Jackson Jambalaya

The saga of Boxcar Billy Murphy and his Fine Arts Institute of Mississippi continues. Mr. Murphy operates the Ridgeland charity for the purpose of promoting the arts in Mississippi and funding scholarships for students according to his website and numerous public statements. FAIM is funded by his bingo operation, Boxcar Bingo. Funding a charity with a bingo operation is challenging at times as the charity must operate under the rules of two state agencies: the Secretary of State (charities regulation) and the Gaming Commission (bingo regulation). FAIM was formed in 2001 but did not obtain a charitable gaming license until 2006.

The charity has drawn controversy after the Clarion-Ledger reported "According to the secretary of state's office, the institute in 2007 posted revenue of nearly $4.5 million. It spent nearly $173,000 on programs, just shy of 4 percent of its total revenue. In 2006, the agency collected nearly $1.3 million in revenue and paid out $1,000 on programs, less than 1 percent of its budget."

The state investigated the charity's finances and sought to deny the renewal of its charitable gaming license. The Gaming Commission suspended the license several weeks ago but allowed Boxcar Bingo to continue operations while it appealed the decision. The suspension was based on three issues: Mr. Murphy spent $7500 of bingo receipts for software to track and report revenue and expenses for complying with state regulations, paid Madison County Supervisor Tim Johnson a monthly fee to lobby the legislature, and did not disclose a loan from another charity operated by Tim Johnson's wife when it applied for a bingo license.

FAIM/Boxcar Bingo presented its appeal at a hearing held at the Commission several weeks ago. Mr. Murphy and his attorney Eric Hamer (Attorney for the Madison County Board of Supervisors) vigorously defended his case. A razor-sharp Hamer ran rings around the lawyers for the Gaming Commission that day as he used every argument and trick possible to defend his client. One Commission attorney looked like a linebacker going to a funeral as he fumbled around from point to point while the other looked like he just learned how to shave as he feebly argued the state's case. Ms. Myers was the only one that asked tough questions and seemed to have a good grasp of the case as she grilled Mr. Murphy at the end of the hearing in a manner that was tough but allowed Mr. Murphy to answer the questions in full.

Meanwhile, the media was in attendance: MC Journal, The Monica Hernandez from WLBT, later Ballou the Bear, and even Ms. Laraye Brown of the Clarion-Ledger who arrived fashionably late (thirty minutes) in typical sorority girl fashion: coffee in hand, sunglasses on head, you get the idea. Ms. Myers at first banned cameras from the hearing and relented after Ms. Hernandez repeatedly challenged her decision during a break. Credit must also be given to Ms. Brown who strongly objected to an attempt to seal many of the documents filed in the case. Ms. Brown did so in the middle of the hearing and Ms. Myers was forced to concede the point to the young intrepid reporter.

Mr. Murphy claimed a Doug Tyrone of Charitable Gaming called him and asked him if was interested in starting a bingo operation to fund his charity. He said there was no training for running a bingo hall and it was difficult to follow two different agencies with two sets of rules that he said at times conflicted with each other. He claimed he purchased the software because he paid a CPA $1500 a month to provide reports to the state. He argued the software gave him the ability to compile the reports without a CPA and thus save money for the charity in the long run (I actually thought this was a good point).

However, Mr. Murphy complained about the strict rules imposed upon him by the Gaming Commission. The Commission requires Boxcar Bingo to send 40% of the net proceeds to the charity, FAIM. Murphy said it was "arbitrary" and "antibusiness" and was the reason he hired Tim Johnson as a lobbyist. It was stated Mr. Johnson was hired to get the legislature to allow him to raise employee pay, increase the maximum payout per bingo session to $10,000 and relax the 60/40 rule (He claimed the rule was too strict and few charities could adhere to it.).

Well....you long time readers of JJ know what is coming next: I filed a public records request with the Gaming Commission asking how many charitable gaming licenses were denied over the years for violating the 60/40 rule. The Commission stated it was 13 since 2002: 5 in 2002, 5 in 2003, and only three since 2004. The Commission testified there were 87 bingo halls in Mississippi. Thus, the Commission has only denied said licenses three times in the last six years, thus belying the claim that the rules were too strict as few charities seem to get in trouble over this particular regulation. Mr. Murphy even went further and said the Secretary of State's office told him to hire a lobbyist in a letter, a letter he never produced (He repeated the claim at the SOS hearing this week). The SOS office told this correspondent it never sent Mr. Murphy such a letter or told him to hire a lobbyist.

