Gun dealers often stay in business with new licenses after ATF shuts them down

By David S. Fallis
Washington Post Staff Writer
Tuesday, December 14, 2010; 12:27 AM

About a hundred times a year, regulators strip gun dealers of their licenses for violations of federal law, an extreme step taken only when repeated infractions are deemed a threat to public safety.

But a year-long Washington Post investigation documented about 60 cases since 2003 in which the businesses stayed open, often re-licensed through relatives, employees, associates or newly formed companies.

"We'll just have to play musical licenses," the owner of the Highland Gun Barn in Michigan said when a federal inspector served him with a final notice to surrender his license.

A California sports shop had its license revoked after inspectors from the Bureau of Alcohol, Tobacco, Firearms and Explosives said the 87-year-old owner's repeated violations of gun laws showed she was unable to run a gun business. Before she forfeited her license, the woman's son obtained a permit to sell guns at the same shop. He said he would be at the shop two days a week and that his mother would "exclusively direct all day-to-day business."

A Maryland gun store that ATF said lost track of weapons and failed to do background checks was forced to surrender its license after the owner lost a court battle. Six months later, ATF issued the dealer's wife a license at his old shop in Fallston, Md.

A Georgia gun dealer had its license revoked after ATF said it could not account for hundreds of guns. The dealer's daughter and son-in-law secured their own license to keep the business going.

It is all legal.

"This is the way Congress wrote the law," said James Zammillo, who was with ATF for four decades and served as deputy assistant director of industry operations before retiring this year. "The spirit of the law is that unless the applicant is prohibited, you have to issue a license. There is no discretion."

Because of the secrecy Congress imposed on federal gun records in 2003, the details of inspection violations are typically redacted from public records unless a case ends up in court. When revocations are pursued, the problems can include sales done without background checks, improperly completed forms or missing weapons, one of ATF's chief concerns.

Revoking a gun dealer's license is ATF's most aggressive enforcement action short of criminal prosecution. It is a rare last resort for less than one-quarter of 1 percent of dealers annually. It often follows years of warnings for serious violations and sometimes leads to years of appeals. Although gun dealers complain that ATF harps on clerical errors, the agency says it revokes licenses only when dealers continually fail to comply with gun laws and the violations threaten public safety.

The Post investigation is the first to document the extent of the re-licensing practice, in which about 7 percent of the gun merchants that had licenses revoked continued to operate.

Several merchants involved in the re-licensings told The Post it was the only way to keep their family businesses going.

"This is what we do for a living," said Sandra Mitchell, who secured her own license to sell guns at Gunrunner in Merced, Calif., after the ATF revoked her husband's license.

At the heart of the issue is the fact that the 1968 Gun Control Act treats each new license applicant as a unique entity - even if it is a similarly named company with the same employees. As long as the applicant is a different individual or business entity, ATF cannot consider violations incurred under a former licensee when weighing the new application. Embattled operations can be reborn with a clean slate at the same location trading under the same business name.

To be licensed, applicants at a minimum need to be 21, cannot have been prohibited from owning a gun - as with felons and people with certain disabilities - and must have a fixed address. Companies can apply for licenses, but their principals must meet the restrictions for individuals. Initial fees are $200. Licenses last three years. The agency might spend years in court revoking a license from a troubled dealer but by law must approve licenses to eligible applicants within 60 days.

Richard Gardiner, a former counsel for the National Rifle Association who has defended many dealers in ATF revocations, said family members, friends or associates who were not directly involved in the old license are legally entitled to their own licenses. "It's not a loophole," he said.

'A clean slate'

ATF officials say they do not keep track of how often embattled operations turn to relatives or associates, or set up new companies, for re-licensing in the face of mounting violations or impending revocation. But current and former officials say troubled dealers have increasingly resorted to the tactic.

"Our field people get very frustrated," said Teresa Ficaretta, deputy assistant director for enforcement programs and services at ATF. "Based on the phone calls I get from the field, this is happening more often."

The agency, she said, has been working to train attorneys and inspectors how to identify and legally block these cases, but it is extremely difficult and time-consuming. Denied applications, like revocations, have also led to lengthy appeals and court fights.

"If you're being cited by ATF and you feel you're about to lose your license, you can simply get another person to get a new license and you can transfer your inventory to that person," said Michael Bouchard, former ATF assistant director for field operations. "You don't have to change location. You can keep the same business name. It's like starting the business all over. You can still be working there. For the new licensee, it's a clean slate."

