A Feb. 3 Business article incorrectly said that sports-betting entrepreneur Jay Cohen was convicted of wire fraud in 2000. Cohen was convicted under the federal Wire Wager Act.
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Crashing the Party
Moreover, although the Justice Department has suggested that all forms of Internet gambling violate the law, analysts say that online horse racing, poker and fantasy leagues may be exempt. Gambling in some form, from state-sponsored lotteries to race tracks and slot machines, is legal in a majority of the 50 states, which collect billions in tax revenue from the enterprises each year.
A. Jeff Ifrah, a defense lawyer in the District office of Greenberg Traurig, said the Justice crackdown is confounding some legal analysts because "it is unclear how the government randomly targets members of this industry for prosecution, and why it is doing so on the heels of legislation that only recently prohibited facilitating certain gaming activity."
  John David Lefebvre, Neteller co-founder, was arrested and charged with transferring billions from U.S. citizens to overseas gambling companies. (Artist's Rendering By Shepard Via Bloomberg News) |
Neteller, which had provided payment services to more than 80 percent of worldwide gaming merchants, watched its business swell after PayPal and parent company eBay agreed to leave the business and forfeit $10 million to settle civil charges three years ago over financial transfers to offshore and online gambling firms.
Now, however, with the arrest of two of its founders, the British Web site is scrambling to exit the U.S business. Neteller is besieged with requests from frustrated bettors who want to recoup billions in deposits and winnings. The money is being held in trust accounts while the company holds conversations with the Justice Department about the status of its executives and other board members.
"The answer is, it's a bit confused at the moment," Neteller spokesman George Cazenove said. "I'm sure they will get their money back. You've got to give Neteller a bit of space."
Prosecutors have increased efforts to force advertising companies and Web sites to reject paid ads for Internet gambling sites. They also sent subpoenas to at least three investment banks, HSBC, Dresdner Kleinwort and Credit Suisse. Richard Lindsay, spokesman for HSBC, said the subpoena it received late last year requested information "pertaining to some Internet gambling companies."
The crackdown against public, regulated foreign businesses has left small private companies to fill the void, an issue that worries industry officials and consumer groups who say the smaller entities are less subject to oversight and more difficult to police. In essence, they argue, the government drive could turn into another prohibition, and have the perverse impact of fostering underground, illegal activity.
"The net effect of this is, responsible people are out of the business," said Frank J. Fahrenkopf Jr., president of the American Gaming Association, a casino industry trade group.
But federal officials disagree. Mark J. Mershon, FBI assistant director, last month cautioned that companies handling Americans' offshore bets "amount to a colossal criminal enterprise masquerading as legitimate business."
Staff writer Tomoeh Murakami Tse and staff researcher Richard Drezen contributed to this report.
