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Wire Act Violation: Internet v. Phone

Phone and Internet Use as Basis for Wire Act Violations

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In United States v. Cohen, 260 F.3d 68, 76 (2nd Cir. 2001) an operator of an offshore sports betting website was charged and convicted of violations of the federal Wire Wager Act, 18 U.S.C. 1084. The operator, located in Antigua, accepted bets from U.S. citizens over the telephone as well as from bettors on the Internet.  There is a fairly widespread, but wrong, belief that the decision upholding  Jay Cohen's conviction, fine and 20 month prison sentence for violating the Wire Act turned on the use of the telephone as opposed to the Internet.

I have read the Cohen case critically to see if there is support for that view.  I can’t agree that there is.  Here are relevant excerpts from the 2nd Circuit’s decision, omitting page citations and footnotes and adding emphasis in a few places.  I have put a few observations in [ ], as well.  Interested readers who think I have missed something in coming to this conclusion are urged to contact me via e-mail with their views.

[B]y 1996 the Internet revolution was in the speed lane. Inspired by the new technology and its potential, Cohen decided to pursue the dream of owning his own e-business. By year's end he had left his job…, moved to the Caribbean island of Antigua, and had become a bookmaker. Cohen, as President, and his partners, all American citizens, dubbed their new venture the World Sports Exchange ("WSE"). WSE's sole business involved bookmaking on American sports events, and was purportedly patterned after New York's Off-Track Betting Corporation. WSE targeted customers in the United States, advertising its business throughout America by radio, newspaper, and television. Its advertisements invited customers to bet with WSE either by toll-free telephone or by internet.

A customer seeking to bet would then contact WSE either by telephone or internet to request a particular bet.

Cohen boasted that in its first year of operation, WSE had already attracted nearly 1,600 customers. By November 1998, WSE had received 60,000 phone calls from customers in the United States, including over 6,100 from New York.

In the course of an FBI investigation of offshore bookmakers, FBI agents in New York contacted WSE by telephone and internet numerous times between October 1997 and March 1998 to open accounts and place bets.

Judge Griesa repeatedly charged the jury as follows:

If there was a telephone call or an internet transmission between New York and [WSE] in Antigua, and if a person in New York said or signaled that he or she wanted to place a specified bet, and if a person on an internet device or a telephone said or signaled that the bet was accepted, this was the transmission of a bet within the meaning of Section 1084. Congress clearly did not intend to have this statute be made inapplicable because the party in a foreign gambling business deemed or construed the transmission as only starting with an employee in an internet mechanism located on the premises in the foreign country.

Jury instructions are not improper simply because they resemble the conduct alleged to have occurred in a given case; nor were they improper in this case. It was the Government's burden in this case to prove that someone in New York signaled an offer to place a particular bet and that someone at WSE signaled an acceptance of that offer. The jury concluded that the Government had carried that burden.

[The 2nd Circuit then sets forth the text of a telephone conversation between an FBI agent and a WSE employee in which an oral offer to make a bet was accepted by WSE.]

WSE could only book the bets that its customers requested and authorized it to book. By making those requests and having them accepted, WSE's customers were placing bets. So long as the customers' accounts were in good standing, WSE accepted those bets as a matter of course.

[It is to be noted that this passage by the Court does not make any distinction between a bet placed over a telephone line and one made over the Internet.]

We need not guess whether the provisions of 1084 apply to Cohen's conduct because it is clear that they do. First, account-wagering is wagering nonetheless; a customer requests a particular bet with WSE by telephone or internet and WSE accepts that bet. WSE's requirement that its customers maintain fully-funded accounts does not obscure that fact.

[In response to Cohens’s argument as to “whether ‘transmission’ includes the receiving of information as well as the sending of it” the Court stated:]

Second, Cohen established two forms of wire facilities, internet and telephone, which he marketed to the public for the express purpose of transmitting bets and betting information. Cohen subsequently received such transmissions from customers, and, in turn, sent such transmissions back to those customers in various forms, including in the form of acceptances and confirmations. No matter what spin he puts on "transmission," his conduct violated the statute

[Here there was no legal difference whether the Internet or a telephone line was involved.  The argument made by Cohen was that the law was unclear as to whether “transmission” included receiving as well as sending.  Here the Court specifically found that betters sent wagers over both the Internet as well as phone lines, so the "transmission" argument made by Cohen did not amount to a valid point.]