The Post filed public-information requests to obtain previously undisclosed ATF computer files tracking more than a thousand enforcement actions since 2003 and databases of licensed dealers. It compared the data sets to identify more than 75 gun dealers nationwide that had lost or given up licenses at premises where re-licensing occurred.

The Post studied thousands of pages of regulatory files and other public records to determine if the old and new licensees involved relatives or had other people in common. Inspectors sometimes described how inventory would be transferred, sold or simply given as a gift from the embattled licensee to the person securing the new license.

The new applicants were often family members or newly created businesses with similar-sounding names. In some cases, new applicants told ATF they took steps to remove the person responsible for prior problems. In other cases, former licensees were listed as employees, consultants, shareholders or landlords.

In Indianapolis, as inspectors moved to take away the license from Michael Hilton at Popguns Inc., his wife, Carolyn, applied for her own. That was the only way to keep the business going, she told inspectors in 2005.

"Mrs. Hilton stated that she and her husband sat at the kitchen table one evening in September 2004 and discussed the problems he was having," inspectors wrote. "It was at that time that she decided she was going to apply for her own license so that she could operate the business. Mr. and Mrs. Hilton completed the [application] together and Mrs. Hilton signed."

She told ATF that the shop would still have "many of the same employees." Her husband would no longer sell guns, she said, but would sell accessories on-site.

Michael Hilton said ATF initially denied her application, arguing that she would have the same inventory, the same building and the same customers and that he would be involved. Hilton said his wife appealed, arguing that her application was a different legal entity. A hearing officer concurred.

"You are a whole new entity," Michael Hilton said. "By law, they have nothing to stand on."

He said that his wife set up her own checking account and that he no longer handles day-to-day operations or gun logs. But he still helps at the store and works at an office on-site running his wife's Internet business. He said he occasionally helps sell guns but does not handle the federal paperwork.

"I could put in 50 or 60 hours a week if I wanted to. I could open and close the place," he said. "There is nothing anyone can do about it."

ATF has since warned Carolyn about violations at the shop, now called the Family Indoor Shooting Range. Michael Hilton said a more recent inspection found only minor problems.

In Houston, ATF moved in 2008 to revoke the dealer's license of Bailey's House of Guns after citing violations in five inspections dating back to 1992. The owner, Theresa Bailey, sued ATF but dropped the case, saying she had "agreed to transfer its firearms business." ATF revoked her company's license and issued a new one to a new corporation started by the gun store's bookkeeper and another employee. The new corporation would buy the inventory and lease space at the gun store from Bailey's company, ATF records show.

Bailey's company, inspectors wrote, would still sell "ammunition and firearms accessories" at the shop, actions that do not require a license. A spokesperson for Bailey's declined to comment.

Some dealers who lost licenses stayed in business because they already had a second license. The second license was in a personal name or at a business in another location and was transferred to the site of the revoked license, records show.

Gun dealers said that in some cases re-licensing operations were the only way to save family livelihoods from overzealous inspectors. In Duncan, Okla., Ken Murphree ran Murfs Guns with a license in his name and that of his father and a brother. Murphree said the shop had enjoyed a good relationship with ATF until a new inspector visited in 2003. The inspector, Murphree said, wrote them up for "100 percent just clerical nothings" and pushed for revocation.

ATF supervisors concurred with the inspector's findings, pointing to violations dating to 1991. Murphree said he appealed inside ATF, to no avail. "I am not a rogue dealer," he said.

A lawyer, Murphree said, told him he would lose if he fought the action in court. That's when a third brother applied for his own license and bought the shop. Murphree said he still helps manage the day-to-day business.

"Our lives have changed, but we are still in business," he said.

Revocations can take years

ATF's 600 inspectors are charged with inspecting 60,000 retail dealers throughout the country. Each dealer is inspected on average about once every eight years. ATF revokes about 110 licenses a year. In another 160 cases a year, dealers voluntarily surrender their licenses when told they are at risk of revocation. The Post identified about 15 businesses where dealers surrendered licenses but operations continued under different licenses.

Once a revocation is authorized, the process can take years to resolve. A dealer has 15 days from receiving notice to request a hearing. More than six months or even a year may pass before the hearing officer rules and ATF issues a final notice of revocation. After that, a dealer has 60 days to sue the agency in federal court and have the case heard anew.

The agency typically allows dealers to stay in business while the process plays out.

