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January 22, 2007 from the NY TIMES
Four Wall Street Firms Are Subpoenaed on Online Gambling
By ANDREW ROSS SORKIN and STEPHANIE SAUL
The Justice Department has issued subpoenas to at least four Wall Street investment banks as part of a widening investigation into the multibillion-dollar online gambling industry, according to people briefed on the investigation.
The subpoenas were issued to firms that had underwritten the initial public offerings of some of the most popular online gambling sites that operate abroad. The banks involved in the inquiry include HSBC, Credit Suisse, Deutsche Bank and Dresdner Kleinwort, these people said.
While online gaming sites like PartyGaming and 888 Holdings operate from Gibraltar and their initial public offerings were held on the London Stock Exchange, companies that do business with them and have large bases in United States have come under scrutiny by regulators in Washington.
None of the biggest United States banks like Goldman Sachs or Citigroup underwrote the initial public offerings in London, in part because of the legal ambiguity of the sites; they are illegal in the United States, but still accessible to residents.
The subpoenas, earlier reported by The Sunday Times of London, appeared to be part of an indirect but aggressive and far-reaching attack by federal prosecutors on the Internet gambling industry just two weeks before one of its biggest days of the year, the Super Bowl.
Unable to go directly after the casinos, which are based overseas, they have sought to prosecute the operations American partners, marketing arms and now, possibly, investors.
The prosecutors may be emboldened by a law signed by President Bush last October that explicitly defined the illegality of running an Internet casino. Even before that law, the Unlawful Internet Gambling Enforcement Act, was adopted, the government said that Internet gambling was illegal under a 1961 provision.
These offshore casinos, typically based in Costa Rica or Antigua, allow American bettors to use their home and office computers to place wagers on a range of contests.
Millions of Americans participate; more than half of all bets placed to major offshore casinos are from residents of the United States.
The prosecutors efforts have already taken a toll in the last two years on offshore casinos, most notably with the arrest last year of David Carruthers, the chief executive of an Internet sports book, BetonSports. The company is based in Britain and has operations in Costa Rica, but Mr. Carruthers was detained at the Dallas airport while traveling through the United States.
The arrest led to BetonSports decision to stop taking bets from the United States, crippling its business.
Several weeks later, agents of the Port Authority of New York arrested Peter Dicks, the chairman of Sport-ingbet, which offers online sports betting and, like Mr. Carrutherss company, trades on the London Stock Exchange. Mr. Dicks was arrested at Kennedy Airport.
Last week, a British online money transfer business, Neteller, said it would cease handling gambling transactions from United States customers because of regulatory uncertainty.
It appears that the Department of Justice is waging a war of intimidation against Internet gambling, said I. Nelson Rose, a professor of law at Whittier Law School in Costa Mesa, Calif., who is an expert on Internet gambling law.
Another lawyer, Lawrence G. Walters of Altamonte Springs, Fla., said the development was disconcerting because the prevailing wisdom had been that investment in a company that is legal and licensed in its jurisdiction was not grounds for prosecution.
It would be the first time that that kind of liability has been imposed, Mr. Walters said.
But he cautioned that the subpoenas could be part of a government fact-finding effort and might not signal a plan to prosecute banks.
Four Wall Street Firms Are Subpoenaed on Online Gambling
By ANDREW ROSS SORKIN and STEPHANIE SAUL
The Justice Department has issued subpoenas to at least four Wall Street investment banks as part of a widening investigation into the multibillion-dollar online gambling industry, according to people briefed on the investigation.
The subpoenas were issued to firms that had underwritten the initial public offerings of some of the most popular online gambling sites that operate abroad. The banks involved in the inquiry include HSBC, Credit Suisse, Deutsche Bank and Dresdner Kleinwort, these people said.
While online gaming sites like PartyGaming and 888 Holdings operate from Gibraltar and their initial public offerings were held on the London Stock Exchange, companies that do business with them and have large bases in United States have come under scrutiny by regulators in Washington.
None of the biggest United States banks like Goldman Sachs or Citigroup underwrote the initial public offerings in London, in part because of the legal ambiguity of the sites; they are illegal in the United States, but still accessible to residents.
The subpoenas, earlier reported by The Sunday Times of London, appeared to be part of an indirect but aggressive and far-reaching attack by federal prosecutors on the Internet gambling industry just two weeks before one of its biggest days of the year, the Super Bowl.
Unable to go directly after the casinos, which are based overseas, they have sought to prosecute the operations American partners, marketing arms and now, possibly, investors.
The prosecutors may be emboldened by a law signed by President Bush last October that explicitly defined the illegality of running an Internet casino. Even before that law, the Unlawful Internet Gambling Enforcement Act, was adopted, the government said that Internet gambling was illegal under a 1961 provision.
These offshore casinos, typically based in Costa Rica or Antigua, allow American bettors to use their home and office computers to place wagers on a range of contests.
Millions of Americans participate; more than half of all bets placed to major offshore casinos are from residents of the United States.
The prosecutors efforts have already taken a toll in the last two years on offshore casinos, most notably with the arrest last year of David Carruthers, the chief executive of an Internet sports book, BetonSports. The company is based in Britain and has operations in Costa Rica, but Mr. Carruthers was detained at the Dallas airport while traveling through the United States.
The arrest led to BetonSports decision to stop taking bets from the United States, crippling its business.
Several weeks later, agents of the Port Authority of New York arrested Peter Dicks, the chairman of Sport-ingbet, which offers online sports betting and, like Mr. Carrutherss company, trades on the London Stock Exchange. Mr. Dicks was arrested at Kennedy Airport.
Last week, a British online money transfer business, Neteller, said it would cease handling gambling transactions from United States customers because of regulatory uncertainty.
It appears that the Department of Justice is waging a war of intimidation against Internet gambling, said I. Nelson Rose, a professor of law at Whittier Law School in Costa Mesa, Calif., who is an expert on Internet gambling law.
Another lawyer, Lawrence G. Walters of Altamonte Springs, Fla., said the development was disconcerting because the prevailing wisdom had been that investment in a company that is legal and licensed in its jurisdiction was not grounds for prosecution.
It would be the first time that that kind of liability has been imposed, Mr. Walters said.
But he cautioned that the subpoenas could be part of a government fact-finding effort and might not signal a plan to prosecute banks.
