Break-Open Ticket Sales Lead to an Embezzlement Case in Colchester | Off Message

Break-Open Ticket Sales Lead to an Embezzlement Case in Colchester

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THOMAS JAMES
  • Thomas James
The former owner of Colchester pub the Spanked Puppy was charged with felony embezzlement related to the establishment’s robust sales of break-open tickets to benefit a local hockey nonprofit, according to Vermont's Division of Liquor Control.

Seven Days highlighted the ticket sales at the Spanked Puppy last year in one of the stories in Give and Take, a series that examined Vermont’s massive and lightly regulated nonprofit sector. While most gambling is illegal in Vermont, for-profit entities such as the Spanked Puppy are allowed to sell break-open tickets, provided the proceeds go to a nonprofit.

The pub’s former owner, Michelle Simms, 61, was cited in February to appear in court for felony embezzlement, according to Skyler Genest, the chief investigator and director of compliance and enforcement for the Division of Liquor Control. The Colchester Sun first reported on Simms' case.



“We did a forensic audit of their accounting practices,” Genest said. “We found what would be described as loose, at best, accounting procedures for those proceeds, and some large discrepancies that there was really no justification for.”

According to Genest, Simms was referred to a court diversion program, which is an alternative to traditional criminal prosecution. Participants admit responsibility for their actions and meet with a board and volunteers to address any harm done. Records of court diversion cases are not public.

Reached by phone, Simms declined to comment.

Seven Days reported last year about the lack of accountability in break-open ticket sales for charities. The games are also a popular fundraising tool for fraternal and veterans organizations.
After the story, Genest said, “more complaints have come in, either from a nonprofit or disgruntled employees from establishments that sell these tickets.” Liquor control has “easily a dozen active investigations at this point on other … complaints or tips about fraudulent activities involving break-open tickets,” he said.

Break-open ticket fundraising is supposed to work like this: Charities purchase boxes of tickets that can be sold for a dollar or two, typically at bars or fraternal organizations. Purchasers peel back tabs to see if they’ve won some cash. A big win is a few hundred dollars. If a full box of tickets is sold, even after prize payouts, a charity should be guaranteed a pre-set profit.

In practice, though, bars often discard boxes after customers win the bigger payouts, creating so-called “dead soldier” tickets — and an accounting nightmare. Without the unsold tickets, there’s no way to verify what the revenues were for a box of tickets, and what a charity should receive.

Simms told investigators that she didn’t keep unsold tickets “because I didn’t build a 30 by 40 garage to store tickets,” according to public records of the investigation.

Investigators questioned Simms several weeks after Seven Days published its story in June 2018. They asked about her arrangement with the Colchester Hockey Boosters Association.

The investigators calculated that, based on the volume of tickets purchased for sale at the Spanked Puppy over a two-year period, the profit from selling them all would have been $324,736. A person affiliated with the pub had told investigators that typically, only 40 percent of the tickets were actually sold. State investigators calculated that would have meant profits of $129,894.

Simms' records showed a total profit from the sales for the hockey boosters of $19,735. The nonprofit's president, Chris Rosato, told investigators that the charity received $23,388 from the ticket sales during that period.

Investigator Matthew Gonyo asked Simms where the rest of the money went.

“I honestly don’t know,” she said, according to a transcript.

“Well, that’s a problem,” Gonyo replied.

“Yup,” she allowed.

She later added, “I thought I was donating a good number.”

The bar has since been sold. The new owner, Ted Tomlinson, continues to sell break-open tickets, but for a different nonprofit, according to the Colchester Sun. Attempts to reach him by phone were unsuccessful.

Genest noted that, prior to the Seven Days story, authorities had initiated a similar case last year against a man who formerly owned an establishment in South Burlington called the Sugarhouse Bar & Grill. More recently, state investigators aided South Burlington police in a case that resulted in an embezzlement charge involving break-open tickets and a Moose Lodge, Genest said.

“It’s always been our position that this is under-regulated and has a high potentiality for abuse,” Genest said, “and it’s certainly playing out as we look at more and more cases.”

Enforcement is tough, he said, because the “victims” — the nonprofits — are often satisfied with the way things are.

“The nonprofits are happy with whatever passive income stream comes in,” Genest said. “So even if they’re getting an eighth of the money they should be entitled to from the sale of these tickets, they would rather receive that one-eighth of proceeds than receive nothing at all.”

Reached via email, Rosato, the president of the hockey boosters, said he had no comment. 

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