Gambling Law US
Online Gambling Arrest History - Carruthers - Dicks
BetonSports Charges: History of Online Gambling Criminal Charges
Gambling Related Websites
Posted September 15, 2006, Supplemented March 4, 2007
Online sportsbook BetonSports.com and its chief executive officer David Carruthers were recently indicted. Here is a PDF version of the Indictment. They are charged with violations of the Wire Wager Act, the Travel Act, the Illegal Gambling Business Act, the Racketeer Influenced Corrupt Organizations Act (RICO), tax evasion and money laundering. The indictments and arrest of Carruthers on July 17, 2006, in a passenger lounge at Dallas-Fort Worth Airport between legs of two international flights came as big new news to most of the media. Share prices of publicly-traded online gambling websites initially dropped by half or more. A lot of column inches of news stories ran. A lot of bytes were bitten on blogs and online discussion groups.
Another executive, Peter Dicks, the non-executive chairman of online sportsbook Sportingbet.com's was arrested on September 6, 2006, in New York at JFK airport after a passport check disclosed a Louisiana warrant for him for alleged criminal violations of its state anti-gambling laws. Mr. Dicks has been released on bail and allowed to return to England pending a New York extradition hearing scheduled for late September.
France has also arrested two executives of online sportsbook Bwin in Monaco on September 15, 2006 as part of moves to prevent online gaming companies from operating in France.
Newest Charges Not Unique
There is nothing new or unique about these kinds of indictments. There have been many similar charges and convictions in the past ten years. So far these kinds of charges have been made almost exclusively against operators of online sportsbooks that accept bets from U.S. residents. However, the growing popularity of online casinos and poker websites and their seemingly omnipresent advertising may make them high-profile candidates for similar enforcement action. The increasingly frequent arrests of poker players in many states may presage a coming clampdown on online cardrooms.
Here is a listing and summary of some of those many previous sports betting charges.
First Criminal Conviction for Operating an Online Casino
Civil Injunction Against Gambling Website
In 1999 in State of New York v. World Interactive Gaming Corp 1999, an Antigua-based online bookmaking company was enjoined from doing business with New York residents. The court noted, "The act of entering the bet and transmitting the information from New York via the Internet is adequate to constitute gambling activity within New York state."
Criminal conviction of Jay Cohen for Operating an Online Sportsbook
In 1999, a federal grand jury in Manhattan charged Jay Cohen, one of the owners of World Sports Exchange, WSEX.com, with conspiracy to violate the Wire Wager Act and seven substantive counts of violating, and aiding and abetting violations of that Act. He was found guilty and sentenced to 21 months. Despite Cohen's conviction World Sports Exchange continues to operate its sportsbook. It has now added other betting opportunities, including poker.
Guilty Pleas to Wire Wager Act Criminal Charges
In January 2000, Marc Meghrouni and Scott Shaver, the owners of Paradise Casino, which operated an offshore sports book in Curacao, pleaded guilty to violating the Wire Wager Act, as well as tax fraud. U.S. v. Meghrouni, #4.00-cr-00038-SNL (Fed. Dist Ct. for the Eastern District of Missouri, filed Jan 26, 2000). Additionally, Paradise Casino was charged with money laundering relating to the spending of betting funds in the United States. Meghrouni, Shaver and Paradise agreed to forfeit a one million dollar condominium, and a 1995 Lamborghini.
Guilty Pleas to Online Bookmaking Related Charges
In 2001 Gold Medal Sports, an online sportsbook on Curacao, entered a guilty plea to racketeering and a criminal forfeiture count. The company agreed to suspend operations, and forfeit more than $3.3 million in earnings. Duane Pede and Jeff D'Ambrosia, the principal owners, pleaded guilty to filing false income tax returns and violating the Wire Wager Act. Each received a five-year prison term and they collectively paid over $1.4 million in back taxes, and fines of $100,000 each.
