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Internet Gambling Cases

Federal Cases

The federal government has had minimal success prosecuting online gambling operators; in fact, there has only been one successful criminal prosecution so far.  That prosecution was of Jay Cohen, a businessman from the United States who moved to Antigua to set up an internet gambling operation.  Cohen was convicted in 1998 of violating the Interstate Wire Wager Act (“Wire Act”) by operating a website that targeted United States citizens and allowed them to place sports wagers either over the telephone or via the internet.  Cohen argued that his business was legal because betting was permitted in Antigua , where the business was physically located.  But the district court ruled, and the Second Circuit affirmed, that because the business allowed New Yorkers to place sports bets from New York , where such betting was illegal, the business violated the law.  Cohen was sentenced to 21 months in federal prison for his involvement.

Note that while this prosecution was successful, other prosecutions under the Wire Act are unlikely to be so.  One reason is that this operation violated the Wire Act much more clearly than other internet casinos because it actually permitted sports wagers to be placed over the telephone, which removes the argument that some operators can make about wireless technology falling outside the scope of the Act.  Also, it is interesting that over 14 other people were initially indicted along with Jay Cohen, though he was the only person successfully prosecuted.  The reason for this is that Cohen voluntarily returned to the United States to fight the charges.  His partners, who chose to instead stay in Antigua , will likely never be convicted as long as they do not return to the United States .

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State Cases

There have been several state cases charging internet casinos with violating state laws.  Some of the most relevant cases are below.

  • Minnesota v. Granite Gate Resorts, 568 N.W.2d 715 (1997): in Granite Gate Minnesota charged a website named “Wagernet” with violating numerous state consumer protection laws, including consumer fraud and deceptive trade practices.  Though the business was physically located in Belize , the court held that it had personal jurisdiction because the website advertised its betting services to Minnesota citizens and had a Minnesota citizen on its mailing list.  After the decision the website was taken down and is no longer operational.  However, it should be noted that the business could easily change its name, start a new website, and continue operations just as before, resulting in a virtual cat-and-mouse game.

Resources:

  • People v. World Interactive Gaming Corp., 1999 N.Y. Misc. Lexis 425 (1999): in this case New York pursued charges against an online casino that was located in Antigua .  The casino ran ads designed to target United States citizens, though before betting was allowed bettors were required to provide a home address in a state that authorized gambling.  Though this was supposedly to ensure compliance with state law, there was never any check run on customers’ addresses to validate that they actually lived where they stated, and nothing was ever mailed to the customers, so that customers were encouraged to provide fake addresses if they lived in a state that prohibited gambling.  In addition, the casino was owned by a corporation whose principal headquarters were in New York (a state where gambling is illegal), which the court found indicative of the casino’s knowledge that it was targeting New Yorkers.  All of this was enough for the court to find personal jurisdiction over the casino and that the casino violated a number of state and federal laws.  The court issued an injunction against the casino and found the casino liable for restitution, penalties, and costs that would be determined at a later hearing.

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  • State of Missouri v. Interactive Gaming & Communications Corp., CV97-7808 (1997): in this case an internet casino located in Grenada advertised its services to Missouri citizens, among others, asking them to submit account applications and payments to begin gambling.  Citizens who called the casino were told that gambling over the website was legal in Missouri , which it was not.  As with the case in New York , the casino was owned by an American parent corporation (though this parent was located in Pennsylvania , not Missouri ).  The court found that the account applications were contracts with Missouri citizens, giving the court personal jurisdiction, and that the casino violated laws prohibiting illegal gambling and consumer fraud laws (by telling citizens the activity was legal when it wasn’t).  The court enjoined the casino from advertising to Missouri citizens, telling citizens that online gambling was legal in the state, and from accepting payments or applications from Missouri citizens.

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  • United States v. Truesdale, 152 F. 3d 443 (5th Cir. 1998): this case is interesting in that it actually overturned a Texas state court’s conviction of an offshore internet gambling site, definitely going against the grain of decisions against such sites.  The court overturned the conviction because the conviction was pursued under a Texas statute that prevented the taking of bets, unlike other state statutes, like that of New York , that prevent the making of bets.  The court held that the online casino, which was located in Jamaica and the Dominican Republic , did not actually take bets in Texas even though Texas citizens may have placed those bets over the internet.  Thus, the online casino was not guilty of violating Texas law.

Resources:

Though states have had more success with prosecuting online gambling operations than has the federal government, neither state governments nor the federal government has truly been able to put a stop to the internet gambling industry.  This may be because these operations are so fluid that even when a state gets the jurisdiction to prosecute one of the sites it can easily change its name and begin anew.  Thus, while these prosecutions may appear impressive on paper, they are unlikely to truly have an effect on online gambling.