Antigua files injunction against American overkill

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While the jurisdiction of the United States government over BETonSPORTS is questionable, by virtue of being the holder of an Interactive Gaming and Interactive Wagering license issued by the Antiguan and Barbudan authorities, BETonSPORTS has acquiesced to our International jurisdiction over the company and its assets. It is important for the protection of consumers that whatever assets BETonSPORTS has remaining be properly available to depositors and other creditors and not be dissipated on fines or penalties or otherwise improperly disposed - Kaye McDonald, the Director of Gaming for the Financial Services Regulatory Commission of Antigua - Caribbean360.com

The fallout from the US's online gambling crackdown continues to harm those the country holds most dear - its citizens. Most recently, a legal war that stems from the collapse of Betonsports.com has broken out, stretching from New York to Missouri and then right down to Costa Rica and Antigua. The only victors in this mess will be press-hungry lawyers - not the Americans who've possibly seen billions of their dollars vanish.

In an attempt reassert sovereignty against the United States, the government of Antigua filed an injunction last week against the remains of BetonSports.com, the company that collapsed this summer after an indictment by American authorities. Betonsports.com reached an agreement with the American Department of Justice recently to try to repatriate money owed to American customers. Much of the money in question, however, allegedly resides in Antiguan accounts.

Most of BetonSports’ American-facing operations operated out of an Antiguan affiliate, and in an attempt to stop the financial hemorrhaging associated with the Betonsports fiasco, Antigua took swift legal action to prevent any more money from being moved out of BOS’s Antiguan accounts. Antigua’s trade disputes with the United States have been documented here already, and now the prospect of the DOJ reaching a legal settlement covering assets under Antiguan jurisdiction, without any input whatsoever from the Antiguan authorities, has proved to be a bit much for little Antigua to swallow.

After all, Antigua has bent over backwards in the past to please American authorities, only to see its share of the online gaming market whither.

Cry for me Antigua

Antiguan authorities always held themselves to a high standard when it came to regulating the online gaming market, and in the few months since the arrest of David Carruthers, the former CEO of BetonSports, they have stood by and watched as American justice blindly pummels another established Antiguan provider.

The once-shining company is in tatters, and irate customers, mostly Americans, wait in vain to claim accounts owed. BetonSports.com formally agreed to freeze the accounts in November after reaching an agreement with the American Department of Justice. The entire episode casts an unsparing light on the American approach of prohibiting online gaming in its entirety, rather than regulating the industry into submission.

The Antiguans aren’t alone in this. Europeans have moved toward a regulatory approach to minimize the risks of online gaming - Italy and Spain recently jumped on the regulatory bandwagon spearheaded by Britain and Ireland. This leaves the American zero tolerance approach looking ridiculous and ineffectual, not to mention isolating. And certainly in the case of the BetonSports debacle - where Americans accounted for 98 per cent of the customers - Americans will ultimately pay the price.

The BetonSports fiasco provides a nice case study of how over-zealous police action often harms most those it ostensibly protects. It all started back in July with Carruthers’ surprise arrest at the Dallas airport while waiting for a connecting flight from London to Costa Rica. Adrenaline flowing, a freshly unsealed indictment in hand, federal marshals dragged a respected member of the online gaming community out of the airport in cuffs. A press conference naturally followed, with indictments for the usual conspiracy, tax and wire fraud charges unsealed against 10 others in BetonSports management.

This was no fly by night operation. Listed on the London Stock Exchange, and counting American financial icons Morgan Stanley, Goldman Sachs, and Fidelity as major investors, BetonSports did not at first blush appear to be the kind of company the DOJ should be targeting, when other, less savory, targets lurked within the online gaming community. After all, BetonSports paid its bets as advertised, which is all that really mattered to the gambling public.

Bet on home detention

No harm, no foul, right?

Not exactly.

Founder and principal shareholder Gary Kaplan, a onetime bookie in New York, was already on the federal radar due to a 1993 arrest in New York on a variety of bookmaking related charges. The indictment does not make clear whether he was actually convicted of anything, but regardless, DOJ already had the scent. All they needed was a little motivation.

For his part Carruthers did not earn any allies in the American government by repeatedly pointing out that prohibition would leave the industry in the clutches of its least savory elements - not to mention putting money in the pockets of riverboat casino operators in the Eastern District of Missouri, where he would later be indicted.

The Chinese have a saying, “the nail that stands up gets hammered down.” Carruthers, in his efforts to put a smiling, legitimate face on the industry through syndicated columns, appearances on American television, and interviews with American media, became that nail. However, the former midlevel casino manager from Scotland would prove more prescient than anybody in the DOJ would like to admit - certainly not with a gag order in effect.

In a purely legal sense, the US Attorney for the Eastern District of Missouri will almost assuredly succeed in its criminal case against Carruthers, et al; after all, the DOJ has yet to lose a criminal case involving online gaming. However, from the regulatory perspective - the one that concerns itself with practical public policy rather than policing public morals – the case is in shambles.

The US Attorney's office filed a civil lawsuit in conjunction with the criminal case, and although the DOJ and the company reached an agreement regarding the suspension of business activity with the US, none of the money owed to American players can be found. The US Attorney's office is fielding calls on a daily basis from angry players trying to recover their cash, according to trade publication Gambling911.com.

Exactly where the BetonSports customers' money ended up is anyone's guess with no clear path existing from the payment processors to other parties. Indeed, it seems unlikely that anyone will recover anything out of the millions - billions if you believe the DOJ - owed to players and possibly American taxpayers. (We're talking about a company with yearly revenues of $1.6bn in 2003 alone, and an indictment that seeks forfeiture of $4.5bn.)

Since the company has essentially been driven into bankruptcy by the aggressive prosecution and subsequent gambling legislation, its stock is frozen, and it would be near impossible for it to raise money in the capital markets to pay its debts. That leaves selling off company assets as the most attractive way out of this for those holding the bag.

Well, they better move fast.

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