Gary Kaplan, the founder of what was once one of the Internet's most thriving sports betting businesses, was sentenced to 51 months in prison Nov. 2 and "forfeited to the United States $43,650,000 in criminal proceeds. An additional amount of approximately $7 million has been forfeited in related proceedings, bringing the total forfeiture in this case to over $50 million," the Department of Justice said in a Nov. 2 news release.
In August, Kaplan "entered pleas of guilty to charges of conspiracy to violate the RICO statute, conspiring to violate the Wire Wager Act and violating the Wire Wager Act." All the charges were related to Kaplan's BetOnSports operations, which were located "offshore in Aruba, Antigua and eventually Costa Rica to provide sports book services to U.S. residents through Internet Websites and toll-free telephone numbers."
The release continued, "Kaplan's toll-free telephone lines terminated in Houston ... or Miami ... and then were forwarded to Costa Rica by satellite transmitter or fiber-optic cable. Some of Kaplan's Web servers were located in Miami and were remotely controlled from Costa Rica. U.S. residents became customers of BetOnSports by depositing funds on account and placing wagers over U.S. toll-free telephone lines and via the Internet using the deposited funds. Funds were sent from the U.S. customers to [BetOnSports] operations outside the United States and [BetOnSports] sent winnings from outside the United States to its U.S. customers."
"Kaplan was unique in the scope and scale of his illegal operation. Despite his immense profits, he is living in federal custody. This case should serve as a warning to others who might choose to defy the laws of the United States on such a grand scale," Acting U.S. Attorney Michael Reap said in the release. "Kaplan's business model itself was built on a wager that the United States could not and would not enforce its anti-sports book laws to reach Kaplan. Today, Kaplan lost that wager."
According to the DOJ, Kaplan launched his gambling business through a sports book in New York City in the early 1990s. After he was arrested on New York gambling charges in 1993, Kaplan moved his operation to Florida and finally offshore to Costa Rica.
"By 2004, the BetOnSports organization's principal base of operations in Costa Rica employed approximately 1,700 people. During the year ended Jan. 31, 2004, BetOnSports had close to 1 million registered customers, and accepted over 10 million sports bets in a cumulative gross amount that exceeded $1 billion. In mid-2004, Kaplan made a successful public offering of the stock of BetOnSports on the London Alternative Investment Market that netted him over $100, 000, 000. Those funds eventually found their way into various Isle of Jersey trusts, which invested the funds in Swiss bank accounts," the DOJ said.
"Gary Kaplan was sentenced to the maximum under the plea agreement, which sends a message to those operating illegal offshore gambling enterprises," Roland Corvington, special agent in charge of the FBI in St. Louis, said in the statement. "In addition to [Kaplan] being in prison, hopefully some of the money forfeited will go to useful purposes such as fighting other Internet-related crimes, such as catching child predators who think they can hide online."
Under U.S. law, the Wire Wager Act prohibits making gambling wagers over the telephone. Approved by Congress in the 1960s, the legislation did not anticipate the Internet, creating a legal gray area for online gambling. The DOJ maintains that the act also covers placing bets over the Internet.
Given the chance to clarify the law, Congress in 2006 did not make it illegal to place a bet over the Internet, but barred banks, credit card companies and other payment systems from processing payments to the estimated 2,300 offshore gambling sites located outside of U.S. jurisdiction.