New Jersey Affiliate Case Concludes with Light Sentence

The trial of a New Jersey businessman indicted on charges related to running an illegal gambling Web site culminated last week with a conviction and sentencing.

Nicholas Drakos pleaded guilty in January to charges of promoting illegal gambling and was sentenced Friday to 90 days of hard labor to be followed by three years probation, though he insisted he was unaware that Internet gambling was illegal in the United States.

Drakos, 49, was arrested in April 2004 following a sting operation by local detectives and was indicted in November of the same year. His attorney, Robert Dunn, made an unsuccessful attempt in October 2005 to have the indictment dismissed on the grounds that the New Jersey Constitution contained no law explicitly outlawing Internet gambling.

Dunn also said Drakos couldn't have known that what he was doing was illegal because along with donations to the New Jersey State Police, which he sent every year, Drakos always attached a business card that contained his photo and plainly advertised his online gaming business, InternationalNetCasino.

The argument didn't fly with Superior Court Judge Salem Vincent Ahto, who pointed out that the New Jersey Constitution does identify legal forms of gambling and that the fact that Internet gambling is not expressly illegal does not make it legal. Ahto acknowledged, however, that he did not think Drakos was deliberately trying to break the law. For that reason, Ahto stated that he "would not be unduly harsh on him."

"I don't think Mr. Drakos was trying to hide what he was doing," he said. "It's not like this was a clandestine operation."

The investigation was conducted by Morris County detectives in New Jersey, and the initial trial was heard in a Morris County court.

Ahto said that he had wished a higher court in New Jersey had an opportunity to review the legitimacy of Internet gambling separately, but so far it has not. He added that such a review was is unlikely to occur in this case because Drakos' lawyers did not appeal his trial court finding in October.

A New Jersey state senator, meanwhile, is trying to pass legislation to disable Internet gambling, and the existence of such a law would have cleared up much of the confusion in the Drakos case.

Sen. Richard Codey's bill, SB 1106, would clarify the definition of illegal gambling in the state constitution to include Internet gambling. It would also void credit card debt incurred through illegal gambling and includes a clause establishing that only the state may sue to recover gambling losses. Codey pushed similar bills in the 2004/05 and 2002/03 legislative sessions, neither of which advanced. The new bill was read on Jan. 26 and referred to the Senate Wagering, Tourism & Historic Preservation Committee, but has not moved since then.

Frank Catania, president of Catania Consulting Group and former director of The New Jersey Division of Gaming Enforcement, doesn't expect the Drakos case to affect legislative activity.

"This does not have much to do with any of the proposed Internet gaming bills pending in New Jersey since there are some New Jersey legislators who feel regulating I-gaming would be the best solution," Catania said. "I don't think this case will have any bearing on the pending bills."

The real threat to the I-gaming industry lies in Washington, D.C., where federal anti-Internet gambling legislation looms.

HR 4411, proposed in November by Rep. James Leach, R-Iowa, is another attempt to prevent the use of certain payment instruments, credit cards and fund transfers for Internet gambling. Leach is working with another online gambling foe, Sen. John Kyl, R-Ariz., to break the link between the gambler and the operator by making it illegal for customers to use a credit card to gamble online. This bill reportedly has the support of the NFL, NBA, NHL, NCAA and Major League Baseball. It was referred to House Subcommittee on Financial Institutions and Consumer Credit on Jan. 5, 2006.

The harshest bill comes from Rep. Bob Goodlatte, R-Va. and Rep. Rick Boucher, D-Va. Introduced Feb. 16, 2006, the Internet Gambling Prohibition Act, would amend the 1961 Wire Act, enacted to stop bookmaking over the telephone, to specifically outlaw all forms of gambling via interactive technologies. It also clarifies that connections that are either fixed or mobile would be outlawed in addition to expanding the definition of "bets or wagers" to include casino games, and it would extend the maximum prison term for a violation of the Wire Act from two years to five years.

Whether the Drakos case sets a precedent for prosecuting similar cases in the United States remains to be seen, but marketers should take note that it is the first such case involving an affiliate rather than an operator.

If similar cases ensue, then I-gaming affiliates based in the United States may face the decision of severing ties with the gambling companies, moving offshore or exposing themselves to prosecution.