Md. Probe Finds LCB Broke Law Multiple Times

OCEAN CITY — The list of charges were as unprecedented as perhaps the evidence was damning, but the findings of the Comptroller of Maryland’s eight-month investigation of the Liquor Control Board for Worcester County revealed that it had, in fact, broken the law on a number of occasions.

On Wednesday, Maryland Comptroller Peter Franchot ended months of speculations and accusations with the release of his office’s probe of the county’s quasi governmental monopoly which found evidence of several violations of state law, including price discrimination, illegal sales and purchases and violating state trade practices.

“The charges include selling the same product on the same day at different prices, selling products to some retailers below the cost allowable by the law, purchasing alcohol from a Washington DC based retailer in direct violation of state law and providing select retailers with equipment at no cost,” said Franchot during his 30-minute press conference at City Hall.

Jeffrey Kelly, Franchot’s Director of Field Enforcement and the case’s chief investigator, revealed that he “couldn’t find, nor, am aware of” any instance in the state’s history that a government-run liquor board like the LCB had been found to have engaged in price discrimination at any level.

“Price discrimination is one of the more serious laws that we would enforce, and we don’t come across it very often because it is that serious and people generally aren’t going to violate that,” said Kelly.

Franchot was quite forthright in conveying the severity of the investigation’s findings, which he has called “the most intensive his office has ever conducted” on several occasions.

“These are very serious issues,” said Franchot. “They cut right to the heart of Worcester County’s hard earned reputation as a good place to invest and do business. Left unaddressed, I believe they would severely jeopardize the public’s confidence in their state and local governments, and [the LCB’s violations] represent yet another burden on the backs of consumers who are already struggling to contain costs and make ends meet.”

Franchot’s report found that the LCB had sold the $5 bottles of Stoli Orange vodka, below the cost in which they purchased it from their supplier, William Grant and Sons. In addition, the report found that when angry licensees, who were not offered the promotion in March confronted LCB officials, most likely Executive Director Brian Sturgeon, who handles the day-to-day operations, they were offered the $5-a-bottle deal, even after the promotion in question had ended.

“There were problems with how they did things during the month of March as far as letting all the licensees know about the promotion, but it was what they did in April where they committed the majority of the violations,” said Kelly.

April was also the month that investigators found receipts from the same day where the LCB charged three different prices to three different licensees, which also violates Article 2-B.

The LCB contested in July that it was able to offer the bottles of vodka, which they purchased direct from William Grant and Sons for $16.26 a bottle, at $5 a bottle because they were given a $52,000 credit from the company to be applied to the account.

William Grant and Sons representatives told The Dispatch that the number was “more like $3,000” and that “they had no idea that the dispensary had run a promotion offering bottles at only $5.”

However, when interviewed by the state’s investigators, an LCB official admitted the figures they cited for the Stoli promotion “had been manipulated in order to bring the cost down to $5 per bottle”, according to the report.

The report caught the LCB in another lie when they claimed to The Dispatch that they only sold 55 cases of wine at $1 a bottle, but were found to have sold more than $1,100 bottles, bought between $2 and $4, and then sold below cost at $1.

In addition, the LCB was found to have violated state trade practices by giving 14 commercial juicing machines (orange crush machines), estimated cost at $129-$245 each, and one chilling machine for dispensing a flavored whiskey (estimated cost $200) to licensees at no cost. The investigation also found that the 75- year-old county dispensary paid for the reprinting of several menus for liquor retailers in Ocean City and didn’t charge them.

“These are just technical violations to which we have admitted to,” said LCB spokesperson and board member Larry Wilkinson. “We have done nothing criminal, and if you look at what we are accused of, it’s obvious we didn’t have any intent other than to help the licensees of the county.”

Yet, the one surprise in the report could indicate that the LCB may have committed a criminal offense, dating back to 2007 when they essentially smuggled untaxed liquor across state lines.

The investigation found that the LCB had purchased 200 cases of Captain Morgan Spiced Rum from an out of state retailer in Washington DC in 2007, thus violating section 15-205(b) of Article 2-B that requires the LCB to purchase liquor from licensed wholesalers in the state.

Bringing untaxed liquor across state lines may bring the LCB future problems, as some sources indicate that such an offense could violate a federal act, which could bring further investigations on the LCB from the Attorney General’s office and perhaps the US Attorney’s office.

A spokesperson for the US Attorney’s office in Baltimore said she “would neither confirm nor deny if there was an ongoing or future investigation of the LCB by that office.”

As for what’s next, LCB officials will be summoned to Annapolis on Jan. 5 for their due process, where Kelly says they could face hefty fines as well as a possible suspension.

“We aren’t sure what the fine would be, because again, we have never dealt with offenses of this magnitude before,” said Kelly after the press conference. “There’s really no precedence.”

But a fine, which could reportedly be as much as $50,000, levied against the LCB would essentially come from the taxpayers’ pockets and could be seen as a mere slap on the wrist, which is a notion that have some local politicians, including Ocean City Mayor Rick Meehan and County Commissioner Louise Gulyas, lobbying for the dispensary’s abolishment.

“I think this report proves all the concerns about the operating practices of the LCB is justified,” said Meehan. “It’s time for it to be abolished, and at the very least, to be restructured to get the dispensary out of the wholesale side of it.”

State Senator-elect Jim Mathias promised he would submit legislation to abolish the LCB entirely if the licensees came up with a plan to replace the revenue the LCB pays back to the county, which plummeted to just $110,000 this past year, and has declined by more than $700,000 in the last three years.

“I haven’t had a chance to look over the report yet, but it’s alarming that there is no precedence to the charges, and that’s very concerning to me,” said Mathias, “but I still stand by my promise to submit legislation to abolish if a plan is created to replace the money.”

Wilkinson said the LCB was not invited to the press conference and was only notified that it was taking place “just a few hours before it happened”.

“We will not contest any penalty that’s levied against us, and I would hope that we can move forward and continue to exist for the people who work for us, but I think that’s out of our hands at this point,” Wilkinson said.

Worcester County License Beverage Association President Doug Buxbaum said the licensees were happy with the results but already looking ahead to the future.

“For too long, the LCB has been lying and taking money out of the pockets of the people of Worcester County and I think the Comptroller’s investigation proved that. We are working to come up with ideas about how to replace some of the revenue to the county and move forward towards our ultimate goal of getting government out of the liquor business, but it’s now in the hands of the legislators,” Buxbaum said.  

Kelly says what makes the report unique and perhaps more concerning is that these infractions came from a governmental agency.

“This isn’t just about the violation of the law,” said Kelly. “What puts this on a whole different level is the impact the LCB’s lawbreaking has on the citizens and small businesses of this county.”

Franchot said he was “offended by LCB’s actions” and would “look to the leadership of Mathias and Delegate Norm Conway” for a decision on whether or not to submit a bill that would abolish the LCB, but said “(I) would support them if they did.”