This is the second in a periodic series for Legal Sports Report looking at famous sports betting cases, how the cases came together and how they eventually concluded.
Part II on Legendz Sportsbook looks at the trial and sentencing of the founders. The prosecution alleged this was one of the largest illegal sports betting operations in the history of the United States, seeing an alleged handle upwards of $1 billion.
Nearly four years after the unsealed indictment resulted in dozens of seizures and arrests, US District Judge Stephen Friot issued his decision on the US request for forfeiture of assets that were alleged to total upwards of $1 billion. The decision was nearly 200 pages.
Friot noted that the government’s initial request for $1 billion was actually an amount totaling more than $231 million. Friot referred to the forfeiture proceedings “as contested,” noting that the four jury trials related to the case and a judge-alone trial generated more than 11,368 pages of trial transcripts.
The defendants were split into four different trial groups. The trials spanned 13 months through 2015 and 2016.
Given the array of defendants, the judge produced a table detailing the defendants (other defendants including Serena King were acquitted or settled) and their trial outcomes:
|Defendant||Count 1: Racketeering Conspiracy||Count 2: Illegal Gambling Business Act||Count 3: Money Laundering Conspiracy|
|Koralewski||Guilty||Not Guilty||Not Guilty|
Despite the astounding success of obtaining guilty verdicts from the jury on all principal defendants, the Legendz Sportsbook trial resulted in none of the defendants being sentenced to jail time. One defendant received credit for time served.
A damning statement
Luke King, the founder of Legendz, received five months of house arrest and a fine of $12.6 million. King, like the other defendants, was sentenced by Friot, as opposed to a jury. Friot noted that the key to his decision regarding jail time was the amount of harm that the offenses caused to society. The judge apparently quoted from jury notes, stating:
“With all the ‘legal’ sports gambling that goes on in the U.S., coupled with the fact that no one was physically harmed and nobody was forced to place bets, I see no threat to society by allowing both … to avoid prison time.”
While not a factor in his sentencing decision, the judge cited prosecutorial abuses, which included the repeated citation to the argument that Legendz had a handle of more than $1 billion when there was no evidence to support such a finding. He referred to that position as “preposterous.”
License to seize?
The lack of jail time did not, however, deter prosecutors in their search for forfeitures. Forfeitures are generally allowed under federal law for certain crimes, including the racketeering, illegal gambling business act and money laundering charges involved in the Legendz case.
While the government initially sought the stated $1 billion, which was later reduced to an amount north of $200 million, Friot noted that the Eighth Amendment protections against excessive fines limits these types of forfeitures stating:
“Measured by the joint and several $231,432,686.73 forfeiture money judgment it seeks, the government’s objective, if realized, would sentence the forfeiture defendants life terms of impoverishment or living off the books, or both. The text, the historical antecedents, and the judicial treatment of the Excessive Fines Clause, … tell us that the statutory forfeiture tools wielded by the government in this case, powerful though they are, do not trump the limitations imposed by the Eighth Amendment.”
Regarding King, the government sought forfeitures from 18 different bank and brokerage accounts, three cars, 58 pieces of jewelry, 88 pairs of shoes, 75 purses, a jukebox, sports memorabilia and a variety of properties.
A bench slap for the ages
Undermining the government’s arguments, Friot wrote in his decision:
“The factual linchpin of the government’s proposed forfeiture of King’s hard assets and financial assets is its oft-repeated and palpably untrue statement that King’s only source of income during the conspiracy period was the illegal sports betting operation.
In support of forfeiture of specific properties, the government puts it as follows in its Forfeiture Brief: “[K]ing’s only source of income derived from his illegal gambling operation with Legendz Sports.” This disregards the uncontroverted testimony of the government’s witnesses — testimony the government never questioned or attempted to challenge — establishing King’s history of lawful entrepreneurial activities during the conspiracy period.”
Co-mingling of assets?
King’s legitimate businesses included a legal brick-and-mortar sportsbook in Panama City, a liquor license for the sportsbook, a travel agency that was seeing 20% year-over-year growth and a vacation company that eventually failed but was at one point doing $10,000 in daily revenues. Friot further observed that with a lone exception, these businesses were not funded with dirty Legendz money.
The ultimate forfeiture judgment against King was for more than $12.6 million and an IRA account. He was able to keep his 20 pairs of Jimmy Choo shoes and 75 handbags. But while the judge found the United States was entitled to the relatively small forfeiture award, the defendants moved for forfeiture-related sanctions against the government related to their “objectively incorrect assertions in the Government’s forfeiture briefs.”
A lesson for the prosecution?
“[Defendant] Diebner is correct — the government has made significant objectively incorrect factual assertions in these forfeiture proceedings. That complaint is, of course significant in itself, but it also has some impact on the “abuse and overreach” of which Diebner complains.
“The material misstatements of fact that the government has made in writing are in some respects compounded by, and in some respects separate from, a good many vexing (and avoidable) factual problems inherent in the government’s presentation at the forfeiture trial.”
Further issuing this damning indictment of the government’s conduct:
“The court has not set out to embarrass the government in this order. To the extent, if any, that the government is embarrassed by any of the matters that are set out at length in this order, the government has embarrassed itself.”
When rhetoric does not match reality
Though the judgment of forfeiture of more than $12.5 million stood, the Legendz sportsbook case was a disastrous defeat for prosecutors. It is difficult to say whether Friot would have sentenced the defendants differently if prosecutors had handled the case with fewer hyperbolic assertions.
The statement that sports betting is a low-harm crime appears to be continuing to gain credence as more and more states seek to recapture some of the illegal market.