Jay Cohen Internet Gambling Jury To Retire Today

Mike Godfrey, Tax.news.com, New York

23 February 2000

The jury in the on-line gambling trial of Jay Cohen in New York is expected to retire sometime on Wednesday and the signs are that it will be hung on most of the eight charges.

Jay Cohen, once a successful market trader in Los Angeles, opened the World Sports Exchange in Antigua in 1995, supposedly after receiving legal advice that it would be legal to take bets from US residents on the Internet. The US authorities don't agree, and early in 1999 charged Cohen and a number of other on-line Caribbean betting operators (all US citizens) under Section 1084 of a 1961 Federal law which prohibits those in the business of betting or wagering from "knowingly using a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers, or information assisting in the placing of bets or wagers, on any sporting event or contest." The penalty for doing so is a fine or imprisonment for up to two years and potential asset seizure under racketeering statutes. Additionally, the common carrier transmitting the signals can be ordered by the government to refuse further services to the operator

Another part of Section 1084 appears to permit wagering when the placing and the receiving of the wager both take place in places where they are legal (it's legal to place bets in New York, and legal to receive them in Antigua), but neither Cohen's defence nor the Judge in the trial has made much of this wording.

Cohen voluntarily returned to the US to face the charges against him, and the trial began on February 14th with jury selection. Judge Grisea who is trying the case appears to know little about either the Internet or gambling and along with the jury seemed to be led astray quite badly by the prosecution despite strenuous objections from Cohen's defence counsel, Ben Brafman, who has had a number of prominent media clients. Cohen himself took the stand yesterday, listing a number of factors that convinced him the operation was legal, including the long-standing existence of a comparable firm called SBET one of whose directors was a congressman who is now chairman of Al Gore's presidential campaign. Cohen also instanced Capital OTB (On Track Betting) in New York State which legally accepts wagers from other states using pre-deposited funds under specific statutes which permit this.

Cross-examination of Cohen this morning will be followed by closing arguments, and the jury will probably retire after lunch. A quick verdict is not expected, given the complexity (not to mention the importance) of the issues involved, which the Judge has been the first to acknowledge.

Whatever the outcome, it will quite likely be appealed. Its eventual outcome will contribute to the lively debate now taking place in the US about the location and legality of events that take place in cyberspace. Does US jurisdiction really stretch to encompass commercial operations in a foreign country? How can the Feds realistically police transactions taking place on the Internet between a (still more or less) free citizen and a web-site on the other side of the world?

As for the Internet gambling industry, following Cohen's inditement lawyers set to work to define business models that would not fall foul of the wire act statute, or the pending Internet Prohibition Act which has passed the Senate but is held up in the House. That might be difficult: as currently drafted the new Act would make it a federal crime for a US citizen to accept wagers offshore from other US citizens - but in some US states that is perfectly legal now (eg Nevada). And would it be illegal to hold shares in a company that owned an offshore betting operation? It goes on and on; and we haven't even mentioned tax.

Short-term, Internet betting companies have chosen to use satellite phone links, since even the widest interpretation of Section 1084 probably can't turn a wireless signal into a copper wire: but no doubt they'll try!

 

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