The owners of some of the most popular bars in Boston received tens of thousands of dollars in illegal cash payments from a beer distributor to stock its craft brews and exclude those of competitors, Massachusetts regulators said Wednesday.
The case is the first brought by the Massachusetts Alcoholic Beverages Control Commission to enforce rules dating from the end of Prohibition that ban so-called pay-to-play practices, which can limit consumers’ choices and stifle competition by allowing larger producers to dominate the market.
At a public hearing Wednesday, the commission released the results of a lengthy investigation that detailed how the distributor, Craft Beer Guild LLC, routinely paid five major Boston restaurant and bar owners $1,000 to $2,000 for each “dedicated” beer tap at their bars, with the payments totaling tens of thousands of dollars a year for several of the companies.
An attorney for Craft Beer Guild, J. Mark Dickison, conceded the distributor had made the payments, telling the commission, “this conduct is not something . . . that we’re proud of.”
Dickison said the company no longer engages in the practice but insinuated pay-to-play is widespread among other companies, adding that the alcohol industry in Massachusetts had “run amok.”
The ABCC accuses the distributor of offering illegal inducements and of violating a prohibition on charging different retailers different prices for the same products.
The commission will rule on the accusations later this year; punishment could range from a fine to a suspension to revocation of the company’s state license.
Earlier Wednesday, the agency cited five bars with violating pay-to-play regulations:
■ Jerry Remy’s Sports Bar & Grill, in the Seaport, owned by Cronin Group
■ Estelle’s, a South End bar owned by Wilcox Group
■ Gather, in the Seaport, owned by Briar Group
■ Game On Fenway, a bar near Fenway Park owned by Lyons Group
■ Coogan’s, in the Financial District and owned by Glynn Hospitality Group.
All the companies operate other bars and restaurants in the Boston area. They are scheduled to answer the accusations before the ABCC at a Nov. 3 hearing.
Four of the bar owners declined to comment. Wilcox Group did not respond to requests for comment.
The commission’s report included excerpts from interviews of sales representatives and executives at Craft Brew Guild that detailed how the payments were made. Often, they were disguised on invoices the bars submitted to the distributor under code words such as “menu programming,” “marketing services,” and “brand allocation.”
The commission said Craft Beer Guild’s general manager, Michael Bernfield, admitted to investigators that he approved the payments and knew the practice violated ABCC regulations.
Investigators said the bar owners accepted the payments through shell companies, which had no employees or payrolls.
“It looks like they went to a tremendous amount of trouble to hide what was going on,” ABCC Commissioner Kathleen McNally said at the hearing. “I’m inferring — they knew they were breaking the law. It looks like [the marketing companies] were strictly vehicles to just hide the kickbacks.”
For example, the ABCC report said Craft Beer Guild paid Lyons Group, which operates Game On Fenway, $12,000 in 2013 to carry Yuengling beer in its restaurants — just one of many similar payments worth thousands of dollars. The checks were made out to a company called Bank On It, which Lyons Group executive Edward Sparks told investigators was the marketing arm for the company’s restaurants. He admitted that Bank On It has no employees or payroll and claimed the payments were “rebates.”
Investigators said Cronin Group used a subsidiary, Rebel Restaurant Group, to accept thousands of dollars from the Craft Beer Guild.
Michael Glynn, treasurer of Glynn Group, told the ABCC that in 2013 his company took $27,000 in payments to carry 22 of the distributor’s beers. He said he provided Craft Beer Guild blank invoices with his company’s logo, which the distributor would then fill in.
The report said Gordon Wilcox, owner of Wilcox Group, admitted to investigators that he accepted free kegs from Craft Beer Guild and then negotiated a deal in which Craft Beer Guild would pay his company $1,000 per tap, or $20,000 annually, to be billed as “marketing.”
At one point, according to the ABCC, Wilcox asked Craft Beer Guild for a payment equal to 10 percent of Wilcox Group sales of the distributor’s beers — amounting to a kickback of $50,000 to $60,000 a year. The distributor’s sales representatives told investigators they balked and Wilcox retaliated by ceasing to carry any of its beers.
Craft Beer Guild is owned by Sheehan Family Cos., a major East Coast alcohol company with subsidiaries in 13 states. The company sells major brands such as Yuengling and Lagunitas, but most of its portfolio consists of smaller craft beers from brewers such as Boston Beer Works and Wachusett Brewing Co.
At the hearing Wednesday, Dickison told the commission that the bar owners initiated the illegal conduct by demanding payments from Craft Beer Guild. But ABCC officials said the bar owners, in turn, have blamed the distributor.
“It doesn’t matter who approached who,” ABCC chairwoman Kim Gainsboro said at the hearing. “The conduct is illegal either way. They have engaged in a ruse and subterfuge, it looks like.”
In the report, Craft Beer Guild sales manager Craig Corthell admitted the payments were “kickbacks” in exchange for committed tap lines. He also said his company would then bill the brewer of each beer for its share of the payment.
No brewers have been cited in the investigation.
Dickison challenged the legal basis for the ABCC’s case against Craft Beer Guild, saying changes in the state’s alcohol laws made by the Legislature long ago rendered the regulations invalid.
In a statement, the company assailed the state for having a confusing regulatory scheme but said it would not dispute the facts of the ABCC’s case.
Craft Beer Guild “has opted not to go through a prolonged hearing process challenging unclear and confusing regulations and has instead chosen to wait for the commission’s decision on the matter and renew its focus on providing craft beer to the Boston market,” the company said.
Small brewers have long complained that pay-to-play is rampant in Massachusetts. They say it unfairly limits consumer choice and harms local brewers who cannot afford to pay bars and liquor stores to stock their beers.
The investigation began in 2014 after craft brewer Dann Paquette, of Pretty Things Beer and Ale Project Inc., complained in a Twitter rant about the Wilcox group demanding payments from his company, based in Somerville. The ABCC subsequently obtained documents that appeared to show Paquette’s distributor, Craft Beer Guild, being billed $4,700 every six months by another bar owner, Briar Group, to carry its beers in its Boston bars.
Paquette declined to comment.