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Fateful day in court

May 22, 2001 11:20 AM

Offshore bookmaker Jay Cohen had a date with justice Monday.

A three-judge panel of the 2nd U.S. Circuit Court of Appeals heard oral arguments yesterday in Cohen’s appeal of his conviction on eight counts of violating and conspiring to violate the 1961 Wire Act. The act forbids the transmission of sports bets over interstate phone lines or any wire communications apparatus.

Cohen, who founded a highly successful sports book in Antigua, and whose subsequent travails were highlighted on 60 Minutes, is the first American engaged in Internet betting to be sentenced to prison under the Wire Act.

At stake now, as the judges weigh the arguments they heard yesterday, is his freedom, and very possibly the future of Internet betting in the United States.

Nevada gaming regulators, who will be busy in the months ahead trying to frame a set of workable rules and safeguards for the first legal online casinos in the United States, are watching closely to see how Cohen fares. So are U.S. Senator John Kyl and Congressmen Bob Goodlatte and James Leach, who want to banish Internet gambling from U.S. shores completely.

Cohen, as you’d expected, maintains his innocence, just as he did when he left the safety of the Caribbean and surrendered to the FBI two years ago.

"I feel great," he said in a phone interview yesterday, hours after leaving the federal courthouse in Lower Manhattan. "I think it went well. The judges have a lot to think about."

Cohen doesn’t deny servicing American bettors by phone and online. But he argues the bets were really booked in Antigua, where online gambling is legal, from accounts the bettors established beforehand. His argument cuts straight to the thorny jurisdictional issues surrounding Internet gambling. If the judges of the 2nd U.S. Circuit take it up, they could render the definitive word on whether the Wire Act applies to online betting.

In 1999, the Justice Department obtained indictments against 21 U.S. citizens involved in operating sports books from the supposedly safe haven of the Caribbean. Cohen, the founder of a book called World Sports Exchange, was the only one to insist on a jury trial. He was convicted in U.S. District Court in New York and sentenced last August to 21 months in prison. He is free on $100,000 bail pending the outcome of his appeal.

His three partners are among seven defendants still at large in the case. They’re still taking bets from Antigua, handling close to $5 million in wagers a year, according to Justice Department estimates.

"I believed I did nothing wrong, and I wanted to clear my name," he says, explaining why he surrendered to the FBI. "I still believe I did nothing wrong. And neither has anyone else who is engaged in this business."

The 33-year-old San Francisco resident is an unlikely test case for Internet gambling. He’s a former options trader who also holds a degree in nuclear engineering. He says he never intended to become the center of controversy. "No one wants to put their freedom on the line like that," he insists.

"This case is very significant," says attorney Anthony Cabot, an expert on Internet gaming with the Nevada law firm of Lionel Sawyer and Collins. "What Cohen is trying to argue is the United States doesn’t have jurisdiction."

Cabot believes, along with many experts, that the Wire Act applies only to sports books, not online casinos. Nevada’s casinos will be looking in the next couple of years to grab a chunk of the lucrative online pie. But if Cohen loses on the jurisdiction issue, they will have to step very carefully.

On the other hand, "If the case is reversed, it means there’s no applicable U.S. law on offshore gaming. That’s a tremendous impetus to Kyl and Goodlatte to reintroduce a bill in Congress to ban it," says Joseph Kelly, a law professor at the State University of New York who helped write Antigua’s gaming regulations.

Currently, there is no law in the United States that says you can’t place a bet online. Regardless of whether Cohen ends up in federal prison or walks away a free man, the irony is inescapable.

"The offshore operators don’t care," says Kelly. "They’re making a fortune. They just can’t return to the United States."