2 hearings Monday in BetOnSports case

Washington (AFX) – Attorneys at the Justice Department headquarters here have been involved from the outset of an investigation by the US Attorney’s office in St. Louis of BetOnSports PLC that so far has resulted in a court-ordered suspension of its operations and the arrest of the British online gambling company’s chief executive.

David Carruthers was arrested July 16 at Dallas-Fort Worth International Airport in Texas while trying to make a connecting flight from the United Kingdom to Costa Rica, where BetOnSports is based. The site suspended U.S. operations July 18 following the issuance of a temporary restraining order by the U.S. government. On Monday, a hearing on the order is scheduled at the U.S. District Court in St. Louis. Carruthers, whose employment contract with BetOnSports was terminated July 25, will be arraigned in a separate hearing in St. Louis.

The BetOnSports case has garnered media attention because it is one of the largest companies to date that the government has taken legal steps against. In the fiscal year ended Feb. 5, BetOnSports said it had handled USD 1.8 billion in bets. The case also attracted attention because Carruthers has been an outspoken advocate of online gambling. ‚I’m optimistic that we can come to agreeable terms for his release,‘ at Monday’s arraignment, said Tim Evans, Carruthers‘ Fort Worth-based attorney.

Going after a high-profile player may not be coincidental, but the case, the latest of many the Justice Department has brought and continues to pursue, is not part of a coordinated federal crackdown on the industry, according to spokesmen there.

Carruthers, company founder Gary Kaplan — who the Justice Department says is still at large — and nine others were named in a 22-count indictment unsealed last week by federal prosecutors. The government says BetOnSports fraudulently took bets from U.S. residents by phone and the Internet, and failed to pay excise taxes. It is seeking the forfeiture of USD 4.5 billion, cars and computers from the defendants.

The Justice Department pursues cases that have the strongest evidence and greatest potential for deterrence, said spokeswoman Jackie Lesch, adding that the BetOnSports indictments were sealed June 1.

Catherine L. Hanaway, U.S. attorney for the Eastern District of Missouri, brought the indictment against Carruthers and said her office has a history of bringing cases against Internet gambling firms and companies that carry advertisements for them, including Paypal, the Discovery Channel and the Sporting News.

‚Those cases have resulted in multimillion dollar civil enforcements,‘ Hanaway said. Her office has been pursuing Internet gambling cases since 1998 and its ‚investigative and prosecutorial resources have great expertise‘ in that area, she added.

The BetOnSports investigation started long before Hanaway became U.S. attorney last July and the Justice Department lawyers in Washington had been involved from the beginning, she said, noting that an attorney from Justice’s organized crime and racketeering section is working on the case. No other U.S. attorney offices are involved.

When asked if the case was part of a larger, coordinated Justice Department effort, Hanaway said she could not comment on ongoing investigations.

There is growing pressure from Congress and antigambling groups to crackdown on online gambling companies. Opponents of Internet gambling cite the always-available nature of the sites and the potential for addiction, bankruptcy and crime.

Experts who follow the industry — estimated at USD 12 billion a year worldwide — say U.S. law prohibits using phone lines to wager on sports, but using the Internet for other types of betting is still a legal gray area. They point to a 2002 ruling in which a federal appeals court in New Orleans dismissed a lawsuit against credit card companies that let gamblers use their cards to make online wagers.

The House earlier this month overwhelmingly passed legislation that would prohibit credit cards and other payment forms from being used to settle Internet wagers. The bill, which would exempt state-run lotteries and horse racing, would update current law to spell out that most gambling is illegal online, and would allow law enforcement officials to work with Internet providers to block access to gambling Web sites. It appears to be on hold in the Senate.

The BetOnSports case confirms that Internet gambling is illegal based on existing law, according to an aide for Rep. Jim Leach, R-Iowa, co-author of the legislation. But more needs to be done, the aide added.