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Tue, Jan 23, 2007 - Page 10 News List

DOJ subpoenas four banks in Internet gambling probe


The Justice Department has issued subpoenas to at least four Wall Street investment banks as part of a widening investigation into the multibillion-dollar online gambling industry, people briefed about the investigation said.

The subpoenas were issued to firms that had underwritten the initial public offerings (IPOs) of some of the most popular online gambling sites that operate abroad.

The banks involved in the inquiry include HSBC, Credit Suisse, Deutsche Bank and Dresdner Kleinwort, the sources said.

While online gaming sites like PartyGaming and 888 Holdings operate from Gibraltar and their initial public offerings were held on the London Stock Exchange, companies that do business with them and have large bases in the US have come under scrutiny by regulators in Washington.

None of the largest US banks like Goldman Sachs or Citigroup underwrote the IPOs in London, in part because of the legal ambiguity of the sites -- they are illegal in the US but still accessible to residents.

The subpoenas, reported by the Sunday Times of London, appeared to be part of an indirect but aggressive and far-reaching attack by federal prosecutors on the Internet gambling industry just two weeks before one of its biggest days of the year, the Super Bowl.

Unable to go directly after the casinos, which are based overseas, they have sought to prosecute the operations' US partners, marketing arms and now, possibly, investors.

The prosecutors may be emboldened by a law signed by US President George W. Bush last October that explicitly defined the illegality of running an Internet casino. Even before that law, the Unlawful Internet Gambling Enforcement Act, was adopted, the government said Internet gambling was illegal under a 1961 provision.

These offshore casinos, typically based in Costa Rica or Antigua, allow US-based bettors to use their home and office computers to place wagers on a range of contests.

Millions of Americans participate; more than half of all bets placed to major offshore casinos are from residents of the US.

The prosecutors' efforts have taken a toll in the last two years on offshore casinos, most notably with the arrest last year of David Carruthers, the chief executive of BetonSports, an Internet sports book. The company is based in Britain and has operations in Costa Rica, but Carruthers was detained at Dallas airport while traveling through the US.

The arrest led to BetonSports' decision to stop taking bets from the US, crippling its business.

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