Online Pirates of the Caribbean

Three San Francisco men found riches in Antiqua with their Internet gambling site. Now they're federal fugitives. Caribbean

When the Justice Department revisited the 30-year-old law, it decided the language could be interpreted to include gambling on the Internet, since most Internet connections are made (at least for the moment) with a phone line, i.e., a wire. But the original law did not include casinos or poker. Nor did it target the people placing bets, a law enforcement task that would be impossible.

So when the FBI was assigned to crack down on Internet gambling, it focused its attention on the sports sites, and the people who were actually taking the bets.

Unfortunately, Internet sites mostly sprang up in countries where gambling is legal, and many are owned and operated by non-U.S. citizens. The FBI couldn't exactly run down to Costa Rica and arrest a British citizen for running a Web site, just because some guy in Kansas was betting on a basketball game.

Michael Miller
Haden Ware (right) and his brother take in the scenery of Antigua.
Courtesy of Haden Ware
Haden Ware (right) and his brother take in the scenery of Antigua.

Details

RELATED LINKS

World Sports Exchange
wsex.com: Visa and Mastercard accepted

World Sports Exchange gambling license
Certificate authorizing the establishment and operation of business in the Antigua and Barbuda free trade and processing zone.

Internet Gambling Prohibition Act of 1999
The full text of Sen. John Kyl's anti-gambling legislation

Gamblers Anonymous
The front page of wsex.com refers people with gambling problems to GA.


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But would-be regulators found some leverage in this tangled mess of contradictions. They interpreted the law to mean that if an overseas betting organization was owned by an American, and took wagers over the Internet from an American bettor -- even though the bettor might be placing his bet from a gambling-friendly foreign country, and even though the Internet computers and servers might be located in a gambling-friendly foreign country -- this was a violation of the Wire Communications Act.

The FBI launched a yearlong undercover sting operation in 1997, based in New York state. Posing as gamblers, agents opened accounts and placed wagers at sports books based in Costa Rica, Nevis, Curacao, the Netherlands Antilles, the Dominican Republic, and Antigua.

One of the names on the hit list happened to be an outspoken media darling of the exciting new online gambling world. FBI agents opened a phony account with the World Sports Exchange, says Schillinger, and deposited $300.

"They bet $50 a game. On hockey! And just to show how smart they are, I think they won one and lost five," he says. "There's where your taxpayers' money is going -- them blowing money at sports books."

Once the FBI collected enough evidence, it named the site operators in a criminal complaint. On March 4, 1998, 21 individuals, representing nine different offshore sports books, were charged with conspiring to violate the Wire Communications Act. U.S. Attorney General Janet Reno rattled her saber, issuing this statement: "To Internet betting operators everywhere, we have a simple message: You can't hide online, and you can't hide offshore."

Schillinger, Cohen, and Ware were notified of their new criminal status, and were baffled. Some of the other sports books did appear to be breaking the law (one book operated right out of an office on Wall Street, using Internet servers and banks located in Manhattan). But World Sports Exchange had done its homework. Its servers, bank accounts, and employees were on an island where gambling is perfectly legal.

Sue Schneider is chairperson of the Missouri-based Interactive Gaming Council, a pro-gambling group that tracks the online portion of the industry. She's very familiar with World Sports Exchange. "They came in with a very innovative product. They were not the straight-out gambling company. They got a lot of people's attention," she says. "Their main crime was that they were U.S. citizens."

Cohen had been very vocal within the gambling world, giving interviews, making speeches at conferences, and debating the online issue on television. Schillinger and Ware also spoke freely to journalists about the company. Their reaction to the criminal charges was immediate and unanimous.

"It was growing rapidly. We'd put a lot of time in. Jay wanted to go back and fight this, and we decided that Haden and myself would stay down here and keep it running," says Schillinger. "They obviously wanted us to turn ourselves in, and immediately cease the operation, which we didn't want to do."

And so they didn't.

Other sports books shut down entirely. Several defendants accepted sentences of probation and home detention, and one paid a $750,000 fine. But when it came time to face charges in a U.S. District courtroom, Jay Cohen stood up and pleaded not guilty. His attorney, Benjamin Brafman, filed a motion to dismiss, which a judge denied, and so the case is scheduled for trial. After several defendants pleaded out, and charges were dismissed against a few others, the government ended up indicting 14 individuals, and issued warrants for the arrests of Cohen, Schillinger, and Ware. All three are now officially listed as at large.

As this story goes to press, Schillinger and Ware remain on the island. Because gambling is legal on Antigua, it's unlikely they will be extradited. Cohen has returned to the U.S. After several delays, his trial is now scheduled for Feb. 14, 2000, in a courtroom in New York. He did not return messages left by SF Weekly, but is rumored to be spending his time somewhere in the Bay Area.

The gambling industry is keeping a close watch on the potentially landmark case. At the worst, Cohen could face a sentence of one to two years, and the wsex.com site would be shut down. Whatever the outcome, it will presumably help pave the way for clearer legislation regulating online gambling. The country's perspective on gambling certainly couldn't get any more confusing.

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