Arrest Made in Crackdown on Internet Betting

Jul 18, 2006, 7:37 am (17 comments)

Online Gambling

In a sharp escalation of their crackdown on Internet gambling, United States prosecutors said yesterday that they were pressing charges against the chief executive of BetOnSports, a prominent Internet gambling company that is publicly traded in Britain, and against several other current and former company officers.

Federal authorities arrested the chief executive, David Carruthers, late Sunday as he was on layover at Dallas-Fort Worth International Airport on his way from Britain to Costa Rica. In a hearing yesterday in Federal District Court in Fort Worth, he was charged with racketeering conspiracy for participating in an illegal gambling enterprise.

Also at the hearing, the court granted the government's request for a temporary restraining order preventing BetOnSports from accepting wagers from customers in the United States and requiring it to return money held in the accounts of American customers.

In addition to Mr. Carruthers, the government filed charges against 10 other people involved with BetOnSports and with three Florida marketing companies that prosecutors say were involved in promoting illegal gambling.

The charges, particularly those against Mr. Carruthers, who runs a company that has been a symbol of the investment potential of offshore casinos, raise complex legal and political questions. And they are the most direct attack in several years on offshore Internet casinos, setting up a showdown with an industry that has grown increasingly brazen in promoting online wagering in the United States.

The gambling sites allow people to place bets on sporting events and play casino games like blackjack from their computers. The companies keep their computer servers in places like the Isle of Man, Antigua and Costa Rica, where BetOnSports has its operating headquarters.

A BetOnSports spokesman declined to comment, saying the company's board was meeting late last night to assess the situation. Some industry executives have said the offshore casinos cannot be prosecuted because while they take wagers from American bettors, the physical operations are outside United States jurisdiction.

Prosecutors assert that under the Federal Wire Act of 1961, the providers and promoters of Internet sports books and casinos are participants in a criminal enterprise.

The fact that these operations are legal in their home jurisdictions "does not entitle them to do business in the United States," said Catherine L. Hanaway, the United States attorney for the Eastern District of Missouri, which brought the indictment. The charges announced yesterday indicate that "their efforts to avoid U.S. law enforcement will be challenged and brought to justice whenever possible."

In addition to Mr. Carruthers, prosecutors brought charges against Peter Wilson, BetOnSports's media director; Gary Kaplan, the company's founder; and several of Mr. Kaplan's relatives, whom the indictment alleges were involved in the business. The indictment was returned June 1 but was sealed until yesterday.

Also charged were operators of Direct Mail Expertise Inc., DME Global Marketing and Fulfillment Inc. and Mobile Promotions Inc., Florida-based companies that prosecutors say helped promote the offshore casinos in advertisements. Those accused are charged with various counts of racketeering, conspiracy and fraud for providing and promoting illegal gambling.

A woman who answered the telephone yesterday at a number listed for Direct Mail Expertise said she knew nothing about the company or its legal problems. A message left on the answering machine of DME Global Marketing yesterday was not answered. No listing was available in Florida for Mobile Promotions.

The indictment seeks to have the accused forfeit $4.5 billion in holdings.

The restraining order, issued by Judge Catherine D. Perry of United States District Court, lists more than a hundred casino Web sites that it says are controlled by the defendants.

"This is a shot across the bow," said Lawrence G. Walters, a Florida lawyer who specializes in Internet gambling law. "They're letting the industry know, 'We're about to come after you.' "

The indictment sent BetOnSports's shares skidding; they fell 16.5 percent to close at $122.50. According to the indictment, marketing materials from BetOnSports claimed that in 2004 and 2005, the company took 98 percent of its wagers from customers in the United States.

The company's spokesman said yesterday that that figure was now down to between 70 percent and 80 percent.

The charges reinforce a growing divide between the United States' policy on Internet gambling and its popularity in much of the rest of the world, not just among gamblers but also with investors. Some popular sites have sold shares to the public and are experiencing growing revenue and, in turn, interest even from major American investment houses, which hold shares of the online casinos in their mutual funds.

There is also a disconnect between the government's efforts to prohibit online casinos and the activities of hundreds of thousands of Americans who regularly place bets over the Internet.

Last week the House of Representatives overwhelmingly approved legislation to crack down on Internet gambling operations, including criminalizing the processing of payments to such operations by financial institutions. The Senate has not yet voted on the bill.

This is not the first time prosecutors have gone after the operator of an Internet gambling site. In 1998, federal prosecutors indicted Jay Cohen for operating a sports betting Web site that violated the Wire Act, and in 2000 he was sentenced to 21 months in prison.

