State authorities have launched two separate investigations into the loosely regulated revenue generated by slot machines that bring millions of dollars to fraternal clubs on the Eastern Shore.
In one investigation, the Maryland attorney general's office and an Annapolis grand jury are looking into whether revenue from the slots has been properly spent and accounted for. Investigators are combing through boxes of documents, including bank records, that were subpoenaed from the roughly 50 clubs licensed to have the machines.
In the other probe, sources said, the state prosecutor is investigating possible financial irregularities in the Talbot County sheriff's office. The investigation involves, in part, the possible misuse of slot machine revenue given to the office by local clubs as charitable contributions.
Legalized five years ago, slot machines have blossomed into a huge, largely unregulated business for the Shore clubs. Although half of the proceeds, by law, must go to non-profit organizations, the state gets none of the gambling revenue.
Local sheriffs, who often have close ties to the fraternal clubs' leaders, are charged with regulating the slot machines, a situation that Maryland State Police officials have warned could lead to corruption.
Last year alone, players dropped nearly $30 million worth of quarters into machines at 50 fraternal clubs across the Shore. After payoffs to players, the clubs had proceeds of some $5 million, according to financial statements filed by the clubs with the state.
Of that, the clubs reported giving half to charities, including churches, Little Leagues and the NAACP. The clubs kept the rest for themselves -- for high-tech beer pumping systems, building additions and pool tables, the statements show.
The attorney general's investigation was sparked by complaints from state police officials that some of the money may not be accounted for properly, according to Attorney General J. Joseph Curran Jr. He acknowledged that the state law governing slot machines is vague.
The investigation is being handled in Annapolis because the clubs file the annual financial statements about their slot machine income with the comptroller's office there. Subpoenas went out to all Eastern Shore clubs with the gambling devices in August.
Among things the investigators are checking is whether the clubs actually made the charitable contributions to non-profit organizations reported in disclosure statements, Mr. Curran said.
Daniel Dougherty, commander of Veterans of Foreign Wars Post 6027 in North East in Cecil County, said the subpoena requested information about his club's five slot machines, including records about the purchase of the machines and the distribution of club revenue.
"There are no problems with the slots," said Mr. Dougherty, whose club had net gambling revenues of nearly $350,000 last year.
In the second investigation, sources in Baltimore and Easton said, the state prosecutor subpoenaed records from the Talbot County sheriff's office in Easton at least twice, most recently this past Monday. The prosecutor's office has also been looking at the campaign finance reports of Sheriff John J. Ellerbusch Jr., sources said.
As is his policy, State Prosecutor Stephen Montanarelli declined to confirm or deny the existence of the probe.
In the year ending June 30, the Talbot County sheriff's office received $2,050 in contributions from two fraternal clubs, according to records on file in Annapolis. Such contributions are not prohibited by state law.
Sheriff Ellerbusch, when contacted by a reporter yesterday, said he knew nothing about an investigation. "This is the first time I've heard about it," he said. "You've got me thinking, what the hell's going on."
He said he has little control over his department's $323,000 budget.
But he does oversee a special fund named after him to help educate the area's youths about drugs and crime. He declined to say how much money was in the fund but said contributions come from local civic groups and businesses.
Mr. Ellerbusch, now 36, was a Talbot County deputy sheriff in 1986 when he ran against his boss, then-Sheriff Robert Gerlock, for the department's top position. He defeated Mr. Gerlock in the Democratic primary and won the general election against a Republican opponent.
He ran unopposed in 1990 and is currently serving his second four-year term in office, for which he receives an annual salary of $36,500.
While nothing in state law prohibits sheriffs from accepting contributions generated by the slot machines, the attorney general's office advised Somerset County Sheriff Robert N. Jones in 1989 that a sheriff accepting the contribution of slot revenue "might well raise serious questions under the Maryland Public Ethics Law."
Some sheriffs refuse to accept the gifts.
"We have a policy not to do that," said Sheriff Rodney Kennedy in Cecil County. "As a law enforcement agency, from time to time, there are going to be complaints [about the clubs]. We just reserve that independence."