Ms. Myers recommended the charitable gaming license not be renewed last week (It must be noted the opinion here came from the Clarion-Ledger article last Saturday and that it is not signed.).

Ms. Myers also denied Hamer's motion for recusal. Hamer argued she had a conflict of interest since the hearing examiner and prosecutors both worked for the Attorney General's office. Mr. Hamer know this is a fundamental part of administrative law and few courts are going to grant such a motion (Indeed, Mr. Hamer should adopt that defense the next time he answers a bar complaint and see how far he gets as the Bar uses the same practices in um, disciplining wayward lawyers.).

Ms. Myers ruled the software purchase violated Commission regulations as the purchase was paid out of a charity bank account and thus grounds for denial as bingo expenses are to be paid out of a separate account for said expenses. Paying such expenses out of the charity account thus prevents the commission from accurately determining whether Boxcar Bingo is spending more than 60% of bingo income on expenses.

The hearing officer then ruled the hiring of Tim Johnson as a lobbyist violated Commission regulations as well as Mississippi Code section 97-33-52(2) stating all net proceeds from bingo "shall be expended only for the purpose for which the charitable organization was created" and was grounds for denial as well.

FAIM paid $24,500 to Tim Johnson for lobbying services pertaining to "gaming reform". Mr. Hamer repeatedly argued Murphy had a constitutional right to free speech. Ms. Myers stated he indeed had a right to free speech but not a right to use "net proceeds from bingo to pay a lobbyist". Ironically, Mr. Murphy told the Commission he still employed Johnson at a salary of $3,000 a month for "marketing" services.

The final issue adjudicated by Ms. Myers was whether some dealings between MYART and FAIM consituted a violation. MYART, Mississippi Youth Activities & Recreation Team, is a nonprofit operated by Tim Johnson's wife. It apparently loaned $25,000 to FAIM. Mr. Murphy called the loan a "donation". MYART and FAIM entered into an "asset-sharing agreement." Under the terms of the agreement, FAIM was required to repay the $25,000 within 90 days of denial if it was unable to secure a charitable gaming license. The agreement had a fixed term: five years (Thus, does FAIM have to repay $25,000 to MYART if its appeal fails?). The opinion states this was a loan, not a contribution even though FAIM reported it as a contribution on its tax returns.

FAIM had a duty under the law to report any loans or asset-sharing agreements to the commission. The asset-sharing agreement also stated FAIM was to give 70% of the "net assets received from FAIM's bingo operation" to MYART. While such payments would have been a violation, Ms. Myers found that no payments were made to MYART and thus no violations occurred.

However, she did state "Regulation L, Section 12 (the 60/40 rule) requires that a charitable bingo lincee's 'net proceeds' from bingo must be at least 40% of the licensee's adjusted gross receipts from bingo and must be devoted to the specific purpose for which the charity was created." The opinion also states "at the hearing Murphy testified that in FAIM's first year of operation, it was able to spend only about 7% of its net bingo proceeds on charitable programs. The rest of the net proceeds (about 93%) was used for its administrative expenses. The next year it spent approximately 13% or 14% on charitable programs, with more than 80% used for administrative expenses; and in 2009, it spent about thirty percent (30%) on charitable programs, with about seventy percent being used for administrative expenses."

Be that as it may, Ms. Myers ruled "FAIM was deceptive in failing to disclose to the Commission the Asset Sharing Agreement executed between FAIM and MYART. However, she states in her conclusion it was not a violation but the "deception" did bring "into question the general character of the FAIM charity."

Mr. Murphy is appealing the decision to the Gaming Commission board. The Secretary of State held its own hearing this week and a decision will be announced in the next two weeks. The Madison County Journal reported the parties were discussing a possible settlement of the case.

Copy of Recommendation of Denial by Hearing Examiner, 2007 Form 990, 2006 Form 990, 2005 Form 990, Copy of SOS order