But operators of offshore casinos have been emboldened in recent years, in part because they have received the stamp of legitimacy from foreign governments. They have expanded their efforts to market in American magazines and on radio and television, and with success: analysts say that more than half of all Internet wagers come from residents of the United States.

Mr. Carruthers has been particularly outspoken about trying to get the United States to change its policies, visiting frequently to press his case with the news media and investors.

"He's been very vocal and didn't think that there was anything the government could do," Mr. Walters said.

Ms. Hanaway, the United States attorney in Missouri, said the arrest happened during this visit because "it's when we knew he was coming." Asked whether it presented a challenge to prosecutors that Mr. Carruthers is not an American citizen, Ms. Hanaway said, "Thus far, no."

Sue Schneider, publisher of Interactive Gaming News, an online magazine focusing on the Internet casino industry, said the charges would have at least one major chilling effect on the industry's officers. "I imagine the number of executives coming through the U.S. on connecting flights will come to a screeching halt," she said.

New York Times

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LOTTOMIKE's avatarLOTTOMIKE

i think they need to tax,regulate it and make it legal.they are doing this backwards.look at the potential here.i guess because its gambling the government doesn't want to do that.its no worse than cigarettes,alcohol or porn.does anyone think this will makes things worse as far as the bill goes?

cps10's avatarcps10

This certainly isn't a good sign

LOTTOMIKE's avatarLOTTOMIKE

Mr Carruthers has been an outspoken opponent against a proposed US law banning banks and credit card companies from processing internet gambling payments.


Despite the bill winning the backing of the House of Representatives last week, he said the move would fail due to a backlog of US legislation.


cps10's avatarcps10

He was pretty stupid for announcing his travel plans through the U.S. That was just dumb. I saw a special on a company in Antigua I think it was whereby if the President was to set foot in the U.S., then he would be arrested. And I think they pointed out that it would happen to any of these gaming execs. Yet, they continued to toe the line and dared the U.S. to do something. And they did. Dumb on Carruthers' part.

Todd's avatarTodd

According to the article he has been traveling to the United States regularly.

LOTTOMIKE's avatarLOTTOMIKE

This certainly isn't a good sign

your right.it certainly adds a bad vibe to the whole situation.it remains to be seen how much it will affect the whole outcome......

cps10's avatarcps10

Well, it could just be a sign that the U.S. isn't going to allow those folks to come through...telling them that they don't want online gambling, and they will do what they have to in order to show them they mean business.

cps10's avatarcps10

According to the article he has been traveling to the United States regularly.

Yes he has...and you would think that he of all people would know better. Sooner or later someone would either recognize him or leak his travel plans - perhaps a disgruntled employee...lol

Just6ntlc

I hope the outcome ends all companies who want to have gambling for people.

bellyache's avatarbellyache

I also think they should just tax internet gambling. That way online players can still play and the government gets what it really wants, money.

Todd's avatarTodd

I hope the outcome ends all companies who want to have gambling for people.

Twitch
orangeman

Just6ntlc:

You are a strange breed of cat.  Don't you know that regular state games give terrible odds and are designed to steal your money faster than any offshore casino ever dreamed of?  Why throw rocks at something that gives the average player better odds?  Let's tax the darned thing, give the gangsters in Congress their cut and leave the average American at least one scrap of freedom.  We spend too much time protecting the idiots from themselves.

Orangeman                                              What?

   

dvdiva's avatardvdiva

It's all about the money. The Feds just think they can seize someone's assets without too much of a fight so they do. Not to mention the big push of money coming from Tribal casino's and Vegas. The last thing Tribal casino's need is an easy and better alternative. The WA state law is far harsher than the Federal one and was pushed through on the sly thanks to Tribal dollars. The Senate will take it up because of the cash also. There are few more important things in WA DC than cash.

JAP69's avatarJAP69

I hope the outcome ends all companies who want to have gambling for people.

Then the outcome will be seen like this.

Atlantic city closed .
Vegas closed.
Tribal casinos closed.
Thourobred horse racing halted.
All forms of horse racing.
dog tracks.
hai-lai.
All state lotteries.
Any type of games where winners are chosen. Publishers clearing house, Etc.
T.V. game shows where prizes or money is won.
The futures market is gambling.
Stock investing is gambling.
Working for an employer is gambling. One day a job next day none.

Why dont we just give the gov,t our earned dollars and they can give back food and water to us.

I am getting tired of these righteous jerks.

Shall I continue.



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