Jason Lee, an employee at Family Indoor Shooting Range in Indianapolis, holds a Smith & Wesson Model 29 .44 Magnum handgun with scope. The store was known as Popguns before owner Mike Hilton lost his federal firearms dealer’s license. Hilton then transferred ownership to his wife, who obtained a new license. Credit: D. Kevin Elliott/For the Journal Sentinel

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Read Transcript Wiped Clean The Journal Sentinel for two years has investigated how Congress has created special rules for gun stores that protect even the biggest sellers of guns to criminals. Read the series Click to enlarge

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Hobbled by Congress, federal watchdogs rarely revoke the licenses of lawbreaking gun dealers. And when they do, stores can easily beat the system by having a relative, friend or employee pull a fresh license - something that routinely happens across the country, a Journal Sentinel investigation has found.

The newspaper identified more than 50 stores in 20 states over the past six years where such a move was made, wiping the operation's slate clean. The newspaper's review, which involved contacting more than 150 gun dealers, uncovered 34 additional stores with indications a revoked license holder remains connected to a gun-dealing operation.

Earlier this year, the newspaper reported that licenses changed at a Milwaukee area gun store in 2007. A recommended revocation of the Badger Outdoors license by the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives disappeared when the license was surrendered, a co-owner retired and a different owner's son pulled a new license, changing the name to Badger Guns.

Those operations have been the top sellers of crime guns recovered by Milwaukee police for at least the past decade, according to Milwaukee police data obtained by the newspaper. In the past three years, six Milwaukee police officers were wounded with guns sold by Badger Guns or Badger Outdoors - accounting for all but one of the officers shot during that period.

In Indianapolis, Popguns - another top dealer of crime guns according to ATF data - had its license revoked by the agency in 2006. The business remains in operation after owner Mike Hilton's wife received a fresh license and the violations disappeared. Mike Hilton remains closely involved in the operation.

"The fact that I can be in here and work in the store other than in a clerk capacity, it is kind of asinine, I agree," Hilton told the Journal Sentinel one day recently while working at the store. "You revoke a license but then the person whose license is revoked, they can come right back in and can be an integral part of it."

The license loophole is the latest example of how Congress protects even the biggest sellers of crime guns by crippling the enforcement agency responsible for regulating them - the focus of the newspaper's yearlong "Wiped Clean" investigation, launched after a pair of Milwaukee police officers were severely wounded with a gun purchased from Badger Guns.

Gun-rights advocates say enforcement of existing laws is enough to curb bad actors. But Congress has gutted those laws regarding the sellers of crime guns and has made it extremely difficult for the public to find out which dealers are arming criminals.

The latest Journal Sentinel investigation also found:

• The ATF inspects less than 20% of the nation's roughly 62,000 federally licensed firearms dealers each year and tries to shut down just a fraction of them, with the number dramatically dropping in the past six years. And when the agency tries to take away a license, it succeeds just half the time.

• An analysis of ATF data shows it took an average of 15 months for the agency to process a recommendation to revoke or deny license renewal. The data, however, doesn't measure the entire process. The agency estimates the time is probably 18 to 24 months. And it can drag on for years if the stores take it to court.

• In its nationwide review of ATF data, the newspaper determined at least 52 current dealers have connections to a revoked dealer. In Wisconsin alone, there are five such dealers.

Revocation is the only meaningful punishment Congress allows ATF to use for a lawbreaking store.

Dozens of revoked dealers freely admitted to the newspaper's reporters a license was revoked and a new one was acquired by someone close to the former license holder.

A revoked Mississippi gun dealer said he sold the store to his wife for $1 and now works for her. A dealer in Pennsylvania whose license was revoked simply started using a spare license he had acquired. And a revoked Alabama shop remains in the gun business after an employee created a new corporation that holds the new license.

"We call it the phoenix rising from the ashes," said Teresa Ficaretta, ATF's deputy assistant director for enforcement programs and services.

Dealers who do get closed also pose a risk. They can simply move the store's firearm inventory into their personal collection and sell an unlimited number of guns without background checks - an approach sometimes referred to by critics as the "fire sale provision."

