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Eleven Individuals and Four Corporations Charged In Internet Gambling Crackdown
Posted On 18 Jul 2006
ST. LOUIS, MO – A federal grand jury in Missouri has returned a 22-count indictment against eleven individuals and four corporations on charges of conspiracy, fraud, and racketeering, the US Department of Justice (DOJ) announced Monday.The indictment was returned by the grand jury on June 1st, but only unsealed Monday afternoon, following the arrest of a key defendant in the case.
David Carruthers, chief executive of publicly-traded online gaming company BetonSports PLC, was arrested Sunday during a layover at Dallas-Fort Worth International Airport. Carruthers was on his way from Britain to BetonSports’ offices in Costa Rica, according to reports in the New York Times.
“Illegal commercial gambling across state and international borders is a crime,” stated U.S. Attorney Catherine L. Hanaway of the Eastern District of Missouri in a press release issued by the DOJ Monday. “Misuse of the internet to violate the law can ultimately only serve to harm legitimate businesses.”
Hanaway also hinted that there are more arrests and indictments to come.
“This indictment is but one step in a series of actions designed to punish and seize the profits of individuals who disregard federal and state laws,” said Hanaway.
In addition to Carruthers, BetonSports’ founder Gary Kaplan is named in the indictment, along with the corporation itself, and several other executives from the company.
Kaplan, who according to the indictment owns a 15-percent stake in BetonSports, is charged with 20 felony violations of federal law, including the Federal Wire Act, conspiracy under the Racketeer Influenced and Corrupt Organizations (RICO) Act, interstate transportation of “gambling paraphernalia,” interference with the administration of Internal Revenue laws and tax evasion.
Other defendants include Gary Kaplan’s brother Neil Kaplan, his sister Lori Kaplan Multz, media director of BetonSports Peter Wilson, co-owner of Millennium Sportsbook Norman Steinberg, and Steinberg’s son-in-law Tim Brown.
According to CBS News, BetonSports reported that it handled $1.77 billion in bets during fiscal 2005, up 25-percent from the previous year. According to the indictment, marketing materials for the company state that 98-percent of the wagers it handles come from gamblers in the U.S. Company officials say those figures are out of date and that BetonSports now takes approximately 70-percent – 80-percent of its wagers from U.S. customers.
The indictment alleges that Gary Kaplan started his gambling enterprise via operation of an illegal sportsbook in New York City in the early 1990s.
“After Kaplan was arrested on New York state gambling charges in May 1993, Kaplan moved his betting operation to Florida and eventually offshore to Costa Rica,” according to the DOJ press release. The indictment also alleges that on the website BetonSports.com, which the DOJ calls the “most visible outgrowth of Kaplan’s sports bookmaking enterprise,” misleadingly advertised itself as the “World’s Largest Legal and Licensed Sportsbook.”
According to the indictment, Kaplan failed to pay federal wagering excise taxes on over $3 billion in wagers taken from the US. The indictment seeks forfeiture of $4.5 billion from the defendants, as well as various other assets.
Officials for BetonSports had no idea the indictment was coming, according to a company spokesperson.
“Certainly had they told us, we would have been more than willing to negotiate with them and work on whatever these charges are,” BetonSports’ spokesperson Kevin Smith told CBS News. “There wouldn’t have been any need to nab him while he’s waiting on a layover for a flight.”
The other companies named in the indictment, all based in Florida, are Direct Mail Expertise, Inc., DME Global Marketing and Fulfillment Inc., and Mobile Promotions Inc. The owners of the three Florida companies, William Hernan Lenis, Monica Lenis, and Manny Lenis are all named in the indictment, along with William Hernan Lenis’ son, William Luis Lenis.
In addition to the felony charges, U.S. District Judge Catherine D. Perry issued a temporary restraining order barring BetonSports from taking sports bets from consumers within the United States and ordering the company to return funds held in wagering accounts to account holders within the US. The temporary restraining order was issued in response to a civil complaint filed by prosecutors seeking a permanent bar on the company accepting wagers from the US. A hearing in the civil case has been requested within 10 days, according to the DOJ.
The FBI has also instructed four telephone companies to “stop providing phone service to the Internet sportsbooks and casinos operated by BetonSports PLC.”
Complicating matters in the case is the fact that BetonSports is based in Costa Rica, where Gary Kaplan also currently resides. The U.S. has issued an arrest warrant for Kaplan and is seeking his extradition to the Eastern District of Missouri, along with all the other defendants in the case.
According to reports from Reuters, the arrests have had an immediate impact on online gambling stocks, with the sector losing a collective $1.1 billion in sock value on UK exchanges following the indictment of BetonSports.
Even 888 PLC, which reportedly does not accept wagers from customers in the U.S., has seen a drop in its stock price, with shares down 13-percent since the indictment was announced.
Analysts say the indictment of BetonSports, and the heavy hint of more action to come from the US DOJ, has investors nervous and gaming company executives even more so.
“The language used in the Department of Justice release suggests to us there is the possibility that other Internet sports books could be targeted,” said analyst Richard Carter of Numis Securities, according to Reuters.
According to the DOJ press release, in addition to Carruthers, three other defendants are already in custody, as well. William Luis Lenis and Manny Gustavo Lenis were arrested in Florida and are in custody in Miami, while Tim Brown was arrested near Philadelphia.
In its release the DOJ states that “warrants have been issued for the other defendants not currently in custody,” and the U.S. will “seek extradition of all defendants to St. Louis for prosecution.”
