Sam Moore ran a “Gentlemen’s Club” (talk about a euphemism) in Richmond VA. It was called Club Velvet. It is not in business anymore. For a sense of how it was in its heyday, here is a review by Jack Lauterback. Looks to me like if it is unedifying and in Richmond, Jack blogs about it. I asked Jack for a comment about Sam Moore and club Velvet in light of the Fourth Circuit’s unfavorable decision in Moore’s conviction appeal. Here is what he had to say:
I used to bartend across the street and have visited the club many times. He also used to come in for drinks. Sam did used to pay hobos to stand on nearby corners with signs promoting the club. I thought that was funny (and somewhat nice of him).
OK. You know what business he was in and he made it into my blog, so it is not too hard to guess what he was convicted of. The Government convinced a jury that Mr. Moore was not thorough in reporting all the receipts of his business and that the lack of thoroughness was deliberate. The owner of a “gentlemen’s club” actually has several streams of revenue:
The first income category comprised cover charges, which were tracked by “doorwatchers.”
The second income category comprised dancer fees and fines. These were payments by dancers of the Club’s share of payments (by patrons to the dancers) for lap dances (ranging from $20 to $30), and fines for “violations” of Club rules, such as failing to perform a minimum number of dances. The amount the dancers owed in fees and fines was tracked by a “dancewatcher.” Several dancewatcher notebooks, which tallied dances and fines, were recovered during the search of the Club.
The third income category comprised disc jockey payments. Under the procedures implemented by Moore, each of the dancers paid the DJ $40 per night, and the DJ turned over half of those payments to the Club.
The fourth income category comprised fees, ranging from $10 to $20, the Club received on cash advances to customers on their credit cards.
The fifth income category comprised fees the Club received beginning on August 5, 2005, when three ATMs installed the previous month became operational. These were fees paid by patrons withdrawing cash from the ATMs.
The sixth and final category comprised income from the sale of food, drinks (including $250 bottles of champagne, which gave patrons access to the Club’s third-floor “champagne room”), and tobacco products, as well as from pool table rentals.
Apparently the ATMs were a significant part of Mr. Moore’s skimming. Here is how the Court explains it:
But the credit card revenue and “cash to bank” totals did not account for the full amount of the Club’s revenue, because Moore was using another avenue to, in effect, deposit cash in the bank; that is, on a nightly basis, Moore replenished the cash held in the three ATMs he had installed in July 2005. Each time a patron withdrew cash from an ATM, the funds were debited from the patron’s bank account and credited, along with a fee, to the L.A. Diner account. The sums Moore deposited in the Club’s account in this manner equaled $256,660 in 2005, $776,260 in 2006, and $693,980 in 2007.
I have been wracking my brain as to exactly how that was helping him to hide anything. Just as a thought experiment imagine that Mr. Moore had a single customer one night who spent $100 in cash. Mr. Moore rather than depositing the cash used it to stock the ATM. The same customer realizing that he was actually supposed to have bought groceries with the cash replenishes his wallet from the ATM. $100 is credited to Mr. Moore’s bank account. Jack Lauterback, the authority on Richmond night life, isn’t in on the trick either or else he is not saying.
Mr. Moore’s tax issues were not brought to light because the IRS decided to investigate him. Local law enforcement and the Alcoholic Beverage Commission were troubled by the manner in which Club Velvet operated. Mr. Moore, himself, had already been in trouble. He had been convicted of having sex with a minor and filming himself having sex with an adult, apparently without mentioning that the cameras was running. For that he was sentenced to 60 days. Richmond police and the ABC had a lot of concerns with Mr. Moore and Club Velvet:
A state judge issued the warrant on February 22, 2008, and it was executed early the next day. The warrant authorized the police to search for evidence of prostitution , bestiality, public nudity, and drug distribution .
Bestiality ? Talk about frightening the horses. Nothing came of the local investigation. But Richmond PD had invited some others to the party:
The police officers who conducted the search were accompanied by ten IRS agents and four agents from the federal Bureau of Alcohol, Tobacco, and Firearms (ATF). Ownby sought the assistance of the federal agents for two reasons: (1) “it was expected that the search would yield a substantial volume of documentary evidence to be catalogued,” and “the RPD lacked sufficient staff to conduct the document-intensive search and to manage the search in an orderly fashion”; and (2) “Sgt. Ownby decided that it was necessary to keep search preparation completely secret, even from other RPD sections.”
The search did turn up something of interest to the IRS.
During the February 2008 raid of the Club, the RPD seized (and later turned over to the IRS) dance watcher notebooks for July and August 2005, and December 2007 through February 2008. Some pages tallied the number of dances performed, some showed dancers’ hours, and others tracked fines the dancers owed and/or paid.
Moore’s appeal reminds of the case of Harry Stonehill, although the latter is much more dramatic. Authorities in the Philippines raided Harry’s house. The raid turned out to be illegal under Philippine law, but American agents were able to use evidence seized in the raid, because it was handed to them on a “silver platter”. The legality of the evidence was still being litigated last year which is kind of astounding since the raid took place in 1962. Stonehill’s estate was claiming that there was new evidence of involvement by US agents in the raid and wanted the Ninth Circuit to overturn assessments made in 1967 for the tax years 1958 to 1960.
Moore argues that the search was unlawful for two reasons. First, he argues that the true purpose of obtaining a search warrant was to seize evidence that Moore was violating federal law, not state law; in his view, the state-law allegations in the warrant application were a pretext to allow the IRS to avoid obtaining a federal warrant, and the government therefore violated Federal Rule of Criminal Procedure . Second, he argues that the state warrant was overbroad and therefore violated the Fourth Amendment.
The argument about this was pretty lawyerly. The Court ended up allowing the evidence, but it really did strike me that there was quite a bit of federal assistance – 10 IRS agents and 4 ATF – to wonder what was going on if they didn’t think they were going to, as they say, make a federal case out of it.
Is This How IRS CID Should Be Spending Its Time ?
This appears to be another case of the “That’s How They Got Al Capone syndrome.
Sam Moore may have done quite a few things that are to say the least not very nice. Other than his video taping escapade, which seems to have been rather lightly punished, none of the not very nice things could be proved. His tax crimes could be proved, so that is what they got him on. He was sentenced to 78 months in prison and a $250,000 fine. Everybody’s happy. Except Sam. And maybe Jack Lauterback. Also likely the “hobos”. There is a problem though.
IRS CID is the only law enforcement agency that enforces the federal tax laws. Should they be really spending their time on bestiality searches, when criminal tax avoidance on a much grander scale is elsewhere ? Just asking.
Activist lawyer, Cathy Brennan, on the other hand was really pleased when I asked her to comment on the case:
Although strip clubs may be a “legal business,” the entire strip club industry has the taint of illegality. This taint is an extension of the fact that this industry is based on the sexual exploitation of women for a financial profit. It’s difficult to know where the “legal” exploitation (i.e., dancing pornography) ends and the illegal exploitation (prostitution, sales of narcotics) begins. It’s heartening when government targets this industry in creative ways I suspect your average Pimp thinks little of.
You can follow me on twitter @peterreillycpa.
Originally published on Forbes.com Dec 12th, 2012