Congress not only hinders the agency from effectively regulating lawbreaking dealers, it also has made secret nearly all federal records about gun stores, including why licenses are revoked. Congress put the information off-limits in 2003 following widespread news articles about stores such as Badger Outdoors and Popguns being among the top sellers of crime guns in the nation.

Next year, lawmakers may further cripple the agency when they consider a law that would make it harder to revoke a firearms license.

Gun store advocates argue the agency can be overzealous in its inspections and sometimes goes after licenses for petty violations, a charge agency officials dispute.

Andrew M. Molchan, director of the Professional Gun Retailers Association, acknowledged stores sometimes have spare licenses in case they have problems with ATF. He stressed that the majority of dealers are following the law.

"If you have a whole truckload of apples, not every apple is going to be perfect," he said. "There are going to be some bad ones in there."

The newspaper's findings raise questions about the ATF's ability to shut down those troubled stores. This much is clear: The public has a hard time getting information about them.

Some gun store owners say it's not difficult to prevent illegal gun sales to straw buyers, noting their policies against cell phone use in the store, watching the parking lot and tough questioning of customers. There is nothing that requires them to sell guns to anyone.

ATF is frustrated it can't do more to stop the license swaps by dealers facing revocation, according to a former high-ranking agency official who recently retired. Federal officials have more power to investigate a license to sell liquor than for dealing guns, said James Zammillo, ATF's former deputy assistant director.

"Many times ATF is mischaracterized as the problem," he said, "when the reality is the law, as it was written, is the problem."

Mecca for crime guns

The Popguns case shows how Congress hamstrings ATF's regulatory authority.

Between 1996 and 2004, more than 1,100 crime guns were traced back to the store, making it one of the stores with the most traces in the nation, according to ATF records and owner, Mike Hilton.

Crime guns are defined as any gun recovered by police in a criminal investigation. A report in the 1990s showed 1% of gun dealers account for 57% of all crime guns. That was the last time such a report was made public.

Wanting to see if Hilton was trafficking guns illegally, the ATF zeroed in.

During an inspection, investigators found the store's inventory records - vital for detecting such trafficking - in disarray, Hilton said.

His license was revoked.

"My paperwork was absolutely horrendous," Hilton said. "I got what I deserved."

Hilton said he never sold any guns illegally. He argued his high number of crime-gun traces was explained by the store's large volume and ATF's broad definition of crime guns.

Hilton appealed the revocation for more than a year, and kept selling guns. During appeals, Congress has ordered and courts have agreed that stores be allowed to continue selling guns.

In 2006, Hilton stopped fighting the revocation. Around that time, his wife, Carolyn Hilton, was issued a new license under the name Family Indoor Shooting Range, according to ATF records. The operation continues today much as it did when it was officially called Popguns. The same sign even remains atop the store.

Mike Hilton said he spends most days at the gun store, working on the business' websites and helping the manager. He said his wife - the business owner and license holder - stops in once a week.

Authority diminished

Over the past 25 years, Congress has increasingly limited ATF's regulation of gun stores and shrouded what it does in secrecy.

The 1986 Firearm Owners' Protection Act laid out special rules for gun dealers. ATF can inspect gun dealers once each year without a federal court order, but they inspect only about one in five because there aren't enough investigators. Thousands of dealers have not been inspected in five years or more, Zammillo said.

The agency's first priority is inspecting the nation's nearly 11,000 explosives dealers, which Congress required get a visit once every three years following the Sept. 11, 2001, attacks.

When the agency finds violations at gun stores, Congress generally only allows ATF to issue a warning or revoke; it has very narrow suspension or fining authority.

Since 2003, Congress passed a provision that forbids ATF from releasing gun-trace data and what violations they find at gun stores. Congress has even told ATF it cannot require stores to take an inventory.

When questioned, many revoked dealers dismissed their violations as paperwork errors. But given the law, and other restrictions, that is the only kind of violation the agency can find. The most common sort of paperwork violation involves guns missing from the inventory book or paperwork not done on purchases, according to ATF records.

