Veterans Charity Investigated for Internet Café Racketeering, Company Lawyer Denies Wrongdoing

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With the help of that loophole, the Allied Veterans company allegedly made $300 million as a non-profit and gave less than 2 percent of that to charity, according to authorities. Following the Allied Veterans fallout, the state of Florida last week banned such parlors with slot-like games.

When "Nightline" reached out to former Allied "Commander" Johnny Duncan, one of the 57 people arrested in the gambling probe, for comment, his attorney said in the statement that the gambling parlors were legal and vetted by "a team of 10 lawyers over six years."

Duncan's attorney went on to say that "Allied Veterans gave away millions to veteran and other organizations" and had been approved to operate by the Florida Department of Agriculture, which oversees these charities. But officials in the Department of Agriculture told "Nightline" they had began investigating the company two years ago.

The Lovings said Allied Veterans gave the center $1.5 million from 2011 to 2012. Allied Veterans also had given an additional $700,000 to various East Coast veterans administration facilities from 2004 to 2011, according to a Veterans Administration spokesman. But investigators said that the charity was just a fraction of the non-profit's income.

Despite the allegations, Mathis defended Allied Veterans' actions.

"I don't know how much money Allied Veterans put into establishing that center [in Jacksonville]," he said. "I've been told it's well over a million dollars that they put-- if they had not engaged in this activity that wouldn't exist at all."

Prior to the investigation, Allied Veterans of the World had a successful reputation and had future Florida Lt. Gov. Jennifer Carroll acting as its paid pitchwoman. She even appeared in their commercials.

After the arrest sweep, Carroll stepped down as lieutenant governor but denies any complicity in the alleged scheme. In a statement to "Nightline," she claims the company "duped" her into believing it was legitimate and that she had no "knowledge of their internal or financial operations."

But now the concern among veterans groups is that the Allied Veterans scandal and subsequent arrests will scare donors away from legitimate veterans charities. While the Allied Veterans of the World was the Allied Veterans' Center's biggest benefactor, Len Loving said the center continues to operate on the support of other local military and civilian charities.

"We're trying to find a way to break away from [Allied Veterans] to divest as quickly as possible," he said. "But we don't know what will happen to us."

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