This once legitimate businessmaneventually adopted practices that reduced competi-tion between himself and his fellow vendors and gavehim an unfair advantage over the shopowners withwhom he did business.

Q. Did you ever have to ask Cabert for assis-tance in connection with keeping a location or tokeep somebody else from trying to move into oneof your locations?A. Yes.

Q. How often did that happen?A. Once a month or so, it depends, you know.It could be two in a month and then three monthsgo by—say an average of once a month.

Q. On those occasions when you did have anopportunity to ask him for his help, was iteffective?A. Yes.

Q. Were you able to invoke his assistance inregard to locations that you had gotten yourselfin or was it limited only to those which he hadgotten for you? ...A. Any location I had.

Q. All you had to do is mention his name and yougot help?A. I got what I wanted.

. . . .

Q. Did you ever use Cabert’s name when youwent into a place to get a stop [a location wherea device was installed]?A. Yes.

Q. Did you ever use Cabert’s name to take awaya stop when somebody else already had it?A. Yes.

Q. To your knowledge, was the use of Cabert’sname ever successful in enabling you to takeaway a stop from some other businessman withorganized crime connections?A. Every time.

Q. Even though that other businessman who hadthat prior location had organized crime affili-ation himself, you were still able to take it away?A. If he was affiliated with Bobby [Bisaccia]?

Q. Yes.A. I would not try and get that location.

Q. If he was affiliated with somebody else, then,what would happen when you used Cabert’sname?A. Then I would get the location.

Q. Did you ever have any understanding aboutterritorial rights for organized crime?A. Well, I knew Bobby’s area and that’s just thesame area I operated in.

Q. Other people [were] in different areas andyou didn’t go into those areas, then?A. [That is correct.]

Q. How did you learn that? How did you knowwhat was Bobby’s area?A. Well, he used to tell me that, you know, thatis his territory — Bloomfield, Belleville, New-ark.

Assistant Attorney General Carroll summarized

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the competitive effect of activities, as practiced byBisaccia, on legitimate businesses.

An illegal enterprise’s control over these type ofmachines and the territories that they’re operat-ing restricts the development of legitimate vend-ing companies. Frankly, if a particular organ-ized crime-backed distributor is in a particulararea, it’s almost impossible for a legitimatevendor to open a business and start by distribut-ing machines, legitimate amusement machines,in that area.

How Big An Industry?

As knowledgeable as he was about the business,Fay had difficulty in assessing the size of the illegalenterprise.

Q. Do you have any idea how many illegalmachines are located in New Jersey and wherethey are concentrated?A. I don’t know how many— the concentrationis Newark and Paterson. I don’t know how manynow but back when I was still there, there had tobe [a total of] 10,000 machines.

George Fresolone, the “made” member of theBruno/Scarfo crime family, had similar difficulty ingrasping the full revenue picture. He was helpfulthrough his personal experience in providing infor-mation about the southern part of the state — andelsewhere. He answered questions about the opera-tions of Grayhound Electronics, which manufac-tured, sold or distributed video gaming devices andwas owned by Carmen Ricci and Brian Petaccio.

Q. Do you know if [Bruno/Scarfo associate]Alan Cifelli was the only one who was running aroute for stops in the South Philadelphia areafor Grayhound?A. No, he wasn’t. In fact ... Carmen’s brotherhas ... a route out there, and there must be a lotmore people that have routes. I know Carmen’swife in Florida has the biggest route of them all.

Q. How did you come to know about that Floridaroute?A. Well, a couple years back, ... I was in Floridawith Pat Martirano [a now deceased high-rank-ing member of the Bruno/Scarfo crime family],and we were in Hollywood, and we were on thebeach one day, and we were going into this dinerright on the beach, and there was GrayhoundJoker Poker sitting there. I even said to Pat,“Look at this. Grayhound is even down here.”...[S]o ... during my involvement with Carmen, Ihad brought that up to him, and he said to methat his wife has a company down there, A & G,and he’s the one that told me that she has thebiggest route of them all.

. . . .

Q. Do you have any idea how many illegal videogambling machines are in operation in NewJersey right now?A. God only knows.

Q. Is there any way to know?A. If I had to guess, I would say thousands.

Q. Why do you say that there are thousands...?A. Well, ... you go to poorer areas of these citieslike Elizabeth, Newark, Paterson, Trenton andwalk in these stores and you would see a lot ofthese— a lot of these games.... I mean, just in“Down Neck” alone, every store I walk in onFerry Street has got them, and out of the smallradius of maybe seven, eight blocks, you’retalking— maybe you got a hundred machinesthere....

Q. In your experience, do the people who playthese machines in these poor neighborhoods endup making out on the playing of these machines?A. No, it’s utterly impossible. What happens is,it works on a percentage basis. If you put in 10dollars, you’re getting back — actually you’regetting back, if you’re working on 55 per cent,you’re getting back 45 per cent of your money....If you put in the four and a half dollars, you

18

know, then they’re going to take 55 per cent ofthat, so eventually, if you keep playing, you losethe whole 100 per cent that you put in. Utterlyimpossible.

* * *By all conventional measures, Project Ocean, the

first large scale law enforcement attack on illegalvideo gaming, was a success. The areas of activitydescribed by Fay and Fresolone were targeted. Thetally reported by Assistant Attorney General Carrollwas heartening.

As a result of the Project Ocean effort ... onMarch 25, 1985, 500 law enforcement officersseize[d] approximately 400 video gambling de-vices. We seized approximately $100,000 incash and vehicles and related property. Wearrested 70 persons. We charged them with avariety of crimes ranging from simple promot-ing of gambling to extortion, criminal usury,bribery, misconduct in office and conspiracy....We later returned 10 State Grand Jury indict-ments....

This successful prosecution revealed the finan-cial potential of the illegal video gaming industry.Although precise revenue figures are obviously notavailable, inferences can be drawn that the sums areenormous. Fresolone was able to give the Commis-sion a picture of revenue from one distributor,Grayhound Electronics. As Fresolone’s testimonyrevealed, more money could be made from distribu-tion than from sales.

[Carmen Ricci of Grayhound Electronics], hadto be making at least five or six hundred [dol-lars] on the [sale of a] machine, so take amachine like that, it would cost like 1,200 tobuild. For $12,000, you build 10 machines, andthose machines, if you put them in good loca-tions, they can do four or five thousand dollarsa machine, so — in the course of a week, so themachine does four thousand a week, and you’reearning two of the four thousand, and you got 10of them out there, you’re earning a lot of money,

so you can build a lot of machines mighty quick.

