After poker ‘disaster,’ watchdog suggests stripping Va. Charitable Gaming Board of some powers

A new report from Virginia’s watchdog agency suggests limiting the Virginia Charitable Gaming Board’s regulatory powers after concluding the board’s chairman failed to properly recuse himself from writing rules for Texas Hold ‘Em poker tournaments he stood to benefit from.

The 59-page report, delivered to legislators and Gov. Ralph Northam’s administration Wednesday, identified major problems with the state’s failed effort to legalize and regulate charitable poker. The regulations written by the industry board, the report said, “damage the integrity of the charitable gaming program” by explicitly allowing conflicts of interest and minimizing the involvement of charities.

“This appears to provide for the creation of poker halls in Virginia,” the Office of the Inspector General (OSIG) wrote, adding the “low level of involvement required by the charity” could make it difficult for regulators to track where poker profits are going.

Chuck Lessin, a homebuilder now operating his own poker room at his Richmond sports bar and bingo hall, played a key role in the development of those regulations as chairman of the Charitable Gaming Board. He disclosed his personal interest in the outcome, but state investigators say that wasn’t enough and he should’ve recused himself entirely.

“Board members not properly recusing themselves in accordance to both the code and their approved bylaws damages the integrity of the board and the overall commonwealth’s charitable gaming oversight,” the agency wrote.

In a written response to the Mercury, Lessin called the watchdog report “BS” and “outrageous.” He said OSIG wasn’t instructed to do a deep dive into the poker regulations and insisted he was not legally required to recuse himself.

“The whole tenor of the report is trying to ‘solve’ a problem without actually defining it,” he said.

He noted he “voluntarily disclosed” his business interest in poker and said neither the Virginia Department of Agriculture and Consumer Services nor Attorney General Mark Herring’s office, both of which provide staff for Charitable Gaming Board meetings, told him the law disqualified him from voting.

Sen. Chap Petersen, D-Fairfax, acting as Lessin’s attorney, said the report was so skewed toward VDACS’s interpretation of events “it might as well have been written on the agency’s stationery.”

“This is a report in search of a villain,” Petersen said.

VDACS declined to comment on the report.

The OSIG review, which has been in the works for months, covers much of the same ground as a Virginia Mercury story published this week detailing what happened after the General Assembly voted to legalize charity poker tournaments last year but left it to the Charitable Gaming Board to write the regulations. State officials at VDACS pushed back against regulations the board approved in late 2020, saying they were ripe for abuse and lacked clear safeguards preventing one person from running and profiting off poker games while controlling the charity that’s supposed to get a cut. In the 2021 session, the legislature later tried to freeze the process by nullifying those regulations. Lessin and others have opened poker rooms anyway, despite the state issuing no permits and having no regulations in place.

Virginia doesn’t have licensed poker rooms. A state gambling board chairman opened one anyway.

At a Senate hearing on gambling issues this week, Sen. Joe Morrissey, D-Richmond, said the situation served as a cautionary tale of what can happen when the state botches oversight of gambling.

“It is a disaster,” Morrissey said. “It’s an unparalleled disaster.”

In an interview Thursday, Del Paul Krizek, D-Fairfax, who’s leading a legislative subcommittee studying charitable gaming, said the OSIG report provides “some good marching orders” on how the General Assembly should proceed.

“I think the problem is that we have a Swiss-cheese approach to regulating gaming,” he said.

The report suggests changing the Charitable Gaming Board from a regulatory body to an advisory one, a move OSIG says would allow the state to continue to benefit from industry member’s expertise while giving VDACS more power to actually regulate the industry and punish wrongdoing.

“This will reduce the impact of the conflicts of interest inherent within the Board makeup,” OSIG wrote.

Under state law, six of the Charitable Gaming Board’s 11 members must be directly involved in the charitable gaming industry, more than the five-person quorum required to conduct official business. The law also prevents anyone other than an industry representative from being selected as board chair.

Unlike other gambling-related boards like the Virginia Racing Commission and the Lottery Board, the report found, the Charitable Gaming Board has no rules against board members or their families having a direct financial stake in gambling.

Lessin has argued his situation is no different than other state boards that let business owners participate in oversight of their industry. The IG’s office disagreed, saying it sees a fundamental difference between the “indirect nature” of farmers regulating pesticides and the “direct nature” of charitable gaming operators setting policies on how much of their profits go to charity.

The report looked at whether regulation of charitable gaming should be moved entirely to the Virginia Lottery, but concluded there are easier ways to improve the existing system.

For example, the report found VDACS lacks authority to regulate landlords who rent property to charitable gaming organizations, despite the “greater potential for fraud and abuse in the lessor-to lessee-relationship in this area” when compared to other legalized gambling.

The OSIG report also found fault with regulators’ decision to begin the process of accepting applications for poker permits before the regulations were finalized, which the report suggests created an opening for Lessin to sue VDACS for not processing his poker application within the 45 days required by law. VDACS told investigators it made applications available early because of “pressure” to issue poker permits as soon as possible. Agency records show much of that pressure came from Lessin, but Petersen said OSIG’s report downplays the fact the agency itself didn’t comply with the law.

More broadly, investigators found VDACS “does not have sufficient staffing to meet its oversight and enforcement requirements,” lacks oversight of at least 70 percent of the money flowing into the charitable gaming industry due to an exemption for slots-like bingo machines set up in “private social quarters” and lacks authority to quickly revoke charitable gaming permits without the board’s approval.

That setup, OSIG wrote, creates more conflicts of interest and could allow “permit holders to continue to operate for years in known violation of charitable gaming regulations.”