Crackdown Catches DMers

A well-known Internet gambling company and several direct marketers were the target of a federal grand jury indictment last week that is part of the U.S. government’s attempted crackdown on the multibillion-dollar online gambling industry.

Meanwhile, a bill to ban Internet gambling faces some opposition in the U.S. Senate and will not come up for a vote before the chamber takes its August recess, according to reports.

The Senate bill is virtually identical to legislation overwhelmingly approved earlier in July by the U.S. House of Representatives. It would prohibit most forms of Internet gambling and make it illegal for banks and credit card companies to make payments to online gambling sites.

Supporters of a crackdown on Internet gambling say legislation is needed to clarify that a 1961 federal law banning sports betting also covers an array of online gambling.

BetOnSports PLC, a prominent Internet gambling company that is publicly traded in Britain and that owns several Internet sports books and casinos, was among 11 individuals and four companies charged in a federal grand jury indictment.

The site allows people to place bets on sporting events and play casino games like blackjack from their computers.

The Eastern District of Missouri returned a 22-count indictment charging the group on various counts of racketeering, conspiracy and fraud, the U.S. Department of Justice said. The indictment was returned June 1 and unsealed July 17.

The founder of, Gary Stephen Kaplan, was charged with 20 felony violations of federal laws including: the Wire Act, Racketeer Influenced and Corrupt Organizations Conspiracy, interstate transportation of gambling paraphernalia, interference with the administration of Internal Revenue laws and tax evasion, the DOJ said.

Other defendants in the racketeering conspiracy case include: Kaplan’s siblings, Neil Scott Kaplan and Lori Kaplan Multz; Norman Steinberg; David Carruthers, CEO of; Peter Wilson, media director for; and Tim Brown, Steinberg’s son-in-law.

The three other charged companies, all Florida-based, were Direct Mail Expertise Inc., DME Global Marketing and Fulfillment Inc. and Mobile Promotions Inc. Also charged are William Hernan Lenis; Monica Lenis and Manny Gustavo Lenis, owners and operators of the Florida companies; and William Hernan Lenis’ son, William Luis Lenis.

The DOJ alleges that the defendants agreed to conduct an enterprise through a pattern of racketeering acts, including repeated mail fraud, wire fraud, operation of an illegal gambling business and money laundering.

The indictment alleges that Gary Kaplan started his gambling enterprise via operation of a sports book in New York City in the early 1990s. After Mr. Kaplan was arrested on New York state gambling charges in May 1993, he moved his betting operation to Florida and eventually offshore to Costa Rica. According to the indictment,, the most visible outgrowth of Mr. Kaplan’s sports bookmaking enterprise, misleadingly advertised itself as the “World’s Largest Legal and Licensed Sportsbook.” The indictment also alleges that Mr. Kaplan failed to pay federal wagering excise taxes on more than $3.3 billion in wagers taken from the United States and seeks forfeiture of $4.5 billion from Mr. Kaplan and his co-defendants, as well as various properties.

The indictment also alleges that Gary Kaplan and Norman Steinberg, as the owners and operators of Millennium Sportsbook, Gibraltar Sportsbook and North American Sports Association, took or caused their employees to take bets from undercover federal agents in St. Louis who used undercover identities to open wagering accounts.

Finally, the indictment alleges that Gary Kaplan and Mobile Promotions illegally transported equipment used to place bets and transmit wagering information across state lines and that DME Global Marketing and Fulfillment shipped equipment to Costa Rica from Florida for

In conjunction with the indictment, the United States has filed a civil complaint in federal court to obtain an order requiring BetOnSports PLC to stop taking sports bets from the United States and to return money held in wagering accounts to account holders in the United States.

U.S. District Judge Catherine D. Perry issued the temporary restraining order July 17. A hearing in the civil case has been requested within 10 days of July 17. As authorized by federal statute, the FBI is issuing letters to four telephone companies, instructing them to stop providing phone service to the Internet sports books and casinos operated by BetOnSports PLC.