Fresolone helped describe the path the illegalvideo gaming revenue took through the enterprise.He used as an example another Bruno/Scarfo familymember.

Q. Are you familiar with an individual namedJoseph Sodano?A. Yes, I am.

Q. How is it that you know Mr. Sodano?A. Mr. Sodano is a made member of the Bruno/Scarfo crime family.

Q. Do you know if Mr. Sodano has any involve-ment with video gambling machines or slot ma-chines?A. Yes, he does.

Q. Do you know where they may be?A. North Jersey and New York.

Q. And does he have both video gamblingmachines and slot machines in New Jersey or —do you know how he distributes his business, inother words?A. Well, in New York, he’s got the slot machines;in New Jersey, he’s got the video machines... justfor the simple reason, I mean, there’s no differ-ence— there’s no difference in the game exceptthat the one has [a place] where the moneycomes out, that makes it a slot machine. Theother one is where the credits is, same game, butone has the return on it.

Q. So if it’s got a bin where the coins come out,it’s a slot machine, and if it doesn’t, it’s a videogambling machine, is that correct?A. That’s correct.

Q. How large was the monthly tribute that wasgenerally turned over...?A. Okay, let me explain that to you. The bossreceived 4,000 [dollars] a month, and out of the4,000 a month, Joey Sodano paid 3,000 of it, andthat was apart from his gambling, his video

19

machines and his bookmaking operation.

It’s Hard to Leave

In 1985, Fay had a change of heart about themanner in which he was making his living. He wasarrested for operating a joker poker game, a disor-derly persons offense for which he received only a$500 fine and probation. But it was enough of ashock. Although resolved to get out of the business,he learned that he could not just walk away.

Q. Following your arrest and the disposition ofthe criminal charges, did you try to get out of thebusiness?A. Yes.

Q. Were you concerned about being arrestedagain, then?A. Yeah, I didn’t want to go through that again.I didn’t want to get into any trouble after that....I didn’t want to go to jail. That’s a goodmotivation.

Q. Did you speak to Bobby about this?A. Yeah, I told him that I didn’t want to do thebusiness anymore and he told me I had to and hewas going to send down one of his boys to workwith me.

Q. To help you?A. To work with me.

Q. And did he send somebody to work with you?A. On Monday morning, he sent Buddy Mucci-grasso.

Q. Did you stay around to have somebody workwih you?A. No, I disappeared.

Q. How long did you disappear for?A. Around three weeks.

Q. Did you hide from Mr. Muccigrasso and fromBobby for that period of time?A. Yes.

Q. After three weeks, though, you came back,you surfaced, right?A. Well, I came back because he had one of mymechanics and he was holding him for ransomuntil I came, at the Finish Line [a restaurant andbar in Newark]. He was threatening to break hislegs, or whatever.

. . . .

Q. Once you got word that they were holding oneof your guys hostage, you went down there tomeet them?A. Yes.

Q. What happened as a result of that meeting?A. They told me if I didn’t cooperate he’s goingto take over the business.

Q. Who told you that?A. Cabert.

Q. Did you get paid for that interest in thebusiness that he said he was going to take over?A. No.

Q. Did you continue to have any obligationswith respect to the business?A. We made a contract up that he would takeover the business and all the loans and machinepayments and truck insurance and truck pay-ments and all that and I was not supposed to haveany responsibility but they turned the businessinto their name but not the payments, so I had tokeep paying these payments.

Q. I gather you were personally obligated thenon these loans?A. Yes.

20

Organized Crime Needs Outside Help

During his years in the business, Fay had ac-quired skills that Bisaccia’s associates did not have.Despite their unfair advantages, they ran the businessinto the ground. About a year after he left thebusiness, Fay received a call.

Bobby called me up and he wanted to see me. Iwent down to see him and he said that thebusiness I gave him was a piece of garbage, hesaid. He lost almost all his locations, which Idon’t know how. Well, he had this guy Dominickrunning the business....and he just ran the busi-ness down. See, Bobby was just looking for themoney, he wouldn’t get involved, you know, inthe actual working of the business. He wouldpick someone to run it for him. And this kidmessed the whole business up and by the time hefound out, it was gone. He had 20 locations left.

Q. So it was up to you to build the business backup again.A. Well, he wanted to go back and be partnersand I told him that I didn’t want to do that butwhat I would do was take the business back, buildit up, sell it and give him all the money and thatwould be it — see you later.

Q. Did you end up doing that?A. Yes.

Q. How long did it take you to build the businessback?A. About one year.

. . . .

Q. After you sold the business and gave themoney to Bobby, did you ever get back into thebusiness yourself?A. Well, I was building up a few stops on my own,on the side.

Q. Where was that?A. Paterson.

Q. You had said earlier that Bobby had a certainarea. Was Paterson beyond Bobby’s reachthen?A. He didn’t really go into Paterson so he didn’tknow what I had going on over there.

Q. About how many stops did you end up puttingtogether in Paterson?A. I don’t know — at the end, around 100.

Once You’re Hooked...

Fay soon learned that Bisaccia was not unique inhis venality or his ruthlessness.

Q. After you put together this business inPaterson, did you have an experience with any-body else along the same lines of your experi-ence with Cabert?A. I was approached by Johnny Ventura....abuinessman from Paterson.

Q. Did you know him before he came to see you?A. No.

Q. What did he say to you when he first ap-proached you?A. He told me if I was going to operate inPaterson, I had to pay the right people....

Q. Did he tell you who those people were?A. Himself, Michael Perna.

Q. Were you aware at the time that MichaelPerna was a member of the Lucchese/Corallo[organized crime] family?A. Yes.

Q. How about Johnny Ventura?A. Yes.... I didn’t know when I first met them, Ididn’t know who they were but you quickly findout when you’re operating in the streets.

21

Q. Exactly how did your meeting come aboutwith these people?A. I was going, taking care of business like usualand I had a salesman and he said he knewJohnny Ventura and Johnny called him or stoppedhim on the street and said he wanted to see me,so I met Johnny Ventura at the 21 Club inPaterson.

Q. Did you eventually have a meeting then withMichael Perna?A. I think it was a day or two later.

Q. What did you discuss with Perna at thismeeting?A. I told him that I was with Bobby, Cabert, andI didn’t know if I could move into another family,like, just change overnight. And he told me thathe’d get in touch with Bobby and check me out....

Q. Did he do that?A. Yes.

Q. Do you recall how much later it was?A. Next day.

Q. Did he call you up, or did he meet with youagain, or what?A. I met with him outside Johnny Ventura’stavern in Paterson.

Q. What did Perna tell you then?A. He told me he talked to Bobby and Bobbygave me the Good Housekeeping seal and I wasokay to operate with him.

