Subpoena reveals new details about federal investigation in Sullivan City

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

Agents from Homeland Security Investigations, part of the U.S. Department of Homeland Security, delivered the subpoena to Sullivan City on April 26.

The subpoena requested all documents “related to Game Rooms’ incorporation, applications, operations and legal proceedings/litigation correspondence.”

Mayor Alma Salinas and City Manager Magda “Lisa” Rivera could not immediately be reached for comment Wednesday morning.

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

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

Homeland Security Investigations followed in February 2024 when agents raided an Edinburgh law office.

Sullivan City

Sullivan City began regulating gaming rooms that allow customers to play slot machines in 2023.

However, the arcades operated in a legal gray area.

Gambling is strictly regulated in Texas – and slot machines cannot pay cash prizes.

Some arcades simply ignore the law. Others try to get around the law by paying winners silver tablets that they can exchange for cash at local stores.

The solution did not impress Hidalgo County District Attorney Toribio “Terry” Palacios or Hidalgo County Sheriff JE “Eddie” Guerra.

However, attorney Robert R. Flores of McAllen remained convinced that arcades could operate legally.

Flores founded the Texas Game Room Owners Association, which worked with Sullivan City to develop the regulations.

Sullivan City has been accepting applications for game rooms since May 2023.

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

If approved, arcades would have to pay a $15,000 “quarterly renewal fee” to Sullivan City. The arcades were also required to pay the association $50 per machine quarterly to cover the cost of “compliance inspections.”

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

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

They were closed less than a month later when the sheriff’s office raided a gaming room on U.S. 83, arrested the employees on gambling charges and confiscated the machines.

The summons

The subpoena asked Sullivan City to:

• All City Minutes recordings include the audio recordings of the City Minutes from January 2021 to the present.
• Any proposed regulations, original regulations, or amendments to regulations relating to gambling establishments.
• All permits for 8-line gambling establishments.
• All budget information on 8-liner gambling establishments.
• All records related to applications/background checks for 8-liner gaming facility permits.
• Any receipts for gaming permits or other related fees.
• All planning and zoning permit applications relating to 8-line gaming establishments.
• All planning and zoning documents related to 8-line gambling establishments.
• All records of inspections conducted by the City of Sullivan City, Texas at gambling establishments.
• All premises licenses, premises license emails, invoices/receipts for all payments received for premises licenses and permit and/or license applications and related documents.
• All bank records, checks, credit card bills, account information and other financial records associated with 8-Liner gambling establishments.
• Any receipts, contracts, invoices or other documents relating to purchases involving funds
  derived from “Gaming Permission Fees” and/or “Gaming Compliance/Quarterly Fees”.
• Any physical or electronic correspondence relating to legal proceedings and/or litigation following enforcement actions against gambling spaces.
• Any email sent or received either through computers, cell phones, iPads, electronic “notebooks,” or email correspondence sent/received through or relating to a City-issued email address business, including emails from city council members and the city attorney, regarding 8-liner gambling establishments.
• All complaints filed by citizens of Sullivan City, Texas regarding 8-liner gambling establishments.

Sullivan City has until May 14 to release the documents.