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A gambling site operator rolls the dice in court, and loses

Wednesday, Mar 8 2000
The last weekend in February was perhaps the longest 48 hours that entrepreneur Jay Cohen has ever experienced. The 33-year-old former San Francisco stock options trader spent those two days in limbo, waiting for a New York jury to decide his fate for his part in operating one of the world's most successful Internet sports gambling Web sites. When the panel finally reconvened the following Monday in U.S. District Court, it found Cohen guilty on eight counts of violating the anti-gambling Interstate Wire Act.

The case was the first of its kind to go to trial, and leaves a billion-dollar industry wondering if the Gold Rush is over. Cohen's verdict sets a precedent -- if an American citizen accepts or places a bet over the Internet, even if the Web site used is located in a gambling-friendly country like Antigua, the bet is a viola- tion of federal law, and both the bettor and the Web site operator can be prosecuted in the U.S.

Cohen faces up to five years in prison on a charge of conspiracy, and two years in prison on each of seven other violations. He also could be fined up to $250,000 on each charge, or twice the amount of profits derived from his business.

As SF Weekly reported in an earlier story ("Online Pirates of the Caribbean," Dec. 15, 1999), Cohen and two associates left San Francisco's Pacific Stock Exchange in 1996 and moved to the tiny island of Antigua to launch their online gambling enterprise, World Sports Exchange. But as the offshore gaming industry burgeoned, federal authorities sought ways to curb the betting, and several members of Congress pushed for legislation tightening the rules for online betting.

A 1998 FBI sting operation led to the indictments of Cohen and 21 other offshore operators for accepting bets from Americans via telephone or the Internet. The bookmakers were charged with violating the 1961 Interstate Wire Act, first enacted to stop bookies from accepting bets over the phone. Many of the defendants agreed to pay fines, or closed their sites. Cohen alone vowed to beat the charges in court, and flew back to the U.S. from Antigua to face the music.

But after a two-week trial, Cohen was found guilty. His attorney, Benjamin Brafman, immediately issued a statement hinting that the case is not over until it's over: "We believe that the legal instructions provided by the court gave this jury absolutely no choice but to return a ver-dict of guilty. We are confident, however, that this verdict will not withstand appellate review."

The Interactive Gaming Council, a gambling trade association, denounced the verdict as "extremely troubling," and claimed that prosecutors used "Orwellian" tactics to obtain the conviction, such as providing the jury with an incomplete copy of the Wire Act (18 U.S.C. sec. 1084). Trial witnesses from, a gambling Web site, say that after the verdict, jurors said they wanted to acquit Cohen but, given the judge's instructions, were unable to do so.

Buzz over the verdict spread quickly throughout the gambling world, as people picked apart the exact wording of the law. Because the decision only applies to placing bets over the telephone, licensed online casino operators are supposedly not affected. If Cohen had been a citizen of Antigua rather than the United States, his activities apparently would have been legal. Some speculate that the government will probably wait until after the outcome of Cohen's appeal before issuing more indictments, so the upper courts can clarify just what is and is not against the law in the new world of cyberbetting.

Cohen is scheduled for sentencing on May 23 before U.S. District Judge Thomas P. Griesa, but a crowded 2nd Circuit Court of Appeals docket means that his appeal may not be heard until at least the end of November.

Until the Cohen case is fully resolved, his business partners, Steve Schillinger and Haden Ware, remain in Antigua, and they are keeping the World Sports Exchange Web site running. After all, the NCAA basketball finals are fast approaching, and "March Madness" is one of the biggest events for sports gambling.

About The Author

Jack Boulware


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