Q. Did you then have to make payments toPerna?A. Yes.

Q. Was it the same kind of arrangement that youhad previously enjoyed with Cabert?A. Not exactly the same kind of arrangement.This would be every week instead of anytimeBobby felt like it, this would be — I can’tremember— one day during the week, every

week.

Q. So you didn’t burn out the batteries in yourbeeper this time?A. Right, because I knew what day to be thereand what time.

Q. How much were you paying Perna weekly atthe beginning?A. $500 to start.

Q. Did it increase later?A. Yes, to $1,000.

Perna and Ventura may have been slightly lessgreedy than Bisaccia but gave up nothing to him inruthlessness. Fay testified about how subordinateswere educated.

Q. Did you receive any threats from Perna orVentura? In other words, did they tell you thatyou had to worry about what they might do toyou, too?A. Well, yeah, it was a way of life, you know.

Q. Did anybody ever make an example of you orprovide any illustrations of what might happenif you stepped out of line?A. Well, Johnny Ventura went out and theyrobbed a lot of machines from another vendor.They busted them up and all that and said, “Seeif you’re not with us, this is what could happen.”

Q. Did they ever do anything to you in particu-lar?A. No, not them— I was giving them money.

An Additional Wrinkle

The Fay/Perna/Ventura relationship went be-yond video gaming devices.

Q. At any time during your meetings with Pernaor Ventura, did you have discussions about

22

loansharking?A. Yes.

Q. What were you told?A. He told me instead of giving these peoplebonuses, the money for contracts for the loca-tions, you come and tell me what they want andwe’ll go and take care of it. So he told me, youknow, “Don’t give any money out before you talkto us.”

Q. Do you know what ended up happeningbetween Perna and/or Ventura whenever theytalked to these people at any of these locations?A. Usually they’d give them the money andcharge interest every week.

Q. So then it was a loan of a sort, then, right?Did you ever collect any of the interest paymentsyourself?A. Yes.

At the public hearing, Commissioner W. HuntDumont asked Assistant Attorney General Carrollabout the mechanics of bringing illegal devices intoa legitimate business.

I’m interested in how the machines get into thestore in the first place. In other words, does thestore owner learn about these machines and thenget in touch with the distributor on behalf of thevending company or does organized crime playa role right at the outset in getting these ma-chines into the store?

A. There are various ways.... On occasion astore owner, hearing of the potential profitabil-ity of these machines, will call up adistributor....In most cases, a store might have acigarette machine in it and the person whodistributes the cigarette machine, he may say, “Ican get you a joker poker "or" I can get you aGrand Prix” or whatever the term of art that iscurrently prevalent, and "I’ll bring you one,"and he does it, and it starts — it can come eitherway, from a shopkeeper to the vendor, from the

vendor offering it to the shopkeeper.

But there are more nefarious ways that they getinto stores. People can be loaned money by avendor. A person could be in arrears in hisrepayment schedule. The vendor could then say,“In order to enhance your ability to pay meback, you’re going to put a gambling device inthere.” And the device is placed, and sureenough, the profit will come and everybody willbe happy except, of course, now you have illegalgambling in your store and you’re risking yourstore, you’ve corrupted your commercial envi-ronment, and our experience shows you wouldtend to attract persons who would not necessar-ily be in the best interests of your business.

There have also been situations where machinesare placed in premises where a person is simplya front.... There’s no other legitimate commer-cial operation going on except a gambling ar-cade.

The Breaking Point

Fay mistakenly thought that Perna and Venturaprovided cover. Instead, his troubles worsened.

Q. Once Perna told you that he and BobbyCabert had worked out a deal with you, were youoff the hook with Bobby?A. I thought I was.

Q. Did you find out otherwise?A. A few days later, I had to make anotherpayment to Bobby.

Q. Do you remember how much you had to payBobby at this time?A. There were so many times, I can’t rememberhow much it was.

Q. Did this, then, become the time when youbecame an active agent for law enforcement?A. Yes.

23

Q. Did you set up meetings with Perna andVentura on behalf of law enforcement?A. Yes.

Q. And did you wear recording devices duringany of these meetings?A. All of them.

Q. And did you testify in grand jury?A. Yes.

Another Vantage Point

A similar tale was told by George Fresoloneabout business practices in the South Jersey-Phila-delphia area.

Fresolone had been assigned by Nicodemo Scarfo,Sr. (now incarcerated head of the Bruno/Scarfocrime family) to collect tribute from Carmen Ricciand Brian Petaccio, the owners of Grayhound Elec-tronics. Ricci and Petaccio not only manufacturedthe devices, they distributed them in South Jersey andPhiladelphia through a company called B & C Enter-prises.

Scarfo suspected that Ricci and Petaccio werecheating him, and he assigned Fresolone to collecttribute from them and to learn as much as he couldabout their operation. Fresolone testified about theprotocols and procedures of this illegal business.

Q. With regard to the arrangements they hadwith store owners, do you know if there were anynegotiations with the store owners about thepayout or the percentage that the store was toget?A. No, that’s a set fee. There’s no negotiationwith the store owners. They — you put a machinein their location and they are entitled to 50percent of what the machine makes.

Q. Did this arrangement with the store ownerextend into any aspect of the store owner’sliability, for example, if a store owner had a

liquor license and the liquor license was jeopar-dized through an arrest, did your organizationhelp out the store owner in any way?A. No, for the simple reason that ... if they hada bar that was doing, say, 300 a week, you know,the bar was dead, and he had the machine thatwas doing 2,000 a week, that was 2,000 a weekfrom the machine. What did he care about theliquor license? He just wanted the machine tokeep going.

Q. Do you have any knowledge about the kind ofcontractual agreement which was made betweenthe store owner and Grayhound when the ma-chine was put in?A. Okay. What happens there is that ... a lot oftimes you get into a location, a lot of these peopleare in trouble and they need money, so what youdo is — Carmen would do is that he would givethe store owner X amount of dollars, and theywould start off putting Pac Man or, you know,regular video games in there, and if they weren’tearning enough money to pay him back, Carmenwould take those machines out and put in eightliners [a device similar in appearance to acommon slot machine] or Joker Poker to oper-ate in the establishment because those machineshave the potential of earning a lot more money.

