Officials of the Justice Department's Public Integrity Section say former South Pittsburg Mayor Mike Killian made hundreds of thousands of dollars from an illegal gambling operation that was operated over a 25-year time period.
Prosecutors are asking that Killian be sentenced to between 12 and 18 months in federal prison and that he pay a fine of between $3,000 and $30,000
Attorney Lee Davis is asking probation or home confinement for Killian, who is due to be sentenced on Thursday morning by Federal Judge Curtis Collier.
Barry Cole, who managed the Killian gambling operation, will be sentenced at the same time.
Prosecutors said Killian "was the leader of a long-running and diverse illegal gambling business, from which he made hundreds of thousands of dollars in illicit gains while openly flouting state and federal law. The defendant’s conduct is all the more egregious given his position as Mayor of South Pittsburg from 2005 until 2012. Elected officials should be pillars of the community – individuals who respect the law and work tirelessly to benefit their constituents.
"Instead, Killian as Mayor owned and managed an illegal gambling business in open and notorious violation of established law – all to benefit himself financially. In the process, Killian corrupted his employees by forcing them to engage in illegal behavior, enabled the gambling habits of his constituents, weakened the public’s faith in its political institutions, undermined the community’s respect for the rule of law, and betrayed the trust that voters placed in him to act in the best interests of South Pittsburg.
"While ordinary, law-abiding citizens struggled to make ends meet, their Mayor amassed significant financial assets by profiting off an illegal activity that preys on the weaknesses of those who gamble. For this, Killian deserves substantial punishment."
Prosecutors also said that Killian "flagrantly violated state and federal law for well over a decade while he operated an illegal gambling business. The defendant’s scheme had three parts: an illegal lottery, sports betting, and video gambling. Killian’s gambling activities date as far back as 1988, when he began running his outlaw lottery. The Probation Office calculates that Killian made over $400,000 over the approximately twenty-five years that he operated this illegal lottery scheme.
"In 2002 the defendant’s greed led him to expand his business into sports betting. For this purpose, he enlisted the help of his co-conspirator Robert Barry Cole. The pair began a decade-long partnership that took in between $8 million and $12 million in sports wagers and netted them at least $300,000 in profit. Because gamblers often collected winnings at the Lotto Mart, Killian drew his employees into the scheme, effectively forcing those who relied on him for their livelihood to participate in illegal activity by delivering winnings to bettors.
"Always on the lookout for additional streams of revenue, Killian set up an online betting account with an offshore gambling website in October 2012. This operation allowed Killian and Cole to expand the gambling business by receiving wagers from bettors on the Internet.
"The Defendant also installed illegal video poker machines at his place of business, the Lotto Mart, and enjoyed this source of illegal proceeds from 2004 until 2013. The Probation Office estimates that Killian made at least $28,800 off the twelve gambling machines during this period, while noting that the true figure is 'likely much higher.'
"Killian cannot explain away his conduct as an aberration or one-time lapse in judgment. Indeed, the defendant’s course of criminal conduct goes back almost twenty-five years and only stopped when federal officials executed lawful search warrants in January 2013. As evidenced by the foray into Internet sports betting as recently as October 2012, it appeared that the illegal business was poised to only increase in scope and profitability."
Prosecutors said, "Killian’s conduct while Mayor betrays a contempt for the constituents who voted him into office and placed their trust in him to promote the interests of their community. The defense argues that Killian did not further his criminal conduct by using his “position or resources as mayor” and that his 'acts as a gambler were independent of his role as mayor.' While the defendant may not have embezzled government funds or used his position as Mayor to further his crime, his illegal gambling business should not be viewed as wholly distinct from his political position. For criminal conduct on the part of a sitting Mayor has numerous deleterious effects on the community as a whole.
"The United States recognizes that the Defendant has made a positive impact on his community and his family as both a civic leader and father. These admirable traits, however, must be tempered by the defendant’s knowing decision to engage in sustained criminal conduct for several years when he had no justifiable reason for doing so. Indeed, he had every reason not to do so, given his successful career as a businessman, his stable family situation, and his position as Mayor. Unlike other defendants appearing before this Court who have little opportunities in life, Killian was not experiencing significant hardship. Nonetheless, he chose to betray the trust that the public placed in him by engaging in criminal conduct.
"One of the most disturbing aspects of Defendant’s crime is the open and notorious
violation of the well-established prohibition on gambling. A Mayor who openly flouts the law
betrays the trust that the public has placed in him to represent their best interests. Killian’s
criminal conduct – and the hundreds of thousands of dollars he received in illicit gains – is an affront to the residents of South Pittsburg who obey the law and expect their Mayor to do the same."
