How High-Living Founder Of BetonSports Fell, Fled

Gary Kaplan used to throw lavish parties in Costa Rica and plaster the name of his thriving online gambling company on New York City buses. Now, the 48-year-old founder of BetonSports PLC and the multibillion-dollar industry he helped spawn are in reduced circumstances — the man on the run, the industry in disarray.

Mr. Kaplan is a fugitive from a racketeering conspiracy and fraud indictment filed last year in a St. Louis federal court charging him with heading a criminal enterprise that illegally took in over USD 3.5 billion in wagers since 2001.

Several Kaplan colleagues have also been charged, including former BetonSports chief executive David Carruthers, who was arrested at the Dallas-Fort Worth airport in July during a brief stopover on a flight from London to the company’s headquarters in San José, Costa Rica. Mr. Carruthers and several others charged in the case have pleaded not guilty and are awaiting trial. Mr. Kaplan’s whereabouts are unknown.

The Kaplan indictment is part of a broader federal crackdown in which several executives from other foreign online gambling operations and credit-card processing companies have been indicted. Last October, Congress passed a law banning almost all forms of online gambling. Recently, the Justice Department served subpoenas for records on investment banks that had helped BetonSports and other online gambling companies raise money through public stock offerings.

Industry observers estimate that online wagering, which had hit about USD 12 billion annually, is down by as much as 50%. BetonSports has largely closed down operations. Federal authorities estimate that 98% of the company’s business came from the U.S.

The saga of BetonSports and Mr. Kaplan demonstrates how some online gambling sites rose fast — and crashed hard — by operating at, or beyond, the edge of the law. While Mr. Kaplan has a checkered background that includes run-ins with law enforcement, he may have gotten as far as he did in part by surrounding himself with executives like Mr. Carruthers, who came to BetonSports with a mainstream business background.

Before he was an international online gambling impresario, Mr. Kaplan, a New York native, was a bookie and was busted in 1993 by that state’s authorities for running an illegal sports-betting operation, according to his federal indictment. He moved to Florida, where he allegedly continued his bookmaking operation, and then on to Aruba and Antigua before later finally settling in San José. The Costa Rican capital, with light-handed gambling regulation and a ready work force, began attracting other online betting operations.

Mr. Kaplan made a splash. He took over a nine-story office building in a shopping-mall complex and outfitted it with a day-care center for workers‘ kids as well as luxurious suites and a rooftop pool for visiting high rollers that BetonSports sometimes flew in for huge galas.

BetonSports headquarters also housed a shooting range — a reflection of Mr. Kaplan’s fascination with guns and an obsession with personal security, say people who know him. He, his wife and two children routinely traveled with armed bodyguards.

The bodyguards were, at least in part, „an ego thing,“ says Kenneth Weitzner, founder of Eye on Gambling, a Web site that tracks Internet gambling. Mr. Kaplan created the illusion that he thought went with a successful gambling operation, says Mr. Weitzner, who visited Mr. Kaplan at his Costa Rican operation. Another acquaintance called Mr. Kaplan „tough and intimidating.“ In one tale, he supposedly shot a computer monitor after BetonSports lost big on a football game.

As BetonSports grew into one of the biggest online gambling companies, it tried to move mainstream. Mr. Kaplan hired veteran gambling-industry executives, such as Mr. Carruthers, who had worked for Ladbrokes, a major British wagering company. In 2004, BetonSports had an initial public offering in London that raised about USD 100 million and its stock was listed on a branch of the London Exchange.

While Internet gambling is legal in many countries, the U.S. has long contended that it violated various federal statutes — even before the specific ban was enacted last fall. Federal officials made periodic efforts to attack online gambling, but the companies often managed to operate relatively freely in the U.S. BetonSports was able to run U.S. marketing campaigns, including ads on 250 New York City buses in 2003.

But even as the industry soared, federal agents were building criminal cases. Some of BetonSports‘ „customers“ in 2002 and 2003 turned out to be undercover investigators gathering evidence that went into last year’s indictment.

BetonSports’s name has appeared in press reports in connection with a 2005 criminal case filed by New York City prosecutors against an allegedly mob-connected gambling operation that was sending bets to an entity in BetonSports’s headquarters building in San José. In those articles, BetonSports officials said that the entity simply leased office space and was evicted after the indictment. BetonSports wasn’t charged in the New York case.

Some observers find the government’s crackdown on Internet gambling curious, given the national explosion in gambling casinos and lotteries in recent years. These people wonder whether the initiative will backfire by pushing gamblers to less reputable operations.

The recent criminal cases and legislation are “ an anti-consumer-protection movement because they’re eliminating the most reputable publicly traded companies,“ says Nelson Rose, a California law professor and gambling-law expert. In recent years, BetonSports and others, including some U.S. casino operators, had lobbied Congress to legalize online gambling, arguing that it could then be regulated and taxed.

As for Mr. Kaplan, he is being sought by U.S. and international law-enforcement officials, including Interpol, whose Web site carries a wanted poster for him. Though his home was in Costa Rica, some believe he has left that country. One rumor has him and his family in Israel, there on an Israeli passport. If he is apprehended or returns voluntarily to the U.S., he will have to answer the pending charges in the St. Louis federal case. If convicted he could face a long prison sentence and large financial penalties.