Q. So if I understand you correctly, what hewould do is hook the store owner into a paymentscheme which the store owner couldn’t keep upwith unless the store owner put in the gamblingmachines which had a better cash flow, is thatcorrect?A. Well, it’s also correct that what happens thereis that they would take — if I loaned you $5,000to get that spot, we’re going to take whateverprofits you make from the machine til the $5,000is paid back. And if the machine is doing $20 aweek, and I’m only taking $10 off my original5,000, I’m going to tell you, hold it, we can’t doit like this, let’s put these machines in and, youknow, so what actually he would do is hope thatthese other video games wouldn’t earn anymoney, you know, and he would put the eight

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liners in. He would hook you — and then reel youin.

Assistant Attorney General Carroll explainedthat in return for such an association store ownerscould expect protection by an organized crime fig-ure, the payment of graft, the elimination of compe-tition from non-connected vendors, etc.

And what generally will happen is once theorganized crime network opens up that particu-lar channel of profiting, the vendor who ishelping achieve that profit-making will expand,oftentimes the organized crime individuals willgive additional stops, put a machine here, put amachine there.... All the while, the criminals areexpanding their control both over the vendorand as well as over the industry, because bycontrolling the vendor, you are 50/50 partnerswith the shopkeeper.

So as the tentacles go out, they become more andmore ensnarled into legitimate businesses, andthis is, frankly, the very thing that our RICO Actwas enacted to protect against. This is a methodboth for infiltration as well as for profit-making.

Coexistence Between Legitimate Businesses andOrganized Crime

Joseph Fay had a long experience in the business.He was asked:

Q. In your opinion, is it possible that, in the kindof business that you were engaged in, is itpossible to exist without the involvement oforganized crime?A. Impossible to exist.

Q. Why is that?A. Because you can’t operate these, anything todo with gambling, wiseguys are there. Anythingto do with cash, they’re always there and, youknow, they can get, they’ll take legitimate peopleand put them up front and threaten them and

make them do things that they don’t want to do.They will definitely be in back of any gamblingthat’s involved anywhere.

John Januska, who operated in Paterson and inEssex and Hudson Counties, told CommissionerBarry H. Evenchick that he thought there was no wayto cut out “the family” from the business — “becauseit’s high stakes.” He did not believe that legalizationwould put even a dent in the illegal business “...be-cause we already control the industry already, sowho are you going to put it in?”

Can the Business be Purged of Organized CrimeInfluence?

Fay was asked to suggest the best way to getorganized crime out of the business.

Q. Do you think that a crackdown by lawenforcement would be effective against the peoplewho operate these machines?A. No, because we used to put our machines out— they cost us 3,000 to 4,000 [dollars], it didn’tmatter. After we got over 2-3 weeks, we madeour money back. Then they could take them ifthat want. We still made a profit, okay. Wewould just go out and buy new ones. It didn’tmatter. They don’t have the manpower.... Theyhave to go out every single day and take everymachine every single day to hurt the vendors.There’s just no way — they make too muchmoney.

Q. Do you feel legalization might lessen theimpact of organized crime?A. No way.

Q. Still going to exist?A. It’s the cocaine, gambling, stealing, what-ever, I’ve seen things, I know. There’s no way.I mean it’s right there on the corner, the cornerstore. It’s different if you want to go to AtlanticCity — you have to get on the bus, this and that.It’s a different story, but it’s right there. You live

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right in the neighborhood. It’s a tease.

Q. Is there any way for anybody who plays thesemachines in the long run to make any moneyfrom them?A. Never.

Q. Anybody who plays in the long run loses,then?A. Yes.

Fresolone responded similarly. He said a crack-down on video gaming machines would be ineffec-tive.

Because what happens there is that they take themachines, and a week later, the machines areright back, you know, and they’re doing the samething again. You know, it’s not — you know, aregular crackdown isn’t going to help it becausethe laws ain’t — the laws ain’t strong enough,and it’s money, it’s earning money, the ma-chines earn a lot of money there.

Q. In your opinion is there any way to stop theillegal use of illegal video gambling machines?A. Sure, impose a heavy fine on the store ownersand the vendors or prison term or both.

Payoffs

Carroll told the Commission that official corrup-tion, the most insidious consequence of organizedcrime involvement, was discovered during the courseof Project Ocean.

We have found that in many areas where com-pletely legitimate police officers and licensingofficials have close alliances and friendshipsand normal daily interaction with local busi-nessman, as most good police departments andlicensing bureaus would, and you have thesesame originally legitimate businesses then get-ting illegal gambling devices, then the corrup-tion sometimes begins, because now you have a

store owner who may be stepping across thatline. And with him, comes the knowledge and theacquiescence of the police officers and officialsin the town. And we find that it’s fertile for thistype of corruption.

It ranges from what I would term a noncriminaltype of avoidance of the problem ... for example,a local licensing board may require that everyamusement device in town have a sticker or astamp, and all of a sudden, Joker Poker ma-chines appear without any stamps and so forth.

Police officers ... have been tempted by the largeamounts of money that have been offered, tolook the other way in the operation of these typeof machines....

A particularly revealing exchange took placebetween John Januska and Commissioner KennethD. Merin regarding official corruption.

Q. Did you ever attempt to bribe or pay off apublic official who rejected the bribe?A. No.

Q. Is there any area of the state, any particularcity or town, that you felt you should not go intobecause of that reputation?A. I never experienced it, no.

Q. So basically, you felt any city or county inyour area was fair game. You could get towhomever you had to get to in order to achievethe protection from the public sector?A. Right.

Q. We’re trying to figure out how we can stopthis sort of thing from occurring. Is thereanything that you can suggest to us as a way ofcontrolling the public officials? Is it just through-out the total system? Is there anything you cando, you can suggest, that we can do to help tocontrol this?A. Only way you can do it is banning themachines that are only used for gambling pur-

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poses anyway.

Q. You mentioned you’d made payoffs to publicofficials for other things other than the gam-bling machines.A. Yes.

Q. Is that pretty easy to do? You had noproblems doing that? It was well-known that youcould bribe people?A. I was in the business 25 years; I only spentfour years in jail.

Q. What kind of people would you go after? Areyou talking about building inspectors, safetyinspectors? Was it people in a higher level of thecity government?A. We got to some mayors and got to, you know,the police. Building inspector, I didn’t neednone of them for a machine.

A similar exchange took place between Januskaand Commissioner Evenchick and Chairman Zaz-zali:

BY COMMISSIONER EVENCHICK

Q. Sir, let me first ask you by way of a generalquestion if you would comment on the extent towhich the operation that you have describedinvolved payoffs to local or municipal officials.A. I didn’t pay anybody. I controlled the Passaicarea pretty good, and I was, you know, payingpeople for other businesses I had in Passaic, andthe numbers business, sports business — samething in Hudson county — so I didn’t pay anyextra, if that’s what you’re asking.

