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Rod Smith

Online Gambling Ads Draw Scrutiny

13 January 2004

The U.S. Department of Justice has been issuing subpoenas in Las Vegas and nationwide to intimidate and discourage publishers and broadcasters from accepting advertising for online gaming sites, media and legal officials said Monday.

"This goes well beyond casinos. It's going to set substantial and important media law. It's going to say the media is responsible for the legality of the activities they advertise in their media," said Tony Cabot, a partner in the law firm Lionel, Sawyer & Collins.

Three waves of subpoenas were served on publishers and broadcasters in Las Vegas and nationwide between September and the end of December, demanding all records involving ads by Internet gaming establishments since 1997, sources said.

It would the first effort in the United States to prosecute criminally any media based on the content of its advertising, according to Cabot, chairman of the gaming practice group at Lionel Sawyer.

"There've been no prosecutions based on advertising aiding and abetting an unlawful transaction based on the content of the advertising," he said.

The Justice Department has sent warning letters to major newspapers and radio networks advising them of the "legal risks" of accepting Internet gambling ads.

Allen Lichtenstein, general counsel for the American Civil Liberties Union of Nevada, called the subpoenas and notice letters an "intimidation tactic to go after the messenger," rather than prosecute the online gaming sites that the Department of Justice alleges are violating the law.

The Justice Department considers online gambling illegal under a 1960s law that prohibits using a "wire connection facility" to wager across state lines.

Despite U.S. restrictions, Bear, Stearns & Co. estimated online gaming revenue exceeded $5 billion last year, more than 70 percent wagered by Americans, and the General Accounting Office estimated there are more than 1,500 Web-based gaming sites.

"Considering all the other things the Department of Justice has been doing, it is no surprise they would try this tactic on the media," Lichtenstein said.

"We're going to start seeing more subpoenas for the media and more intimidation. They'll try to break the shield laws. It's not surprising, but it's deeply troubling (because the) basic rights of privacy and rules of media independence are under attack," Lichtenstein said.

I. Nelson Rose, gaming law expert at Whittier Law School in Los Angeles, said the subpoenas were served on "every publisher, TV station, radio station, and every network that ever took an ad for Internet gambling."

He said the federal government has "limitless resources" and has evidently been monitoring broadcast and print media and keeping lists of all outlets that carried advertisements for online gambling sites.

"Newspapers and magazines, however, are in different situations from broadcasters because publishers don't have licenses to protect. If this goes to the FCC, broadcasters will independently stop taking advertising because their regulators have the death penalty. It seems to be working with radio stations," Rose said.

The Federal Communications Commission is responsible for ensuring broadcasters meet federal requirements to have broadcasting licenses.

However, Cabot said every publisher and broadcaster he is familiar with stopped running advertisements for online gaming sites as soon as the subpoenas were received.

"If they are trying to chill advertising, the subpoenas are doing a good job," he said.

Cabot said the Justice Department could also be moving to impose cease and desist orders on the advertisers and extract administrative penalties from them.

Another option is the department could be acting to establish the illegality of the advertising.

In Las Vegas, subpoenas have been served on Clear Channel, operator of KSNE FM 106.5, KWNR FM 95.5, KQOL FM 93.1 and KWID FM 101.9 radio stations. A Clear Channel spokesman referred questions to corporate headquarters, which confirmed receiving the subpoenas. Further questions were referred to the company's New York public relations firm, which declined comment.

Poker Player, a tabloid newspaper published in Inglewood, Calif., but circulated here, also was served with the subpoenas.

Stan Sludikoff, publisher of Poker Player, said his company had been served although it no longer accepts advertising for online gaming sites.

"I've spoken with our attorneys and been advised the U.S. attorney is not correct, that there is nothing illegal in taking the advertisements," he said.

"(They) are trying to crack down on everybody (accepting such advertising) with this or just trying to scare them off," Sludikoff said.

Cabot said Lionel Collins represents several clients, some of whom are based in Nevada, that have received the subpoenas. None of the media outlets, however, wanted to comment for the record.

Other legal sources said generally all radio and TV stations, magazines and newspapers that have accepted such advertising have been served, including Lotus Broadcasting, which owns ESPN 920 AM and Sports Radio 1460 AM; KTNV-Channel 13; and a host of gaming industry publications in Las Vegas.

Spokesman for the companies could not be reached for comment or declined to comment Monday.

The Review-Journal does not accept advertising for online gaming sites and was not served with subpoenas, in-house counsel Mark Hinueber said.