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Originally published June 26, 2013 at 8:36 PM | Page modified June 27, 2013 at 8:07 AM

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Something was fishy in bikini barista investigation

As investigators looked in to the operations of a string of coffee stands, they came across foul-smelling money and allegations of foul conduct by a Snohomish County sheriff’s sergeant.

Seattle Times staff reporter

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Bikini baristas accused of prostitution and money that smells like fish. Please tell me... MORE
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To the detectives investigating allegations of prostitution and lewd behavior by “bikini baristas” working at a string of coffee shacks in Snohomish County, the whole operation smelled fishy — from the way the baristas seemed to know when police were watching to the stacks of $20 bills the owner deposited at a local credit union.

The money reeked of fish, explained Carmela Panico, the 51-year-old owner of the Java Juggs and Twin Peaks drive-thru espresso stands, because she hid it in her freezer, according to a search warrant filed in Snohomish County Superior Court late Monday.

The problems hindering the investigation weren’t so easily explained — that is, until one of the young baristas mentioned a “sheriff” who routinely visited the stands, usually in uniform.

She said “it was common knowledge” among the baristas that Panico and her top manager, a 22-year-old exotic dancer and barista, “have engaged in sex acts with him in exchange for information about law-enforcement investigations targeting the stands.”

That information led to an investigation that identified Snohomish County Sheriff’s Sgt. Darrell O’Neill, 58, a 30-year department veteran who has been arrested for investigation into charges of promoting prostitution and official misconduct.

O’Neill bailed out of jail Friday before he was scheduled to make a court appearance. The sheriff’s office said he has been placed on administrative leave and is the subject of an internal investigation.

Named as co-suspects in court documents are Panico and the manager, identified as Samantha Lancaster. Panico, according to the search warrant, had ties to Talents West, the Lake City management agency that the late Seattle racketeer Frank Colacurcio Sr. used to hire dancers and launder money from his strip clubs.

The U.S. Attorney’s Office dismantled Colacurcio’s empire several years ago, prosecuting his son and associates on racketeering and prostitution charges. Colacurcio died while under federal indictment for racketeering in 2010 at the age of 93.

Because of those ties, the FBI aided Everett police in their investigation.

Police say that some of the baristas at Java Juggs were making big bucks, including one who reportedly earned $100,000 in tips last year. Customers would routinely pay $20 for a cup of coffee and a “show” by scantily clad barista that ranged from flashing the customer to sex, according to the search warrant.

With O’Neill, one barista said, there was an “unwritten rule” on how the women should treat him, and another said that when he showed up he would comment on their bodies and sometimes ask them to flash him.

He first began showing up as early as 2010, according to the court documents.

The search warrant says that surveillance footage captured by hidden cameras placed around the stands by the FBI showed O’Neill showing up repeatedly at two Java Juggs locations in Everett while on duty and in uniform and chatting up the baristas.

“The surveillance video also shows O’Neill hugging and kissing several of the baristas,” the warrant says, noting that he never bought a cup of coffee.

The first hint that an investigation may have been compromised came in 2011 when the Edmonds Police Department began looking into citizen complaints of lewd behavior at a “Twin Peaks” espresso stand. The detective in that case said his investigation “abruptly came to an end” when the girls “suddenly changed their conduct” and quit exposing themselves to his undercover officer.

Interviewed later, the detective said he was “perplexed” by the sudden change in behavior by the baristas and surmised that his undercover operation had been compromised.

However, he also recalled that the “day before he encountered the new attitude” he had contacted a Snohomish County sheriff’s sergeant for help in identifying one of the baristas at the Edmonds espresso stand, who turned out to be Samantha Lancaster. Sheriff’s work logs showed O’Neill was working that shift, according to the search warrant.

Panico opened the business in 2008 as a single espresso stand and expanded to include six others, including stands in Lynnwood and Kent. Authorities conducted raids in Snohomish County and Kent on Tuesday.

According to a financial analysis conducted by the FBI and referenced in the search warrant, between May 2010 and this month, Panico deposited more than $850,000 cash into an account at a BECU credit-union branch.

“Employees recalled that on multiple occasions in the past, Panico has brought in a large amount of $1 denominations that had a noticeable foul odor,” according to the warrant. “Panico advised BECU employees that she maintained these denominations in her freezer at home with fish.”

Most of the deposits, however, were in larger bills — usually $20s, “and the amount of money she deposits is far greater than the amount of other [espresso] stands,” even taking into account the fact that she owned seven of them.

Mike Carter: mcarter@seattletimes.com or 206-464-3706

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