Q. Well, in these times of cost effectiveness, Isuppose that’s favorable testimony. What aboutwith specific regard to the video gambling ma-chines, are you aware of any illegal payoffs toany municipal officials, whether by you or bythose whom you’ve identified?A. I don’t know any individual that got themoney itself, but sure, we discussed that this guy

was paying that guy and that guy was paying thisguy, yeah, sure. You have to pay the law some-what and you pay as little as possible.

Q. How extensive was the involvement of mu-nicipal officials in these kinds of illegal opera-tions?A. In my illegal operations?

Q. Yes, sir.A. Well, let’s put it this way. You see, betweenPassaic County and Hudson County, that’s alittle bit of Hoboken, Jersey City, I did 290,000[dollars] in the numbers business. I kept threeper cent on the side for the politicians and thecops. And I also had a piece of the numbersbusiness in Jersey City ... which consists of twomillion. So they had considerable payoffs.

BY CHAIRMAN ZAZZALI:

Q. And just to follow-up, you’re saying thatthese payoffs would cover both the video pokermachines and your other businesses, you weregetting basically two for the price of one?A. Well, in my instance, yes.

Januska could not remember the exact number ofpublic officials he had bribed, only that it had been“quite a few.”

Fay testified about his experiences with publicofficials in the areas where he conducted his business.

Q. During the time that you were putting ma-chines in Newark, did you ever have to makepayments to any public officials in connectionwith your business?A. Yes.

Q. What kind of payments did you make?A. How much?

Q. Yes.A. Usually it was about 1,000 a month here and

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there. I don’t remember, that was in the begin-ning.

Q. Were those payments for permits or were theyto allow you to operate legal machines or illegalmachines? Do you understand my question?A. It was a payoff. If you didn’t pay, youwouldn’t operate.

Q. While you were in business in Paterson, didyou make payments to public officials in Pater-son?A. Yes.

Q. Did you make payments to police officers?A. Yes.

Q. What was the purpose of the payments topolice officers?A. I would make payments to the police officersin Paterson because they would only give you alicense for three machines. They would take apayoff each week and I had maybe 10 machinesin one place, or eight machines in another placeand they would tell me if anything was going tocome down beforehand so I could pull my ma-chines out and be legal.

Q. So if any authorities were going to come inand try and enforce the three machine limit,you’d know about it?A. Yes.

Kinds of Locations

Even though no witness could be precise aboutthe number of video gaming devices and their loca-tions in New Jersey, they confirmed that video gam-ing devices are located in many different types oflocations. Fay, as a distributor of video gamingdevices, was particularly well qualified to describethe types of outlets for the machines.

Q. You spoke earlier about having 60 or so JokerPoker machines out on the street. What kinds of

locations were they in by that time?A. Candy stores, bars, gas stations, funeralparlors, car washes.

Q. You had Joker Poker machines in funeralparlors?A. One funeral parlor.

Q. Do you recall how many machines you hadin that funeral parlor?A. Five or six, seven, it depends.

Q. Do you know where in the funeral parlorexactly these machines were located?A. In, like, a lounge area where you would,whatever, have coffee or, you know.

Q. Was it accessible to anybody who could walkin off the street?A. If you had a quarter, you could play it.

Q. How did it come about that you were able tolocate Joker Poker machines in a funeral par-lor?A. I had [machines in] a candy store in Newarkand a lot of customers, and one customer wasthis woman around the block that — I think sheowned the funeral parlor, worked there, what-ever — and the store would close at 1:00 in themorning.

Q. The candy store?A. The candy store — and they were still playing.They were ready for action now, you know. Theguy had to go to sleep sometime, the guy that wasrunning it, so after awhile they came up with thebright idea that they would put it into the funeralparlor and this way they could run it 24 hours aday and they didn’t have to leave.

Q. It didn’t matter if the candy store had closeddown then?A. Right.

Q. So they kept the funeral parlor open for 24hours to play these Joker Poker games?

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A. Yes.

Q. Did you have other locations besides thatfuneral parlor where you were running the JokerPoker machines for 24 hours a day?A. Yes.

Q. Where were they?A. Well, just about all of them went 24 hours.Like — I had a fire house, people’s homes, somecandy stores— stayed [open] 24 hours.

Q. You had a fire house, do you know if it was amunicipal or a volunteer?A. No, I didn’t care.

Q. What town?A. Belleville.

Q. You also had machines in people’s homes?A. Yes.

Q. Do you know about how many machines didyou put into people’s homes?A. Usually two or three, depending on how muchaction was there, how much money you couldmake, how many people were waiting to play.

Q. How many of these places did you have? Howmany individual private homes, do you recall?A. Not too many, maybe eight or nine.

Q. Did you make the same kind of split with theprivate homeowner as you did with any otherlocation — 50/50 split?A. Yes, actually, I did give them 50/50 but whatwould usually happen was the guy that had it inhis house was addicted to the game so theyusually ended up with nothing anyway.

Why People Play

Fay described the attraction of video gamingdevices.

Q. You say that these things would play aquarter. For a quarter that you could play on theJoker Poker machine, what kind of a payout waspossible for the best winner?A. Joker Poker machine, you could win for thebest hand, $3,000 for a quarter.

Q. Later, when you were able to put the billacceptors on, I would assume that the payoffincreased also. In other words, somebody couldwin more than $3,000?A. Yes.

Q. How much money could somebody win — atthe peak?A. Maximum, $40,000.

Q. Did you ever have a machine that paid out$40,000 to a winner?A. Yes.

John Januska testified about methods employedto entice and keep players. His was a marketingapproach designed to target a neighborhood in whichdevices were located. His job was tricky. Since heobviously could not advertise, he had to rely onword-of-mouth.

Well, you could set the machine whatever youwant, you know. What you did is, if it was a newstop, you’d put the payout high, say you’d put itat 80 percent, and then as it progressed, theneighborhood would know, you know, you canmake pretty good money on the machine. Thenyou’d go back in and reset the machine down.Next time, you might bring it down to 60 percent.Next time, you bring it down to 40 percent.

. . . .

Q. And did I understand you to say that youcould fix the machines to pay out whatever youwanted to, to yourselves and to the players of themachine?A. Yes. There’s a chip on the board there, youjust change the odds.

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Q. And in the beginning, the payout to the playerwas high so as to induce him to continue play-ing?A. Yeah, entices him to play more, and he tellshis neighbor.

Q. And you’d get pretty good business in thebeginning, is that it?A. ... [Y]ou always got pretty good business allth way through, but if it slacked— what we did iseventually bring it down so there would be moreprofit for us, and then when you see the businessstarted to slack off, you’d bring it back up to getthe business back in.

