US Legal Battle over Advertising Resumes with Missouri Settlement

A St. Louis-based media company has agreed to pay more than $158,000 to escape criminal charges for airing advertisements for online gambling sites. The charges, brought by James G. Martin, United States Attorney for the Eastern District of Missouri, allege that Missouri Sports Radio LLC was aiding and abetting criminal activity by airing such adds. Martin's office announced the settlement on Friday.

"The use of federal forfeiture laws to silence commercial speech is a dangerous tactic."

-Lawrence Walters
Weston, Garrou & DeWitt

The charges referenced advertisements that aired on three St. Louis-based all-sports radio stations--KFNS-AM, KFNS-FM and KFRT-AM--between mid 2000 and September 2003. Missouri Sports Radio, which operated the three stations during that period (but has since sold them), agreed to pay the fine in exchange for no further charges being brought against the company.

It's the first settlement resulting from a long running grand jury investigation in which hundreds of subpoenas have been issued to media companies throughout the United States. Newspapers, radio stations, TV outlets, broadcast companies, Web site portals, and even service providers ranging from marketing firms and research companies have been subpoenaed.

Some major media outlets, including Infinity Broadcasting and Clear Channel Communications, have opted to stop accepting advertisements from online gaming companies in the wake of the investigation.

Legal experts are split over what the settlement means to the interactive gambling industry.

It might be an indication that the Eastern District of Missouri intends to follow through with warnings issued by Martin's predecessor, Raymond Gruender, who left that post to become a federal judge.

"You have to figure this settlement had been in negotiations long before Gruender left," an attorney, whose clients include a few of the company's receiving subpoenas, explained. "Martin could have even played a role in them, but he could have also been out of the loop and just finished them off for Gruender and considers the whole case done. It is just too early to tell right now."

The lawyer, who chose to remain anonymous, pointed out that the courts struck first close to home.

"It's no coincidence that the first settlement they get is from a company based in St. Louis," he said. "We haven't gotten any clear indication from them if they want to just get monetary settlements out of all this or if they intend to bring charges. More than likely though, they are looking for companies to agree to similar fines like this."

Missouri Sports acknowledge in the settlement that it received "thousands of dollars in funds derived from criminal offenses."

The company also agreed that it "had reasonable cause to know (it) received transmitted monies that derived from violations of the federal Wire Wager Act and of excise tax laws, as well as various states' statutes and municipal laws prohibiting online gambling."

"Offshore sports books and online casino gambling operations which do business in the United States generally do so in violation of federal criminal laws."

- James G. Martin
US Attorney

The subpoenas issued by the grand jury were accompanied by a letter sent by the Department of Justice notifying broadcasters that they were "aiding and abetting" by carrying advertisements for online gambling companies.

Many legal experts feel the aiding and abetting argument is a stretch, but the settlement with Missouri Sports could be proof that the strategy is working.

Lawrence Walters, an attorney who specializes in gambling law and First Amendment issues, said the settlement sets bad precedent for the industry, especially with a large legal gray area surrounding online gambling law.

"The use of federal forfeiture laws to silence commercial speech is a dangerous tactic," he said. "This is especially true given the confused state of the law applicable to online gambling. With a U.S. Court of Appeals ruling that the Wire Act does not apply to online casino gambling, it seems as though the more prudent course of action would be to seek a clarification of the law's applicability to typical online gambling activities, as opposed to pursing forfeiture of advertising revenue based on a potentially inapplicable statute."

The three stations agreed to provide evidence in on-going related investigations as part of the settlement, which states: "The agreement does not limit the federal government from pursuing any other entities or individuals responsible for these or any other alleged violations of federal law."

Martin is confident that operators who target U.S. players are violating federal law.

"Offshore sports books and online casino gambling operations which do business in the United States generally do so in violation of federal criminal laws," he said in a prepared statement. "Therefore, we will continue to investigate and pursue such activity, as well as the promoters, aiders and abettors of such criminal enterprises."

Martin said the investigation into the industry has involved the St. Louis Division of the Federal Bureau of Investigation and the St. Louis office of the Internal Revenue Service Criminal Investigation Division, as well as the assistance of the Department of Justice's Organized Crime and Racketeering Section.