Last year, 752 inspections, or about 7% of the total, turned up missing guns - some 18,000-plus in all, according to ATF data.

"There is no such thing as a minor paperwork error," said attorney Christopher Chiafullo in New Jersey, who defends gun stores. "As someone who sells guns in this country, you have to be a good record-keeper."

Richard Gardiner, a Virginia lawyer who also defends stores, disagrees. As chief counsel for the National Rifle Association, he helped write the law governing ATF inspections of stores.

"Congress didn't want licenses to be revoked for unintentional errors," he said. "They recognized that a lot of this paperwork is not important anyway. All of this is a big farce, a waste of time. You don't need it for preventing crimes."

The ATF's Ficaretta countered that missing paperwork means ATF can't do its job.

"Indifference by noncompliant gun dealers does jeopardize public safety," she said. "Law-abiding citizens can't afford the cost of indifference."

Repeated violations

Gary Bertrand, owner of Bertrand's Sport Shop in Green Bay, said he lost his license in 2005 for "a clerical error."

Federal court documents, however, reveal that Bertrand repeatedly had guns missing from his inventory records. The usually secret violations were revealed because Bertrand appealed in court.

ATF repeatedly warned Bertrand until it finally denied renewal of his license - considered the same as a revocation. But that was not the end of Bertrand's store.

"We had to apply for a new license under a different person," Bertrand said. In this case, that person was Bertrand's daughter. Gary Bertrand still owns the store.

ATF is aware of revoked gun dealers who make simple changes to the business structure and stay in operation. Ficaretta said the agency trains its investigators to watch for hidden ownership, but the law makes it difficult to stop because it requires the agency to treat the business as a new applicant.

"We believe that applicants and attorneys are getting a lot more savvy in how they structure the new businesses to avoid denial," Ficaretta said.

A new company was formed after Wiley Outdoor Sports, in Decatur, Ala., was denied renewal in 2007. ATF repeatedly found guns missing from the inventory records, according to court records.

Jerry Peevy - who worked for Wiley - created The Wing Shooter, which would operate inside Wiley's and sell guns. Peevy said customers probably didn't notice a change, but they are separate entities.

"It didn't defeat the revocation process. Wiley's no longer can purchase or receive or sell guns," he said. "It was disclosed in the (firearms) license process. ATF signed off on it."

If ATF can prove the corporation was created just to circumvent the law, ATF can deny the license. To get that information, however, the ATF has to get business records. But the agency has no right to compel applicants to produce many business documents, in contrast with other licenses such as alcohol wholesalers.

"It is very difficult for us to get the evidence we need to deny an application," Ficaretta said. "We ask for documentation, particularly in these hidden ownership cases, but more and more frequently we are finding that applicants are telling us to go pound sand."

Gardiner, the Virginia attorney, said he has never heard of cases where revoked dealers remained in the gun-selling business. Gardiner also said the agency has enough authority to dig into applicants' background.

"They have the power to find out a lot of this information from public sources," he said. "That is public information that any idiot can get. A lot of times they don't need subpoena to find out those things."

But Zammillo said ATF's hands are tied when digging into a gun dealer's application. The law does not allow the agency the tools or the authority to look behind the license. That is different from other federal licenses.

"The Congress chose, in the instance of alcohol, to write the law going behind the company and see who the people were to say whether they should be in business," he said. "That is what they chose not to do with regards to firearms."

In Milwaukee, ATF investigators recommended revoking Badger Outdoors' license but there was no revocation. The license was relinquished voluntarily, the players inside the operation took on new roles and a new license was issued to a previous owner's son. The operation, located on S. 43rd St. in West Milwaukee, remains largely unchanged.

The former owner of Badger Outdoors said he knew nothing about the recommended revocation, and he had decided to turn in the license and retire. The current owner of Badger Guns declined to comment.

Four of the six wounded police officers have sued Badger Guns and Badger Outdoors, contending they are the same operation and were negligent in the gun sales.

