What Does the Cohen Verdict Mean to the Net Betting Industry?

Two weeks have passed since a United States district court jury found World Sports Exchange President Jay Cohen guilty on several counts, including conspiracy, of violating the Wire Wager Act. Everyone in the Net betting business wants to know what the verdict means to the future of the industry as well as the future of Cohen himself.

In a nutshell, some of the fallout is already readable, but much of it will pan out over time. For the most part, those in the industry who are potentially affected by the verdict have entered a very cautious wait-and-see frame of mind.

Here are some answers to common questions regarding this landmark trial.

What's next for Jay Cohen?

The defense has clearly voiced its intention of appealing the verdict. As expected, Cohen will not be offering his thoughts to the press as long as there's an appeal pending. Surprisingly, however, it appears that his attorney, Benjamin Braffman, will remain silent as well--at least for the moment. Brafman did not grant any interviews at the trial's conclusion, nor has he spoken to the press since then.

He formally released the following statement on February 29: "We are obviously disappointed by the verdict, but we recognize that the legal instructions provided to the jury by the court left them no choice but to return a verdict of guilty. We believe the instructions were clearly wrong. Mr. Cohen intends to vigorously pursue an appeal, and we are confident this verdict will not survive appellate review."

What kind of penalty does Cohen face?

Cohen's sentencing is scheduled for May 25 at 10:00 a.m. The Wire Wager Act mandates that he can be imprisoned up to five years for all counts combined. Common sense, however, says that the government won't throw the book at him because he has no prior record. An attorney who is very familiar with this case told IGN that federal sentencing guidelines point to 21 to 27 months. Cohen's clean record will probably make it closer to 21 months, the source said. Considering the government's general attitude toward online wagering, you could argue that the judge will go hard on Cohen to make an example out of him. Cohen is currently out on bail.

Will World Sports Exchange close?

World Sports Exchange is still fully operational, and its operators do not intend to close it. The U.S. cannot order the sportsbook to close because all aspects of its operations are based outside of U.S. jurisdiction. Further, regulators in Antigua and Barbuda (where WSE is located) have stated that the sportsbook is fully compliant with the laws of that country.

Does the verdict mean that online gambling is illegal in U.S.?

Yes and no. The verdict renders the accepting of wagers over the Internet from persons located in the U.S. illegal if the persons are betting on sports, but the Wire Wager Act does not include any language about other types of gambling such as casino games, bingo and lotteries. The Kyl bill is much broader and, if passed, would cover all types of wagering--all types of wagering that aren't included among the bill's many exemptions, that is.

U.S. Attorney Mary Jo White, who filed the complaint against Cohen, reconfirmed that the providing of Internet sports betting services over the Internet constitutes a violation of 1084 in a statement released to the public March 10. White emphasized through the statement that the Internet falls under the Wire Wager Act's definition of a wire communication facility and that a person accepting bets from Americans over the Internet is violating the statute regardless of where the person accepting the bets is located.

Referring to the Cohen case, White quoted U.S. Attorney General Janet Reno as saying, "The Internet is not an electronic sanctuary for illegal betting. To Internet betting operators everywhere we have a simple message: You can't hide online and you can't hide offshore." ... a very interesting citation, considering that you can hide offshore if you want (several of the others named in March 1998 complaints continue to do so) and that Jay Cohen's actions don't fall under any definition of 'hiding' offered by your standard English dictionary.

Will there be further indictments?

Through the rumor mill, I've heard that Attorney General Reno, speaking in Costa Rica, indicated that there were no immediate plans to go after more online gambling operations, and that no business not operated by Americans would not be targeted. Bear in mind, the U.S. government didn't announce intentions of taking action before the first lot of complaints was filed.

Can businesses that are involved in the industry but don't take wagers be targeted by investigators?

For those involved in the industry in this capacity, the scariest aspect of the Cohen trial was that Virginia Hair, previously retained by World Sports Exchange to handle PR for the company, testified pursuant to a non-prosecution agreement with the government. Just how far the government can take it hasn't been tested yet, but attorney Anthony Cabot (author of "The Internet Gambling Report") concedes that 1084's inclusion of the phrase "information assisting in the placing of bets or wagers" could be interpreted as a green light to go after ISPs and money transfer facilities as well as companies that advertise or promote online sports betting. Cabot points out that, since most of the operators themselves are untouchable, the government would be better fit to make an example out of persons located within U.S. borders.

Would the government really go this far? According to Cabot, yes. "It's not only possible; ultimately it's going to be probable," he explained. "You come to the conclusion that you're not going to be busting the players, and the operators are going to be outside of your jurisdiction."

Will the verdict hurt the Net betting industry as a whole and slow its promising growth?

In short, no. The coming months could be a bit shaky, but the verdict will ultimately hurt Americans only. U.S. prosecutors cannot touch anyone who is outside U.S. borders. (Keep in mind that Cohen came back to the States voluntarily.) Americans who operate online gaming sites legally in jurisdictions such as Antigua fall under no danger of prosecution as long as they stay out of the States. The down side, of course, is that they will not be allowed to return to the States.

That means current American operators will fall into three categories: former operators of online gambling businesses; fugitives; and those who are clever enough to hide the fact that they are operators. In coming months, expect a significant amount of operators to sell their interests in bookmaking. It won't be clear, however, how many of them are actually getting out of the business and how many remain involved in a stealth capacity.

It's common practice for American companies to own an interest through a holding company or a foreign subsidiary. If the government plays hardball, such relationships will could no longer be considered safe. That means new means of involvement will be necessary. For example, an anonymous source recently confirmed that at least one sportsbook operator gave up his ownership and become a well-paid employee of the company after the Cohen verdict was delivered.

Even if some Americans find away to stay involved, their opportunity for success will be somewhat hampered by their inability to present themselves as a legitimate company. I contacted several sportsbook operators inquiring about their plans in light of the verdict, and none of them would comment--even off the record. I certainly don't blame them for playing it safe, but it was discouraging to see several businesspeople who would like to operate legitimately forced to operate companies with extremely low profiles. That leaves customers with the choice of wagering with sportsbooks that have nothing to hide and sportsbooks with unidentified, unreachable operators. I guess congratulations are in order for bookmakers in countries like Australia and the U.K. where their trade is legal and regulated. And congratulations to their governments for reaping the benefits.

What happened to the other 20 people indicted?

To an extent, that question remains a mystery. IGN reported on their statuses a year ago (see "The New York Internet Gambling Prosecutions - A Status Report"). We know that Al Ross of Island Casino pleaded guilty weeks before the Cohen's trial began, but officials at Mary Jo White's office would not confirm the statuses of any of the others.