Could 5Dimes Settlement Signal Change In Federal Approach?

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The U.S. Department of Justice has a long and sometimes colorful history of investigating and prosecuting offshore sports betting operators. 

Remember Blue Monday when then-United States Attorney Rod Rosenstein shut down multiple online sportsbooks in 2011 and seized 10 domain names, including

Last week, the Justice Department added another entry to its ledger of internet sports betting probes through the years when Costa Rica-based 5Dimes entered into a negotiated settlement with federal authorities and forfeited $46.8 million. As part of the settlement agreement, no criminal charges will be pursued following investigation of potential crimes including wire fraud and money laundering.

Putting 5Dimes settlement into perspective

To put the recent 5Dimes settlement in context, Legal Sports Report obtained legal rulings and court papers from four prior federal investigations of offshore sports betting operators:

Here is a rundown of four prior crackdowns that resulted in published judicial decisions, thereby providing a detailed account by an arbiter of the competing claims offered by prosecutors and defendants.  Taken together, the four cases illustrate how prosecutors have succeeded in applying federal laws to offshore bookmakers with little or no physical presence in the U.S.

The prosecutorial strategy in the four cases vis-à-vis the unique 5Dimes settlement may also represent a shift in how federal authorities may deal with certain offshore sportsbooks that count American as customers.

Island Casino (1999)

Judge Kimba Wood outlined the activities of multiple undercover FBI agents who posed as sports bettors to build a case against Island Casino in Curacao.

From placing bets to cashing out, Judge Wood explained how the feds set up accounts via email and phone and placed bets using a toll-free number.  One undercover agent “lost five out of six bets” before requesting the balance of his account returned.

In United States v. Ross – the federal case tied to the Island Casino takedown – the judge had to decide whether the federal Wire Act, which criminalizes certain cross-border sports betting, attached to offshore operators. Allen Ross, the defendant, offered a timing-related argument against any criminal liability.  

“Defendant also claims that until Island Casino accepted the offers to bet, the government agents had not incurred any risk and thus could not have ‘bet,’” wrote Judge Wood in her ruling.  The judge rejected Ross’s argument, finding that the Wire Act’s phrase “transmission … of bets and wagers” fully captured wagers made with offshore bookmakers.    

World Sports Exchange (2001)

At a time when “the Internet revolution was in the speed lane,” three judges of the United States Court of Appeals for the Second Circuit in New York were tasked with determining whether World Sports Exchange’s top executive, Jay Cohen, violated the Wire Act while running a sportsbook in Antigua.  

The judges described World Sports Exchange as an account-wagering system with its “sole business involv[ing] bookmaking on American sports events.”  Like the Island Casino probe, FBI agents used the phone and internet to “open accounts and place bets.” 

Jay Cohen, the only World Sports Exchange executive to initially return to the U.S. to face trial, was indicted with eight counts under the Wire Act.  

The case, which involved an unsuccessful appeal to the Supreme Court, remains the most-discussed legal ruling about the reach of the Wire Act to offshore operators.  

Cohen argued that sports betting was legal in Antigua, so he should have been outside the scope of the Wire Act’s coverage. The three judges disagreed, citing the illegality of sports betting in New York, where the FBI agents were located and initiated the wagers.  Cohen’s 21-month prison sentence, which he ended up serving in Nevada, was affirmed.

BetOnSports (2006)

Changing planes on a long international flight in Dallas did not work out too well for BetOnSports executive David Carruthers.  

En route from Great Britain to Costa Rica, Carruthers was arrested during a layover and prosecuted in federal court in Missouri. Numerous other co-defendants were indicted too. Several pled guilty and were handed prison sentences.  

The 42-page indictment filed June 1, 2006 alleged a vast online sports betting enterprise, with “100,000 active players, who placed 33 million wagers, worth over $1.6 billion dollars.”  According to the indictment, 98% of the bettors were from the U.S. As part of a plea deal specific to some co-defendants, $43 million was forfeited to the United States.

A spinoff legal case decided almost a decade later involving taxes documented the scope of BetOnSports at its peak, with a single co-defendant determined to owe more than $25 million in 2004 for unpaid taxes.

Sports Off Shore (2014)

Based in Antigua, Sports Off Shore was the target of a “wide-ranging investigation by federal and state law enforcement” located primarily in Massachusetts

After a lengthy jury trial, two defendants, Todd Lyons and Daniel Eremian, appealed their convictions and sentences to the United States Court of Appeals for the First Circuit. According to the court’s subsequent ruling, Sports Off Shore included “many” bettors located in the U.S. who placed wagers using the phone or internet, with the bookmaker employing “agents in the United States … to ‘settle up’ with credit bettors, collecting losses from losers and making payments to winners.”

Lyons and Erimian challenged their Wire Act convictions by arguing, among other things, that the law should not apply at all because “the internet is not a ‘wire communication facility’ as was understood when the statute was passed in 1961.

The court disposed of this argument quickly, concluding that “we regularly apply statutes to technologies that were not in place when the statutes were enacted.”  

Does 5Dimes deal clear space for others?

The 5Dimes-Justice Department deal, in contrast to the other probes, could mark a new strategy by federal officials.  

Rather than pursue criminal prosecutions and domain-name seizures, the DOJ provided a pathway of sorts for 5Dimes to enter the newly-opened regulated U.S. market.  Such an approach could be perceived as an invitation, albeit an expensive one, to other offshore sports betting operators with an eye towards operating legally in the burgeoning American market.  

For example, Betcris recently inked a deal with the National Football League and has intimated that it may be interested in the U.S. market too. More broadly, the American Gaming Association flagged in-house research it conducted that found bettors are increasingly opting for regulated operators in states that have recently legalized sports betting.  

And if federal authorities announce additional civil settlements with certain offshore operators instead of criminal crackdowns like the four examples detailed here, there might be even more potential new entrants in the marketplace.