Audit finds failure

The Journal Sentinel's review of the ATF's revocation process is the first since 2004, when a U.S. Department of Justice inspector general's audit found the agency failed to make sure gun dealers were following the law.

In that audit, auditors reviewed a sample of 50 revocation cases and found, on average, it took about a year to process a revocation or denial.

The Journal Sentinel's analysis of nearly 700 cases showed the time to revoke or deny a license is longer today, averaging 15 months from a supervisor's recommendation to the case closing.

Before the audit, Zammillo said gun dealers didn't generally take ATF's revocation very seriously.

"ATF pretty much got a reputation for being a paper tiger," said Zammillo, a top official at the time.

After the audit, Zammillo said he ordered changes to how inspections were done. That led to a slight spike in revocations five years ago, he said. The number dropped by half to about 60 this year, the newspaper found.

The inspector general is doing a follow-up audit. The results are expected to be released next year.

Also next year, Congress is expected to consider a bill that experts said would make it more difficult for ATF to revoke dealers' licenses.

Called the ATF Modernization Act, the bill also would give the agency power to fine or suspend licenses, but critics say the fine amounts are too low and the suspension power too limited.

"If the restrictions are so tight on ATF and there are meaningless penalties, there will be no effort to go after anybody," said Gerald Nunziato, who worked for ATF for 29 years and retired as head of the National Tracing Center. "As bad as it is now, it will get even worse."

Still minding the store

In calls to the current gun dealers across the country, the Journal Sentinel found dozens of revoked license holders were still working in the stores.

Mike Hilton of Popguns in Indianapolis said he initially promised ATF inspectors he would not be in the store, but later agency officials said it was fine for him to be there.

In Verona, Miss., Audie Morgan said he had to make no such promise and still works in the store.

The ATF revoked Audie Morgan's license to deal guns at the Verona Trading Post & Pawn Shop in 2006. He said he sold the business including the gun inventory to his wife, Barbara Morgan, for $1. His wife is now his boss, Audie Morgan said. He works as the gun salesman and does federal firearms paperwork.

"It's all legal," said Audie Morgan. "I don't see anything wrong with it."

Sales without background checks

When ATF succeeds in shutting down a gun store, the agency can run into more trouble.

Federal court rulings allow revoked dealers to move their inventory into their private collection and sell the firearms without federal scrutiny - what critics call the "fire sale provision."

Indeed, that twist is one of the reasons why the agency allowed Shawano Gun & Loan near Green Bay to continue selling guns while it appealed its revocation in federal court.

Shawano Guns' license was revoked by ATF more than three years ago for repeatedly failing to keep accurate records and for making suspected straw gun sales - that is, selling to people who were buying guns for felons and others who can't buy them. The store appealed.

Shawano's owner told investigators he might turn over the store to his nephew, who would pull a fresh license, possibly erasing the violations.

The ATF tried to finally cut off firearm sales at Shawano Gun, but U.S. District Judge William Griesbach overruled the ATF while the case goes to federal appeals court.

In Michigan, the agency succeeded last year in revoking the license of Wah Wong, owner of the Firearm Exchange gun shop outside of Detroit. ATF revoked the license when 300 guns came up missing from his books, according to federal court documents.

Wong said he tried to have his wife and an employee take out a new license, but ATF denied it.

Ficaretta, a top official at ATF, said Wong may have admitted too much.

"He may not have been saying the right things; he may not have formed his business organization well enough to make it look like other than what it sounds like it is: a sham," she said. "It depends on the sophistication of applicants and maybe their ability to obtain good counsel, too."

After he was revoked, Wong said he moved about 1,800 guns into his "personal collection" and he has been selling at gun shows and online, where he is not required to do background checks. The law does not consider him a "dealer" because he isn't actively acquiring guns, only selling them.

Wong still runs a gun range where he rents guns and sells ammunition - neither of which requires having a gun dealer license. Wong said he has sold about 1,200 guns without background checks in the past year and plans to sell the restuntil they are gone.

"I am selling them off. They are my personal guns now," Wong said. "What are you going to do with six, seven hundred guns?"