Attorney for Online Sportsbook Convicted
David Tedder, an attorney for Gold Medal Sports, was arrested in October 2002 by FBI and IRS Special Agents at O'Hare International Airport in Chicago, Illinois. He had been a fugitive since his indictment. Government agents acted on information that Tedder would be arriving in Chicago on a Delta Airlines flight. Like David Carruthers, he was met at the gate by FBI and IRS agents and taken into custody. Mr. Tedder’s petition for a hearing before the U.S. Supreme Court was finally turned down in November 2005. For his help in structuring and advising Gold Medal Sports, Tedder was "convicted of conspiring to violate the [Wire Wager Act]… conspiring to launder money… and two counts of money laundering…. The jury also rendered a criminal forfeiture verdict…. [Tedder] was sentenced to concurrent terms of 60 months of imprisonment on each count, was subjected to fines totaling more than $1.06 million, and was ordered to forfeit $2.77 million in proceeds from his illegal money-laundering activities. The court of appeals affirmed [Tedder’s] convictions and the order of forfeiture, but the court vacated petitioner's sentence and remanded for re-sentencing." Brief for the U.S. in Tedder v. U.S., Denial of Pet. for Cert. No. 05-312, U.S. Sup. Ct. Tedder finally was sentenced to 6 months, five months of it in home confinement.
CPAs for Online Sportsbook Plead Guilty to Owning Shares
In January 2002 David Howard, a Certified Public Accountant in Las Vegas, and Randy Moreau, an accountant in Miami, each pleaded guilty to owning a share of Gold Medal Sports.
Attorney for Online Sportsbook Please Guilty
Attorney Bruce Meagher pleaded guilty in April 2002 to participating in the gambling conspiracy involving Gold Medal. He received one month in jail, five months of home detention, and a fine of $20,000.
Gold Medal manager Rick McColley was also indicted on February 21, 2002.
New Jersey State Charges Against Online Gambling
In October 2001 New Jersey Attorney General John J. Farmer, Jr. announced that New Jersey’s divisions of Gaming Enforcement and Consumer Affairs had filed civil actions against 2betdsi.com, Intercasino.com, Laythepoints.com, Sportingbet.com, Sportsbook.com, Intertops.com, BetonSports.com, Betmill.com among others for accepting wagers from individuals in New Jersey. The suit alleged that the defendants operated illegal sports book sites where New Jersey residents, via the Internet or telephone, could place wagers on professional and college sporting events.
New Jersey State Charges Against Mere Software Licensors
In May 2002 the New jersey Attorney General announced that WagerLogic and CryptoLogic agreed that any licensing or related agreements they may enter into in the future will contain a provision prohibiting the licensee or other entity or individual with which WagerLogic or CryptoLogic contracts, from accepting sports bets from persons located within New Jersey, unless and until it becomes legal to do so.
Florida Criminal Charges
In May 2002 "Operation Goodfellas", a two-year Broward County, Florida Sheriff’s Office investigation into organized crime-related narcotics and gambling activities, resulted in charges against two Gambino crime family members, Joseph P. and Joseph J. Fafone, for acting as agents on behalf of online bookmaker Bestlinesports.com. Both faced state bookmaking charges for collecting bets and making cash payoffs locally on wagers placed via toll-free telephone and internet website links. (Bestlinesports is one of the online bookmakers listed as being owned and operated by BetonSports in the recent indictment against it and David Carruthers.)
Federal Criminal Charges Against Online Sportsbook Operator
In 2003 Ronald "The Cigar" Sacco, a founder of Betcris.com, was sentenced to 21 months in federal prison for illegal gambling and money laundering. Previously, in 1993, he was arrested in the Dominican Republic and charged with operating an illegal betting ring that allegedly netted $1 billion a year. (The $1billion amount was reported in an LA Weekly story , but is otherwise difficult to confirm.) Sacco spent five years in prison after pleading guilty. He had also previously been a Bay Area bookie and had a number of felony convictions for bookmaking.
Well regarded gambling law professor I. Nelson Rose reports :
Noted Las Vegas reporter and author John L. Smith had this to say about the 2003 charges against Sacco:
"Illegal sports gambling cases are federal law enforcement's old reliable. The FBI's competence in terrorist matters might be questioned daily in the nation's press, but those wily old illegal bookmakers continue to take a beating from Buffalo to Curacao.
"When local politicians and casino owners lecture about how much we've evolved, I think of Sacco and dozens of dinosaurs like him. For them, the Ice Age never ends. They can hire lawyers to give opinions that their island bookmaking activities are legal. They can argue that Internet gambling falls outside the federal definition of gambling across state lines. But they're only kidding themselves."
Federal Racketeering Charges for Operating an Online, Offshore Sportsbook
In 2004 Scott Carstens and Keith English were charged with racketeering and acting as bookmakers by collecting sportsbook bets made through a Costa Rican online betting website, Safe Deposit Sports.com.
