Texas- The owners of the Nolanville strip club raided Jan. 18 are facing federal charges in connection with an alleged conspiracy to hide thousands of dollars from the government through a bank deposit scheme.

Syed Badar, Syed Mohammad and Qamar Rehman were indicted Oct. 9, 2007, on one charge each of conspiracy to defraud the federal government by conspiring to structure transactions to evade reporting requirements and one charge each of structuring transactions to evade reporting requirements.

The three men pleaded not guilty to the charges on Nov. 7, the same day they surrendered their passports to the court, according to court records.

Records from the Texas comptroller’s office indicated that Badar, Mohammad and Rehman own Babe’s, which was raided Jan. 18 by multiple law enforcement agencies including the Texas Alcoholic Beverage Commission and the Bell County attorney’s office after months of investigations led to charges related to prostitution and possession of obscene materials.

The government has alleged in its indictment that the three men structured multiple bank transactions, with at least three different banks, most of which are in Bell and McClennan counties, to keep each transaction less than $10,000, said the prosecutor for the case, Stephanie Smith-Burris, assistant U.S. attorney for the Waco Division of the U.S. Court in the Western Texas District.

When a cash transaction exceeds $10,000, the bank is required by law to create a currency transaction report, which is then forwarded to the U.S. government. A possible reason for structuring transactions to evade reporting could be to prevent the income from being reported on a tax return, Smith-Burris said.

“What we’re saying is that they made deposits of cash into the bank that were designed not to exceed $10,000 at a time, which would generate a currency transaction report,” Smith-Burris said.

Warrants for their arrests were issued Oct. 10. They were arrested Oct. 25 in Houston and released on $100,000 bond, according to court records. Smith-Burris could not comment on why the three men, who have a Killeen address on record in the comptroller’s office, were arrested in Houston.

Jury selection for the federal trial of Badar, Mohammad and Rehman has been set for 9:30 a.m. Feb. 25, if a plea agreement is not reached by Feb. 11. Judge Walter S. Smith will preside over the case. Smith-Burris said as of Wednesday, no discussions had been held with attorneys about a plea agreement.

The maximum penalties for the charges include five years in federal prison, a $250,000 fine and a three-year term of supervised release, which is similar to parole.

In an unrelated investigation, three more Babe’s employees have turned themselves in since the Tuesday following the Jan. 18 raid after warrants were issued for their arrest. Seven of the eight employees named in warrants have either been arrested or turned themselves in, said Bell County Attorney Richard Miller.

The arrests came after months of an investigation – which began in October – into possible alcohol and penal code violations.

Courtney Rae Jackson, 19, of Killeen, surrendered to the Harker Heights Police Department on Jan. 24 on two counts of prostitution.

According to arrest affidavits, two undercover TABC agents entered Babe’s on Nov. 30 and spoke with a dancer named “Delicious,” later identified as Jackson, who asked if they wanted a private dance.

The two agents were taken to the back of the club, where the woman, clad in only a G-string, rubbed her backside against the groin area of an officer.

The warrant stated that Jackson also placed her bare chest in the agent’s face and was paid $20 for the dance.

The arrest warrant stated that Jackson, still in only a G-string, repeated the actions with a second agent in a way that simulated sex. The gyrations were done “vigorously and steady,” which the officer believed were to arouse and gratify him sexually. The officer paid $20 for the dance, according to the arrest warrant.

Texas statutes define prostitution as a person agreeing to engage in a sexual contact or conduct in exchange for money.

The law defines sexual conduct as “any touching of the anus, breast, or any part of the genitals of another person with intent to arouse or gratify the sexual desire of any person.”

Michael Lorren Fontenot, 38, of Gatesville, has been charged with one count of promoting and possessing obscene material.

Shantal S. Marin-Garcia, 19, of Killeen, has been charged with three counts of promoting and possessing obscene material.

An undercover officer walked into Babe’s Adult Video on Jan. 17 and spotted video covers depicting “hard-core” sex. The agent asked Fontenot if the video showed what was shown on the cover, and the officer said he “did not want cable version porno.”

The officer purchased and watched the video and said it contained “no story line, plot or any artistic valued apparent in any of the performances.”

Miller, whose office headed the investigation into Babe’s, said the lack of artistic elements makes the video obscene.

“We’re alleging that the video is obscene ? with patently offensive depictions of hard-core sex without any redeeming artistic value,” Miller said.

Two undercover agents approached Marin-Garcia on Nov. 16 at Babe’s about the items near the store’s display case, including various novelty items, which Marin-Garcia explained to the officer how they “stimulate human organs,” according to the arrest affidavit.

In another incident on Nov. 16, Marin-Garcia toured two undercover officers around the store, and she described various novelty items sold in the store, according to the arrest affidavit.

In a third encounter, an undercover officer asked Marin-Garcia “where the hard-core gangbang videos were located,” and she showed him the specific aisle. The officer asked about the video and Marin-Garcia assured him the videos were “hard-core,” and he purchased a video, according to the arrest warrant.

A discerning factor in the legal definition of obscene material such as videos includes a lack of artistic or educational value, according to Texas statutes.

Also, novelty items are not illegal to sell; they only are illegal if they are marketed in a way that established that their main purpose is to arouse human organs.

Babe’s Adult Video has been closed since Jan. 25, but only temporarily, according to the manager on duty last week.

“We just went ahead and shut it down because it was less of a headache,” said the manager, who declined to give his name.

The store was closed to give store operators time to investigate which types of devices and products are allowed in the store by law.

Babe’s strip club opened the day after the raid and has remained open since, the manager said.

Calls to the three owners’ attorneys listed in court documents were not returned as of Thursday afternoon.