George Fresolone testified that Grayhound hadeliminated the coin mechanism from some of itsdevices “for the simple reason, who wants to dealwith change?” He had been told by Carmen Riccithat Grayhound was going to start using a new billacceptor which would recognize $50 and $100 bills.“So you can put a lot of money in it and it doesn’t giveyou any change. Once you put the money in, it staysin.”

According to Fresolone, Carmen Ricci was asastute about marketing as Januska. Fresolone re-lated an episode in which Ricci advised a customer ofFresolone not to get too greedy.

He told me — we had a problem one time that theguy that I was selling the machines to in NewYork, Richie Martino, wanted to increase hisearning power on the machines, he wanted tochange the percentages, and Carmen told him —Carmen told me that, you know, at the time, theywere paying out 55 or 56 percent, and that wasgood business, that money went back for thesimple reason that people came back and played.

Fay related a video gaming vignette which shouldcause anyone to pause.

One day I was in one of my locations collectingmoney and a guy walks in to buy a pack ofcigarettes and he noticed that the machines were

mobbed with people. He asked me what it was.I said it’s a keno machine and you put a quarterin it and you might win a dollar or two. So he puta couple of quarters in and the first day I thinkhe won about $100....[T]hen he was back everysingle day after work and after about two orthree weeks he was there every day, nine in themorning. Suddenly his Jaguar disappeared andhe lost his job. His wife came looking for himand it was a mess. His wife would come downevery day trying to get him out of there because,you know, he was blowing all his money. Andwhat happened, she started playing the ma-chine. And then they just disappeared off theface of the earth. I guess they didn’t have anymoney left. I didn’t see them anymore.

Organized Crime Families Vie For Control of aLucrative Industry

The issue of organized crime control of videogaming manufacturing companies is complicated byrelationships between blood relatives as well asbetween organized crime families. Disputes overcontrol were usually settled by high-level organizedcrime “sitdowns” in New York, New Jersey, Floridaand elsewhere. The case of Myron Sugerman isenlightening.

Sugerman’s late father Barnet was a long-timepartner of Genovese capo Gerardo Catena in Run-yon Sales, a vending machine firm in Springfield.Meanwhile, Joseph Sodano, a Bruno family mem-ber, had become a silent partner in the mid-1970swith Myron Sugerman in U.S. Amusements, Inc. ofHillside. According to Januska, however, in the early1980s, when it became known in mob circles thatSodano and the Bruno family were making hugeprofits from the relationship, Louis “Streaky” Gattoof Fairlawn, a Genovese capo, staked a claim toSugerman on behalf of the Genovese family, basedon the prior partnership between Catena andSugerman’s father. As a result of this claim, ameeting was held in New York with leaders of theGenovese and Bruno families during which it was

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decided that Sugerman did indeed “belong” to theGenovese family. The Sugerman operation was suchan important source of revenue to the Genovesefamily that, according to information picked up in1983 by federal electronic surveillance, the familyboss, two capos and an associate often made deci-sions involving the firm’s daily operations.

Januska also testified that Sodano took “underhis wing” young Salvatore Mirando, whose latefather Joseph was a Bruno associate subordinate toSodano. Januska said Sodano got Mirando a jobwith Sugerman so he could learn the vending andvideo gaming machine business and eventually set uphis own business under Sodano. Januska said thatafter Sugerman was taken away from Sodano,Mirando left Sugerman and, with money provided bySodano, set up his own business. Januska testifiedthat Mirando, who lives in Holmdel, is “a giant in thebusiness today,” worth more than $20 million.

For his part, Mirando denied virtually everythingJanuska said about him. Testifying several monthsafter the public hearing, Mirando said he worked forSugerman from 1979 to 1982 before setting up hisown business, SMS Manufacturing of Lakewood,with Vincent and Pasquale Storino, in 1982. He saidthe three each put up $10,000 of their own money tobegin SMS. He said he bought the Storinos’ interestin the firm in January, 1990. Mirando said Sodanoput up none of the money used to start the businessand got no proceeds from it. He characterizedSodano as “a casual acquaintance and friend” whowas also a friend of his father.

The Storinos are nephews of the late VincentJames Craparotta, a Lakewood car dealer who wasa Lucchese organized crime family associate. Ac-cording to an April 18, 1991, news release from theAttorney General’s office, Craparotta was takingpayments from “two of the owners of SMS,” pre-sumably his nephews. Craparotta was beaten todeath with golf clubs on June 12, 1984, because hewould not share that tribute with his superiors in theLucchese family, according to the Attorney Gen

eral’s office. The Attorney General’s office also saidthat Sodano was receiving tribute from SMS “froma third owner” of the firm.

Within a month of Craparotta’s murder, accord-ing to the Attorney General’s office, a dispute arosebetween the Lucchese and the Bruno/Scarfo familiesas to which controlled SMS. Other “sitdowns”occurred, some in Florida, during which it wasdecided that the Lucchese group would get a two-thirds share of the profits, and the Bruno/Scarfogroup only one-third.

More Prosecutions

On April 18, 1991, Attorney General Robert J.DelTufo announced the indictment of 53 allegedmembers or associates of two separate organizedcrime families operating in New Jersey, New York orPennsylvania. Some of the charges center oncontrol of the illegal video gaming industry. Thecharges included the allegation that Craparotta wasmurdered in 1984 because he would not share any of

the tribute he was receiving from the profits of SMSManufacturing. The indictments also included alle-gations that various of the defendants were trying tomuscle in on other vending machine ventures ofSalvatore Mirando in the Point Pleasant area. Keywitnesses before the State Grand Jury included GeorgeFresolone and John Januska.

On March 7, 1991, Carmen Ricci, Brian Petac-cio, Alan Cifelli and Grayhound Electronics wereindicted by a State Grand Jury on racketeeringcharges involving the sale of video gambling ma-chines. George Fresolone was a key witness beforethe grand jury in that case also.

Myron Sugerman pleaded guilty on March 24,1987, to federal charges involving the illegal trans-portation of gambling devices to Washington, D.C.The charges grew out of a federal investigation of thevideo gaming industry called Operation Vidgam. He

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was also a defendant in Operation Ocean in EssexCounty.

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The plight of compulsive gamblers and theirfamilies is a subject of great concern to the Commis-sion. There is abundant evidence that the problem isa serious one. The Federal Gambling Commissionconcluded in 1976 that when widely available, legalcommercial gambling leads to significant increases incompulsive gambling. “This is consistent with thehypothesis that widespread availability of gamblingin a legal form leaves a portion of those classified aspotential compulsive gamblers to actualize their po-tential compulsion,” the federal commission reportstated.

