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Confusion Surrounds Legal Status of Online Bets and Firms That Handle Them

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How online poker players who suspected cheating were forced to successfully ferret out the cheaters themselves. A joint investigation by CBS News's Steve Kroft and The Washington Post. Video by CBSNEWS.com

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The department's opposition to gambling is long-standing, said David G. Schwartz, director of the Center for Gaming Research at the University of Nevada at Las Vegas. "It goes back to [Attorney General] Bobby Kennedy and his war against organized crime. The department wanted to shut down their sports books to cut off their money supply."

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So far, federal prosecutors have not gone after individual players and only a handful of states attempt to ban players from gambling online. Washington is the most prominent, listing Internet gambling as a Class C felony, equivalent to rape, said Kelly, the Buffalo professor. Most states simply ignore the issue.

To fill that void, federal prosecutors have turned to the 1961 Wire Act, which was passed during the Kennedy administration to intercept telephone communications between old-fashioned bookies. At least one federal judge has ruled that the 47-year-old law applies only to sports bets, while several legal scholars have argued that it was never intended to include online poker or other games of skill.

But Justice officials have used the measure to snare Neteller and several online sports betting operations.

One of the first such cases was brought against Jay Cohen, 27, a former options trader who in 1996 opened an online sports book in Antigua called World Sports Exchange. Within a year, the Web site was receiving thousands of bets from U.S. customers. Cohen and a partner were prominently featured in a Wall Street Journal article.

But by May 1997, the story had soured. That month, Cohen received a letter from the law firm Debevoise & Plimpton, which was representing the NFL and other professional sports leagues, threatening him with a lawsuit if he didn't remove links to the leagues' Web sites and stop accepting bets from U.S. customers, according to an account Cohen published online in 2002.

Cohen was indicted the following year. "Criminals cannot avoid responsibility for federal crimes by seeking refuge in offshore locations," then-U.S. Attorney Mary Jo White said at the time.

Cohen was convinced that the Wire Act didn't apply to the Internet, and he returned to the United States to fight the charges. He was convicted and sentenced to 21 months in a federal prison camp located in the shadows of the Las Vegas Strip and its multibillion-dollar casinos.

In June 2006, a federal grand jury in Missouri indicted BetOnSports PLC, a company traded on the London Stock Exchange that operated Web sports books and casinos out of Costa Rica. The government charged the company with accepting billions of dollars worth of bets from U.S. customers, and agents arrested chief executive David Carruthers while he was changing planes at the Dallas airport.

Carruthers was led into court in handcuffs at his initial hearing and was required to wear an ankle bracelet while under house arrest. He told a CBS correspondent that on any given Sunday, the site received about 60,000 bets on NFL games. BetOnSports pleaded guilty. Carruthers is awaiting trial.

The government's efforts haven't been limited to sports books. The Sporting News agreed to a $7.2 million settlement to resolve claims that it had promoted illegal gambling by accepting advertising from Web sites. And last year, the Justice Department reached a $31.5 million settlement with Microsoft, Google and Yahoo for accepting online advertising for sports books and casino-style games. None of the companies admitted liability.

Expanded Arsenal

More recently, the Justice Department and Congress have tried a new strategy, turning their attention to the middlemen: companies that handle money transfers between bettors and gambling sites.


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