August 11, 2006 BetOnSports, After Indictment, Folds Its Hand and Decides to Move to Asia By MATT RICHTEL NY Times
http://www.nytimes.com/2006/08/11/technology/11gamble.html?ref=business&pagewanted=print BetOnSports, the sports gambling Web site indicted by United States prosecutors last month for taking bets from hundreds of thousands of Americans, told employees yesterday that it planned to shut down most of its operations, a spokesman said. The spokesman, Kevin Smith, said BetOnSports told 800 employees in Costa Rica and Antigua, where the virtual casino has its operations, that they would be losing their jobs. He said the company planned to refocus its business on other parts of the world, notably Asia. The development provides the first definitive indication of how BetOnSports, whose shares have been publicly traded in Britain, would respond to what has been an aggressive and unusual cross-jurisdictional move by United States prosecutors. On July 17, the United States attorney for the Eastern District of Missouri unsealed a 22-count indictment against BetOnSports and several executives, accusing them of running an illegal Internet gambling operation. Prosecutors said they would seek a $4.5 billion penalty against the company and its executives. At the time, federal agents arrested David Carruthers, the chief executive of BetOnSports, who was at the Dallas-Fort Worth airport on a flight layover. Mr. Carruthers, since let go from his position at the company, remains in custody in St. Louis. A federal judge also granted prosecutors a temporary restraining order prohibiting BetOnSports from taking bets from United States residents. The question was whether BetOnSports would ignore that order, fight it or capitulate, as it now appears to have done. "It worked; it shut them down," I. Nelson Rose, a professor and expert in gambling law at Whittier Law School, said of the indictment. Mr. Rose said the decision by BetOnSports to stop taking bets from the United States appeared in part to stem from a desire to right itself with the investment community. He said he had been consulting in London with major investors that had either sold their shares in BetOnSports or were considering doing so. "They don't want to be involved in an illegal business," Mr. Rose said. Mr. Smith, the BetOnSports spokesman, said the company indeed wanted to signal to investors that it is a responsible operation. But the development is a painful one for BetOnSports, which takes 70 to 80 percent of its bets from United States residents. The development represents a considerable victory for opponents of Internet gambling and one that comes as surprise to some industry analysts. It is the first time that a publicly traded offshore casino has shut down its operations under pressure from United States prosecutors. Tens of millions of Americans place bets annually over the Internet, using home computers to wager on sporting events, poker and table games. And the industry has largely been considered outside the reach of American legislators and prosecutors, who do not have jurisdiction over the offshore operations. United States prosecutors assert that offshore Internet casinos violate the Federal Wire Act of 1961. Legal experts, noting that the position is untested, say the law seems reasonably construed to cover sports betting but is less clearly applicable to casino games, like blackjack and poker. The House of Representatives recently passed legislation to strengthen the laws against operating Internet casinos but the Senate has not yet passed the legislation. Mr. Carruthers has pleaded not guilty to the federal charges, and people briefed on his situation said his lawyers were negotiating with prosecutors about a bail arrangement that would confine him to St. Louis, or even one residence or hotel. He and other industry executives had traveled frequently to the United States, showing up at industry conventions, talking to financiers and even debating politicians about whether the activity should be legalized, taxed and regulated. The growth in the industry has prompted major investment houses to invest their mutual funds in the virtual casinos. But as they have done so, they have acknowledged that the investment is a high risk given the unresolved legal issues. BetOnSports went public in July 2004, raising $101 million, and ending with a first-day market capitalization of $209 million. When trading was halted on July 17, the shares were worth about $234 million. In its first quarter, ending May 6, it took in wagers of $735 million and had 50,000 active players. According to Bloomberg data, some of its largest institutional shareholders are funds controlled by major American investment houses, like Goldman Sachs, Merrill Lynch and Morgan Stanley, and their domestic and overseas subsidiaries. Mr. Rose, the law professor, said he had counseled investors and potential investors that association with offshore casinos could put them in civil and even criminal jeopardy. "I'd told them that if this is truly illegal, if it is racketeering, then people who finance the operations could be criminally liable," he said. ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 antunes at uh dot edu Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