Arnold Wexler, Executive Director of the Coun-cil on Compulsive Gambling of New Jersey, Inc., hastestified frequently before legislative committees onthe problem of compulsive gambling in New Jersey.He was questioned at the SCI public hearing byDeputy Director Clark.

Q. Would you say [video gambling is] any moreaddictive than any other forms of gambling?A. From the stories I’ve heard from SouthDakota, from Maryland, from Delaware, fromthe Midwest and from the south, where they havethese [video] machines — in fact, I just heardstories from California recently — people thatare experts in this field tell me that it’s probablythe most addictive form of gambling there istoday.

Q. Do you know why they say that?A. Probably because of the quick, fast action.

Illustrative of this point is a telephone call re-ceived by Mr. Wexler shortly after his appearance atthe public hearing from a man who believes thatvideo gambling has ruined his life. This man, whose

identity the Commission is protecting, was inter-viewed by SCI counsel.

The man claimed to have lost at least $50,000 atvideo gaming machines in Paterson. He obtained themoney by extortion from a person who had shownhim kindness, given him a job and a place to sleep. Hetold counsel that he did not have a gambling problemuntil he was introduced to video devices, which hefound to be almost hypnotic in their action. Heobtained credit from operators to play the machinesand also played with money designated for maritalsupport, even though he had previously been ongood terms with his ex-wife. Eventually, he lost hisbusiness, his home, his car and his family.

Hoping to recoup his losses quickly, the man hadembarked upon a new career operating video gamingdevices in a “coffee shop” in Paterson. The deviceswere ordered and delivered but before they could beplugged in, he was arrested and charged with extor-tion. The man suffers from numerous serious mal-adies, which he believes were caused or aggravatedby his standing for uncounted hours at video ma-chines.

SCI Counsel Clark asked Wexler if he would beopposed to legalization of video gambling.

We are not a prohibition group. . . . But I couldtell you that the State of New Jersey today isaddicted to gambling. We’re in a position wherewe have 26 bills right now — the last time Icounted the bills — dealing with the new formsor added forms of gambling. . . .

I don't know where the State of New Jersey isgoing to stop with this legalization of gambling,but we've created a major epidemic in New

IV

THE VICTIMS

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Jersey with compulsive gambling....

Q. Do you have any estimate as to how manycompulsive gamblers there are in New Jerseytoday?A. We believe that there are 400,000 compulsivegamblers in New Jersey, roughly. [We] alsobelieve that 350,000 spouses are living with anactive [compulsive] gambler in their home and700,000 children living in a house with an active[compulsive] gambler, and that’s the real partthat bothers me.

The Commission is also concerned about theeffect of these devices on minors, although the lackof information is frustrating. This is a problemdeserving special attention.

Mr. Wexler testified:

You know, I have three articles that talk aboutvideo games. Here’s one from The [Star] Led-ger, May 6, 1982, out of Florida. It talks aboutan 11-year-old boy who’s sitting in jail becausehe was hooked on video games. Here’s anotherone from the News Tribune in . . . 1982, talksabout “video games called cause for truancy.”Two women said their children had been skip-ping school to play video games. Here’s one outof California about a boy pulled from a chimney,and he and his friend were charged with homeburglaries out of Los Angeles, two nine-year-oldboys, and it talks that they ripped off homeown-ers for $3,800 worth of jewelry and $500 worthof cash to play video games. So we have somedocumentation of it.

You know, you talked before about youth. Ninety-six percent, we know from Dr. Custer whorecently died, who was the foremost authority oncompulsive gambling in New Jersey, Dr. Custerdid surveys and showed that 96 percent of allcompulsive gamblers start gambling before age14.

. . . .

The Commission is aware that many experts onmental health problems of juveniles believe thatgambling among minors is growing in frequency andseriousness. Law enforcement and criminal justiceliterature report a growing belief that video gameplaying among young people, coupled with gam-bling, correlates with increased crime. A 1987British study concluded that “criminal” video gameplayers were distinguished from their non-criminalcounterparts by starting younger, playing more fre-quently, spending more money and having moreproblems with personal relationships.

Mr. Wexler acknowledged that there are fewprecise statistics regarding the problem of illegal useby minors of video gaming devices. However,Business Week magazine, in an article published inApril, 1991, reported:

Especially troubling is the surge of gambling byteenagers. According to a 1987 study of NewJersey high school students by Henry R. Lesieurof St. John’s University, 86 per cent had gambledat least once a week. Atlantic City casinos,where gamblers must be at least 21, turned away200,000 minors in 1987 and escorted an addi-tional 35,000 from their floors. But often no oneis around to keep minors away from automatedgambling machines, such as player-activated lot-tery terminals.

New gambling technologies are driving much ofthat growth. They have propelled the boominglottery business and revitalized the sluggish ca-sino and horse racing industries by making bet-ting easier, quicker, more exciting and moreseductive. New video versions of slot machinesand card games, say casino executives, are cap-tivating younger players raised in the video age.

Even as this report was in its final stages ofpreparation, a two-year study by researchers at theUniversity of Medicine and Dentistry of New Jerseyconcluded that the lottery is the most common outletfor compulsive gamblers. If this is true, proposals toauthorize a state-run video lottery deserve special

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scrutiny.

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As was stated in the Introduction to this report,the many issues raised by video gambling, whileperhaps superficially simple, are in fact exceedinglycomplex. The problems are not easily soluble and theCommission believes the Legislature and the Gover-nor are the appropriate entities to decide the issues.Nevertheless, the Commission believes that its inves-tigation and public hearing have already contributedsignificantly to that dialogue. The discussion in thisreport of the issues adds to that contribution.

One of the most difficult of these issues is that ofenforcement of the criminal laws against illegal pos-session or use of video gambling devices, which isinterwined with the issue of legalization. Statedanother way, if the machines cannot be policedeffectively, is legalization the only alternative? Orshould nothing be done at all?

Clearly, the status quo is unsatisfactory. Thou-sands of machines are already in use, especially inurban areas where those least able to afford to playthem are losing money. Aside from purely humani-tarian concerns about these players as well as fromthe fact that all players are being cheated in playinga low percentage game, much of the income is goingto organized crime. Low priority policing and a lackof regulation are, in effect, subsidizing a major seg-ment of the underworld.

Increased Law Enforcement

Because of technological considerations, illegalmachines are difficult for police to detect. Andbecause penalties for violations of the gamblingstatutes, even when they apply, are minimal, law

enforcement understandably gives a higher priority

to investigating other offenses. Nevertheless, theCommission believes the Attorney General shouldask the Legislature to adopt whatever amendmentsare necessary to remove any uncertainties about theapplicability of the gambling, forfeiture and racket-eering statutes to offenses involving illegal videogaming machines. In this connection, considerationshould be given to improving local licensing proce-dures, including the numbering and tracking of indi-vidual machines.