Federal Gambling Related Charges for Internet Gambling Operation
A federal indictment, No. 1:05-cr-10003-NMG-ALL charging racketeering, operating an illegal gambling business, violations of the Travel Act, money laundering, extortion and arson was unsealed in the Massachusetts federal District Court in 2005. The indictment names Arthur Gianelli and a dozen others with running an illegal gambling ring that allegedly paid protection money to the New England mob. The charges stem from enterprises that Gianelli and his associates allegedly ran an Internet gambling operation aided by an offshore sports betting website. As of September 2006, three of the other defendants had pleaded guilty to some of the counts in the indictment. Their sentencing was deferred pending testimony in the trials against the others.
New York Indictments for Booking Bets Online
In 2005 a 39-count enterprise corruption indictment was filed in Queens County, New York, Supreme Court charging that a gambling ring including Christopher Bruno and three dozen others made protection payments to reputed Bonanno-crime-family captain Anthony "Tony Green" Urso in connection with the operation of sports betting wire rooms in New York and San Jose, Costa Rica. The indictment alleges the group booked some 2,000 bets a day that generated gross revenues of nearly $500,000, or $15 million a month or $180 million a year, for the two years that it operated. They were alleged to have used the Internet, e-mail and AOL instant messaging to Safe Deposit Sports.com and a toll free telephone number whose monthly bill was over $50,000. Christopher Bruno has pleaded guilty and was scheduled to be sentenced to three to nine years in prison. He was ordered to immediately forfeit $510,000 in cash, investment accounts and vehicles. Among the forfeited items were a Mercedes Benz valued at $95,000, a 2002 GMC Denali valued at $29,000 and a baseball card collection reportedly worth as much as $300,000.
Federal Indictments for Online Operation of betWTTS.com
In May 2006 the federal District Court of the District of Columbia unsealed the indictment in No. 1:05-cr-000122-ALL. It charges William Scott, Jessica Davis, Worldwide Telesports (d/b/a betWWTS.com) and Soulbury Ltd with conspiracy and money laundering in connection with the sportsbook operations of betWTTS.com. Wagers of over $250 million placed by toll-free telephone numbers and through online sportsbook www.BetWWTS.com and other Internet websites are alleged to have been accepted. According to a news report Scott and Davis are now fugitives believed to be in Antigua.
Federal Indictments for Operation of Online Sportsbook bettheduck.com
In July 2006, Tony Ferretti and seven others were charged with conducting an illegal gambling business, conspiring to conduct an illegal gambling business, and money laundering. The indictment was filed in the federal District Court for the Northern District of California, No. 4:06-cr-00560-MJJ-ALL. It alleges that players placed bets and wagers via the Internet, at bettheduck.com, or through a toll-free number with one or more individuals in Costa Rica who were paid to operate the illegal gambling business outside the United States and that agents within the United States collected bets and wagers, in the form of checks and currency, from the players and then delivered them to runners, who delivered the funds to the gambling business. The accused allegedly worked as agents and received a commission based on a percentage of their players’ losses.
The Justice Department claims that selling advertising to online casinos may be "aiding and abetting" an illegal activity and they have employed money seizures and subpoenas to outlaw the activity, in their most high profile case, seizing millions of dollars from the Discovery Network, that had been paid by PartyPoker.com and ParadisePoker.com for advertising slots.
A director of BetonSports, Lord Glentoran, speaking in the House of Lords in February 2006 said:
"Something like over 75 per cent of betting today takes place on the internet.....Not even the Americans have managed to control the internet in any tiny way. Our company gets 70 per cent of its revenue from North America; from sports betting on North American football league, baseball, hockey and college sport. In North America it is illegal to use the telephone wires to bet. There is something called the Wire Act, from 1969 or thereabouts. The Americans have been trying for a long time to enforce their regulations against such use and they have totally and absolutely failed."
The reader should consider the accuracy of Lord Glentoran’s remarks in light of the indictments, arrests and convictions discussed in this article.
BetonSports has not appeared in court to defend itself. However, it has fired David Carruthers and shut down its U.S.-facing businesses.
This listing of indictments, arrests and convictions, should give pause to reconsider to those who claim the BetonSports matter is a unique new development in law enforcement action against online gambling enterprises. The prior cases also give more poignant meaning to this comment by U.S. Attorney Hanaway:
" ’Illegal commercial gambling across state and international borders is a crime,’ said U.S. Attorney Catherine L. Hanaway of the Eastern District of Missouri. ‘Misuse of the Internet to violate the law can ultimately only serve to harm legitimate businesses. This indictment is but one step in a series of actions designed to punish and seize the profits of individuals who disregard federal and state laws.’ "
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