In more than a dozen cases, records indicate ATF settled suits filed by embattled licensees. Although exact terms were often undisclosed, dealers admitted violations, surrendered their license and dropped the suit. In response, ATF issued new licenses - sometimes to the same entity they sought to put out of business.

When revocations were decided by judges, ATF has typically prevailed. Even then, a few of those dealers secured new licenses to sell guns through family members.

At one, Bel Air Gun & Pawn in Fallston, Md., inspectors said in 2005 that they found a litany of problems - including more than 120 missing firearms and eight sales without background checks. Nationally, unaccounted-for firearms are a huge problem for ATF. Inspectors have found 113,642 guns missing during their visits to 3,847 inspections since 2005.

Charles David Scheuerman, who held the license for Bel Air, asked an inspector "if the findings of the inspection were unfavorable, could he put the business in his wife's name to avoid any problems," officials wrote. The inspectors told him that "changing ownership to avoid consequences with no real change in ownership is considered hidden ownership, is not allowable."

That October, ATF moved to revoke his license. For nearly two years, Scheuerman fought ATF internally and in court, challenging ATF's findings as "inadvertent, technical record-keeping errors." In 2007, a judge upheld the revocation.

Soon, Scheuerman's wife incorporated her own company, Bel Air Gun Supply & Pawn, and applied for her own license.

Inspectors met with her at the shop to go over her application. She told ATF that she had not officially worked at her husband's shop but "at times helped out with gun shows." They asked if "she actually had acquired" the business assets. She gave them a draft contract. Guns "would be sold on consignment and she would pay her husband as the firearms are sold," they wrote. ATF gave her a license.

"She was not involved in running the business," said Gardiner, who represented Scheuerman in the suit. "The law required them to issue her a license, and they followed the law."

In an interview, Shelly Scheuerman said she had been a stay-at-home mom and the idea to apply was hers. "I agreed not to have him as an employee," she said. "He can be here; he just can't work here."

Scheuerman said that, since she has been licensed, ATF has inspected her every year, which is "what happens when you win." Her husband, she noted, went five years between inspections. She said ATF wrote her a warning last year for violations and she is in the middle of another month-long inspection.

"None of the other dealers in Maryland have to go through what I go through," she said.

Nationally, ATF inspections have uncovered new violations at about a third of the shops that were revoked and re-licensed. At about a fourth, problems were serious enough that ATF warned the new operators that violations could lead to revocation.

Gun laws differ from federal alcohol laws, under which regulators can more fully take into account an individual's direct or indirect ties to previous businesses that were under scrutiny.

"When I was in the ATF and we investigated someone to be an alcohol wholesaler, you looked at their sources of funds," Zammillo said. "You had the right to have them produce bank accounts and other material to show where they got the funds to go into business."

That, he said, helped verify if the business was a front for someone else.

It is different with gun dealers. ATF, for the most part, must accept at face value what gun license applicants tell them about planned business structures and who is in control.

"If we get a new application for the same premises for someone who has the same last name as the licensee that was revoked, the red flag is going to go up," Ficaretta said. "We will investigate to determine if it really is a sham and if the new business is the old business risen from the ashes."

If the agency can gather evidence to prove the new business was created to circumvent a licensing restriction, then ATF can hold the applicant responsible for prior violations and deny the application.

But that evidence is very hard to get. "More and more applicants have access to very good legal counsel," she said. "They know what they need to say and what they need to do to get a license."

In some cases, inspectors in the field pushed the agency to reject new licensees when changes appeared to be only cosmetic, but they were overruled by hearing officers or supervisors.

In Liberty, Ky., the new applicant was Sherry Ritter, the wife of the man who had held the license for the Gun & Gold Connection. After she applied for her own license in 2004, ATF assigned an inspector to make sure "there is no hidden ownership." The inspector recommended a denial, writing that Ritter "does not solely own this business" and that "her husband would partially or fully direct the management, policies and day to day operations."

She appealed within ATF, and an agency hearing officer ruled in her favor.

When she met with an inspector to go over her application, she presented a notarized bill of sale. It showed the transfer of "all firearms owned by the seller [Charles Ritter], to Sherry Ritter for $1.00, other good and valuable consideration, specifically including funds previously invested by Sherry Ritter, and in further consideration of love and affection which Charles Ritter holds for Sherry Ritter, his wife."

Staff writer Sari Horwitz and staff researcher Julie Tate contributed to this report.

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