Since the prime impetus for the growth of videogambling is the huge economic gain which can bederived, the greatest deterrent to it may be found inraising the economic stakes for getting caught. Cer-tainly manufacturers and distributors of machines, aswell as members of organized crime, should betargeted. But shopowners and other entrepreneurslooking to make a quick, easy buck should not beignored. The grocery store owner must know that hestands to lose his property. The tavern owner mustrealize that he is putting his liquor license at risk bypermitting illegal video gambling. Both may think alittle harder about it than if all they have to fear is asmall fine and loss of the offending machines. Andthe threat of the forfeiture of their major assets mayinduce small businessmen to cooperate with lawenforcement in proceeding against distributors andmanufacturers of the machines.

Banning Video Games

The enactment of laws to impose a complete banon any electronic device which can be easily con-verted to illegal use would eliminate the present lawenforcement dilemma of distinguishing the “good”machines from the “bad.” Any such machine wouldbe subject to seizure on sight as per se contraband,

V

SOLUTIONS?

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without the need for police to undertake lengthysurveillance to witness its being used for illegalpurposes.

This simplest-to-impose and easiest-to-carry outsolution has one obvious major drawback. It wouldoutlaw not only unlawfully used machines, it wouldalso ban those which are used innocently, includingthose played for inexpensive prizes along the board-walks and at amusement parks, as well as thosewhich exist — ostensibly for pure entertainment —throughout the state.

Government Inspection and Regulation

The technology already exists to inspect videodevices to ensure that they will play legally permittedgames only and to determine easily if they have beentampered with. According to the testimony, there isno technological reason why the Division of GamingEnforcement laboratory could not apply this knowl-edge, now used to guarantee the integrity of slotmachines in Atlantic City’s casinos, to ensure thatvideo amusement machines are not used for illegalgambling. There are, however, two sizable practicalpitfalls in this idea.

First, although no one can give even a roughestimate of the number of video games — legal andillegal — in New Jersey, the number may be morethan the DGE laboratory could possibly handle, evenwith a significant increase in staff.

Second, the cost of inspecting and securing allthe video machines in New Jersey would be substan-tial. That cost should not be borne by the State, andit is unlikely that many owners of video games wouldbe willing to foot the bill, as the casinos do, to havetheir machines tested, especially when the resultwould be to render the machines unfit for their mostlucrative use.

Although it is unlikely that the State would enacta universal system of regulation for all such games,the Commission believes that the State should atleast endeavor to apply the available security tech-

nology to the arcade games conducted with itsapproval along the boardwalk at shore resorts and atamusement parks. To accomplish this, DGE should,consistent with a consolidation plan submitted to theGovernor by the Attorney General, assume the re-sponsibilities of the Amusement Games ControlCommissioner in the Division of Alcoholic BeverageControl.

Legalization of Video Gambling

Legalizing video gambling would require notonly a referendum but also an inspection and regula-tion scheme like that discussed in the previous sec-tion, as well as a mechanism to screen and licenseoperators. It is almost impossible to estimate eitherhow much such a regulatory system would cost orhow much play and revenue would be generated.

More than any other response to illegal videogambling discussed in this report, legalization pres-ents a serious threshold policy question: ShouldNew Jersey introduce yet another form of legalgambling, especially in light of the often expressedcriticism of the extent to which New Jersey alreadyrelies on gambling revenues and the fact that any newform of gambling will inevitably create new gam-blers, including some compulsive gamblers. At leastone commentator, New York Times columnist Wil-liam Safire, in the column cited earlier, wrote, “It iswrong for the state to exploit the weakness of itscitizens."

Video Lottery

In 1982, then-Attorney General Irwin I. Kimmel-man ruled that although games played on a player-operated video terminal satisfied the legal definitionsof a slot machine, “there is no constitutional orstatutory bar to the incorporation of a consumeroperated video game’s terminal into ... the NewJersey State Lottery.” However, lottery games usingvideo gaming devices were never implemented be-cause on March 1, 1983, then- Governor Thomas H.

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Kean signed a law prohibiting their use by the lottery,overturning the impact of that legal opinion.

The Legislature is now considering bills whichwould authorize the Lottery Commission to installvideo lottery terminals in taverns and restaurantsserving liquor. But a fundamental legal questionregarding this proposal remains unanswered andmust be resolved, assuming one of the pending billsis enacted. That question is whether the programwould be limited to mere video versions of thefamiliar lottery games or could be extended to so-called “inter-active” video games in which the playermakes certain choices or decisions in response to hisinitial draw of “cards” or numbers. Obviously, thelatter type of game which, according to the 1982Attorney General’s opinion, is permissible withoutreferendum under present lottery authorization, hasa much greater potential for raising new revenue, andalong the way creating an untold number of newgamblers. An inter-active video lottery would alsopresent at least a perceived threat to the Atlantic Citycasinos’ slot machine trade.

This proposal requires careful review of its policyimplications by the Governor and the Legislature.Furthermore, it suggests a need for the currentAttorney General to review the issues addressed inthe 1982 opinion, the reasoning of which can bequestioned, for it makes no sense to authorize a videolottery including inter-active games if the AttorneyGeneral doubts that such a program could survive analmost certain legal challenge.

And lastly, the recent report by the University ofMedicine and Dentistry of New Jersey on the rela-tionship between the lottery and compulsive gam-bling deserves careful scrutiny as the pending bills areconsidered.

* * *

One final note — in grappling to find a solutionto this problem the policymakers should not expectthat any form of legalized video gambling or lotterywill put the illegal games out of business. Thus, therewill always be a need for some level of law enforce-ment response. And should there be any legalizationof new games, there will also be a need to provideadditional resources, either from public funds orcontributions by legalized gambling entrepreneurs,to programs that refer and treat compulsive gam-blers.

This report has endeavored to summarize com-plex and difficult issues. We trust that the factspresented and the solutions discussed will enable thepolicy makers to act wisely for the benefit of thepeople of New Jersey.

The investigation that led to this report was directedby SCI Counsel James F. Villere and was conductedby Special Agents Michael R. Hoey and Paul P.Andrews Jr., Intelligence Analyst Debra A. Sowneyand former Special Agent James J. Sweeney. Assis-tance was also provided by attorneys and investiga-tors from the State Organized Crime Task Force inthe Attorney General's Office and detectives fromthe State Police.

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