The charges are the result of a joint investigation by the Internal Revenue Service Criminal Investigation and the Federal Bureau of Investigation.

Some industry executives have said the offshore casinos cannot be prosecuted because while they take wagers from American bettors, their physical operations are outside U.S. jurisdiction. BetOnSports, for example, has its computer servers in Costa Rica, and the company is based in Britain.

But prosecutors assert that under the Federal Wire Act of 1961, the providers and promoters of Internet sports books and casinos are participants in a criminal enterprise.

In other regulatory news surrounding direct marketers last week, the federal financial institution regulatory agencies began soliciting comments last week on a Notice of Proposed Rulemaking concerning identity theft “red flags” and address discrepancies.

The proposal appeared in the Federal Register on July 18. Comments must be submitted on or before Sept. 18. The NPRM has been reviewed and approved by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corp., the Federal Trade Commission, National Credit Union Administration, Office of the Comptroller of the Currency and Office of Thrift Supervision. It implements sections 114 and 315 of the Fair and Accurate Credit Transactions Act of 2003.

The regulations that the agencies are jointly proposing would require each financial institution and creditor to develop and implement an identity theft prevention program that includes policies and procedures for detecting, preventing and mitigating identity theft in connection with account openings and existing accounts.

The proposed regulations include guidelines listing patterns, practices and specific forms of activity that should raise a “red flag” signaling a possible risk of identity theft. The regulations also would require credit and debit card issuers to develop policies and procedures to assess the validity of a request for a change of address followed closely by a request for an additional or replacement card.

Finally, a representative from the Federal Trade Commission told a House of Representatives panel July 18 that access to the directories that contain information about Web site operators are critical to the agency’s consumer protection mission, law enforcement agencies around the world and consumers.

The subcommittee on financial institutions and consumer credit, chaired by Rep. Spencer Bachus, R-AL, held the “ICANN and the Whois Database: Providing Access to Protect Consumers from Phishing” hearing.

It focused on proposals before the Internet Corporation for Assigned Names and Numbers that would limit the public’s access to domain name registrant contact information via the Whois database.

Whois data are used by financial institutions to prevent identify theft and account fraud, particularly related to phishing.

Rep. Bachus said he was concerned that the adoption of these proposals could compromise the ability of financial institutions to respond to identity theft and phishing attempts.

In testimony before the subcommittee, Eileen Harrington, deputy director of the Bureau of Consumer Protection at the FTC, said improvements should be made to the current Whois database system and the databases should be kept open, transparent and accessible.

The testimony notes that “because of concern about preserving access to Whois databases, the FTC attended the Internet Corporation for Assigned Names and Numbers meeting in Marrakech, Morocco, last month to highlight the importance of public access to Whois databases.”

The FTC made three recommendations at that meeting:

  • ICANN’s advisory body, the Generic Names Supporting Organization, should reconsider and reverse its recommendation to limit Whois data available to the public.
  • ICANN’s Governmental Advisory Committee should continue its outreach with law enforcement “to reinforce the serious law enforcement and consumer protection implications of losing access to Whois databases.”
  • ICANN should “consider additional measures to improve the accuracy and completeness of domain name registration information.”

Restricting the purpose of the Whois databases does not satisfy privacy, consumer and law enforcement interests, according to Ms. Harrington’s testimony. “Maintaining accessibility and enhancing the Whois databases would make great strides toward improving the safety and fulfilling the promise of the Internet,” she said.

Her testimony notes that the FTC has continued to recommend that Congress enact the U.S. Safe Web Act, which has been passed by the Senate.

“The commission continues to recommend enactment of this legislation, which would give it additional tools to fight fraud,” she said.

Access to the Whois database and passage of the U.S. Safe Web Act taken together, “will help ensure that consumers are free from deceptive practices that undermine the promise of the Internet,” she said.

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