Attorney Davis argued, "This case is principally about sports betting and video poker machines. Mr. Killian did not need, use, or tolerate violence or intimidation in furtherance of the gambling business. There were no debt collectors or bag men. Bets were made - in the case of the sports betting - and bettors paid their tab or collected their winnings. It was a consensual, non-violent enterprise. The machines at the Lotto Mart were simply video games that made illegal payoffs from time to time. There are in fact no identifiable victims in this case. The victims are bettors or society in general.
"Just as violence or the threat of violence is absent, so too were other illegal activities often associated with gambling. Neither drugs, nor prostitution, nor animal cruelty were present in this case. (Admittedly, there was small amount of marijuana found at Mr. Killian’s business at the time of the raid. This small amount is consistent with personal use and was not related to the gambling offense.) The gambling business in this case was largely a two-person concern, the business of Mr. Killian and Mr. Cole. While other people were involved, their knowledge and level of participation was limited."
Attorney Davis said most people who have been prosecuted by the federal government for gambling have gotten probation or a combination of probation and some confinement.
The defense said, "Mr. Killian is 56 years old. He has lived in South Pittsburg, Tennessee most of his life. He graduated from South Pittsburg high school in 1975 and went on to receive an Associate’s Degree from Northeast Alabama Junior College in General Education and a Bachelor of Arts Degree in History from the University of Tennessee at Chattanooga. Mr. Killian’s life has been marked by national duty and civic service. From 1976 to 1982, he was a member of the Alabama National Guard. From 1980 to 1982, Mr. Killian served as County Commissioner. From 1981 to 1984, he taught high school history. In 2002, Mr. Killian was elected a second time to the position of County Commissioner. He held that position through 2006, the last three years of which he served as Chairman. In 2005, Mr. Killian was elected Mayor of South Pittsburg, a position to which he was reelected and held through 2012.
Attorney Davis said, "Mr. Killian currently owns two businesses, the Lotto Mart and Mike Killian Wholesale Fireworks. He employs five people at the Lotto Mart. All five people are adults with children and some with grandchildren who they support financially. These employees are likely to lose their jobs if Mr. Killian is incarcerated. The Lotto Mart is a cash business, and it requires an extraordinary amount of oversight to protect against theft. Mr. Killian simply does not have anyone on staff with the skills to run the business.
"Mike Killian Wholesale Fireworks is not a typical business. Mr. Killian will conduct 85-90% of his sales between April 1 and July 4 of this year. The months leading up to April 1 are therefore critical. If Mr. Killian is incarcerated between the time of his sentencing and July 4, the business will not survive. This business was built on Mr. Killian’s reputation. He is the only wholesale fireworks dealer in the country, to his knowledge, who operates the business in his own name."
He said Killian has a history of assisting people in the community.
The government is also asking a 12-18-month sentence for Cole as well as a fine between $3,000 and $30,000.
Prosecutors said, "Cole made a conscious decision to engage in criminal conduct for over a decade, with full knowledge that he was breaking state and federal law in doing so. His illegal activity paid off handsomely – he made approximately $300,000 in illicit gains from 2002 until 2013.
"Although Cole has admitted responsibility–and has been given credit for that admission in the Guidelines calculation–his sports betting operation showed no signs of stopping before federal agents searched his home in January 2013. Indeed, Cole had recently begun taking sports wagers over the Internet, thus creating a new line of revenue for the business.
"While Cole was not involved in all aspects of Killian’s illegal gambling business, it cannot be said that he was a low-level player in the overall scheme. Cole was the day-to-day manager of and equal partner to Killian in the sports betting operation. Without Cole, Killian could not have operated that aspect of his illegal gambling business. Because of Cole’s integral involvement and the financial benefits he generated for the gambling business as a whole, Cole contributed to the negative effects that Killian’s nefarious activity had on the South Pittsburg community. Furthermore, Cole’s routine of leaving envelopes of cash at the Lotto Mart for disbursement to winning bettors effectively drew the employees of that business into his own criminal activity."
Attorney Mike Little said, "The FBI investigation into Mr. Cole's gambling offense did not turn up other crimes normally associated with gambling enterprises such as drug trafficking, violence, or prostitution. On the contrary, Mr. Cole conducted a safe, although unlawful, operation, wherein consenting adults in the community placed wagers on ballgames. This statement is not meant to justify or excuse Mr. Cole's behavior but to set it apart from other gambling enterprises in the country that involve racketeering."
The attorney said, "A sentence of imprisonment would be a waste of taxpayers' money and would add to the overcrowding of the prison system in this country."
Mike Killian is the brother of Bill Killian, U.S. attorney for the Eastern District of Tennessee.