Cybertelecom Federal Internet Law & Policy An Educational Project

Gambling :: Enforcement

In USA v. Cohen, the 2nd Circuit Court of Appeals found no difficulty applying the Wire Act to Internet gambling and affirming the conviction of Jay Cohen. According to the Court:

In 1996, the Defendant, Jay Cohen ("Cohen") was young, bright, and enjoyed a lucrative position at Group One, a San Francisco firm that traded in options and derivatives. That was not all to last, for by 1996 the Internet revolution was in the speed lane. Inspired by the new technology and its potential, Cohen decided to pursue the dream of owning his own e-business. By year's end he had left his job at Group One, moved to the Caribbean island of Antigua, and had become a bookmaker. Cohen, as President, and his partners, all American citizens, dubbed their new venture the World Sports Exchange ("WSE"). WSE's sole business involved bookmaking on American sports events, and was purportedly patterned after New York's Off-Track Betting Corporation. WSE targeted customers in the United States, advertising its business throughout America by radio, newspaper, and television. Its advertisements invited customers to bet with WSE either by toll-free telephone or by internet.

WSE operated an "account-wagering" system. It required that its new customers first open an account with WSE and wire at least $300 into that account in Antigua. A customer seeking to bet would then contact WSE either by telephone or internet to request a particular bet. WSE would issue an immediate, automatic acceptance and confirmation of that bet, and would maintain the bet from that customer's account.

In one fifteen-month period, WSE collected approximately $5.3 million in funds wired from customers in the United States. In addition, WSE would typically retain a "vig" or commission of 10% on each bet. Cohen boasted that in its first year of operation, WSE had already attracted nearly 1,600 customers. By November 1998, WSE had received 60,000 phone calls from customers in the United States, including over 6,100 from New York.

In the course of an FBI investigation of offshore bookmakers, FBI agents in New York contacted WSE by telephone and internet numerous times between October 1997 and March 1998 to open accounts and place bets. Cohen was arrested in March 1998 under an eight-count indictment charging him with conspiracy and substantive offenses in violation of 18 U.S.C. § 1084.

[Cohen] This one enforcement occurrence has been subsequently referenced repeatedly by the USG as proof of its ability to prosecute gambling on the Net . [People] [Electronic Frontier] [Final Report] [Gregory 2000] [Cohen Press Release].

According to the Government Accounting Office, although other laws appear relevant to online gambling, only the Wire Act has been used to prosecute Internet gambling.

"Of the three federal statutes that appear to have direct applicability to online gambling - the Wire Act, the Travel Act, and the Illegal Gambling Business Act - to date only the Wire Act has been applied in the federal prosecution of activity relating to Internet gambling.  The other two federal gambling statutes have been used in the closely analogous situation of telephone watering, including telephone calls made to palce waters with offshore bookmakers.
    The Wire Act prohibits gambling businesses from knowingly receiving or sending certain types of bets or information that assists in placing bets over interstate or international wires.  Thus if an Internet gaming Web site operating in any country (including the United States) receives a bet transmitted by an indviidual located in the United States, the operator has violated the Wire Act.  For this reason, foreign entities offering gambling to US citizens through the Internet would be subject to the Wire Act.  Although some Intternet gambing businesses, including foreign entities, have been successfully prosecuted under the Wire Act, courts do not aggree on the applicability of certain sections of the statute."  

[GAO]

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