Subpoena reveals new details about federal investigation in Sullivan City

SULLIVAN CITY, Texas ( ValleyCentral ) — New details surfaced Wednesday about the federal grand jury subpoena Sullivan City received in April.

Agents with Homeland Security Investigations, which is part of the U.S. Department of Homeland Security, served Sullivan City with the subpoena on April 26.

The subpoena requested all records “pertaining to the formation, applications, operations and legal processes/litigation correspondence of Game Rooms.”

“The city will be cooperating,” said Eden Ramirez Jr., an attorney with O’Hanlon, Demerath & Castillo, a law firm that represents Sullivan City. “And putting together the documents needed to cooperate with the investigation.”

The subpoena is part of a federal investigation focused on illegal gambling in Hidalgo County.

As part of the investigation, federal agents raided Edcouch City Hall and Elsa City Hall in October 2023.

Homeland Security Investigations followed up in February 2024, when agents searched a law firm in Edinburg.

Sullivan City

Sullivan City started regulating game rooms, which allow customers to play slot machines, in 2023.

The game rooms, however, operated in a legal gray area.

Gambling is tightly regulated in Texas — and slot machines can’t pay cash prizes.

Some game rooms simply ignore the law. Others attempt to skirt the law by paying winners in silver pellets, which they can swap for cash at nearby businesses.

The work-around didn’t impress Hidalgo County District Attorney Toribio “Terry” Palacios or Hidalgo County Sheriff J.E. “Eddie” Guerra.

Attorney Robert R. Flores of McAllen, though, remained convinced that game rooms could operate legally.

Flores created the Texas Game Room Owners Association, which partnered with Sullivan City to draft the regulations.

Sullivan City started accepting game room applications in May 2023.

Applicants had to fill out a lengthy form and submit a non-refundable $50,000 fee.

If approved, the game rooms had to pay a $15,000 “quarterly renewal fee” to Sullivan City. The game rooms also had to pay the association $50 per machine every quarter to cover the cost of “compliance inspections.”

Sullivan City collected $250,000 from applicants in just two days.

In August 2023, the association had approved three permits, according to an email from Flores to then-City Attorney Frank Garza, then-Sullivan City Manager Ana Mercado and the mayor.

They shut down less than a month later, when the Sheriff’s Office raided a game room on U.S. 83, arrested the employees on gambling charges and seized the machines.

The Subpoena

The subpoena asked Sullivan City for:

• All records of City minutes to include the audio recordings regarding city minutes from January 2021 to present.
• Any proposed ordinance, original ordinance or modification of ordinances related to gaming establishments.
• All permits regarding 8-liner gaming establishments.
• All budgetary information regarding 8-liner gaming establishments.
• All records related to applications/background checks for permits regarding 8-liner gaming establishments.
• Any and all receipts for gaming permits or any other related associated fees.
• All planning and zoning permit applications related to 8-liner gaming establishments.
• Any and all planning and zoning documents related to 8-liner gaming establishments.
• Any and all records of inspections conducted by the City of Sullivan City, Texas at gaming establishments.
• All premises licenses, emails regarding premises licenses, invoices/receipts for any payment(s) received for premises licenses, and permit and or license applications and associated documents.
• All bank records, checks, credit card bills, account information, and other financial records related to 8-liner gaming establishments.
• Any receipts, contracts, invoices or other documents in relation to purchases utilizing funds
  derived from “gaming permit fees” and/or “gaming compliance/quarterly fees.”
• Any physical or electronic correspondence regarding legal proceedings and/or litigation subsequent to enforcement actions taken against any game rooms.
• Any emails either sent or received on computers, cellular phones, i-pads, electronic “notebooks”, or email correspondence sent/received via a city-issued email address or related to city business, to include those belonging to city councilmembers and the city attorney, in regard to 8-liner gaming establishments.
• Any complaints submitted by Sullivan City, Texas citizens in regard to 8-liner gaming establishments.

Sullivan City must release the documents by May 14.

For the latest news, weather, sports, and streaming video, head to KVEO-TV.