A British businessman has been arrested in the US over his stewardship of BetonSports.com, an online gambling business, in what is believed to be the first move in a clampdown on online betting in the US. The website stopped taking bets last night.
David Carruthers, a Scot, was arrested as he changed plane in Texas en route to Costa Rica, where the company is based. The company's shares are listed on the London Stock Exchange but trading was suspended on the news.
Carruthers had been one of the most vocal critics of incoming US legislation outlawing gambling. His arrest has knocked £900 million off gaming shares in the stock markets since Monday as investors flee what may soon be a troubled sector.
Though online gambling is not outlawed specifically yet, the US Department of Justice has used the 1963 Wire Act to claim it is illegal and to take intermittent action. Despite specific legislation allowing between-state horseracing betting it has even taken action against horseracing gambling in the past.
“Illegal commercial gambling across state and international borders is a crime,” said US Attorney Catherine Hanaway of the Eastern District of Missouri. “Misuse of the Internet to violate the law can ultimately only serve to harm legitimate businesses. This indictment is but one step in a series of actions designed to punish and seize the profits of individuals who disregard federal and state laws.”
The case against Carruthers and 10 others claims that those behind the company took illegal bets and that they have failed to pay taxes on their earnings, said the Department of Justice. Undercover police had placed bets with the company and its subsidiaries, the DoJ said.
BetonSports.com has stopped taking bets. "In light of court papers filed in the United States, the company has temporarily suspended this facility pending its ability to assess its full position," said a statement posted on BetonSports.com. "During this period no financial or wagering transactions can be executed."
The DoJ says that it has issued a warrant for the arrest of Gary Kaplan, the company founder, who lives in Costa Rica. It says that Kaplan failed to pay taxes on gambling income of $3.3 billion and is seeking a total of $4.5 billion in penalties from all the accused.
The House of Representatives passed a new law just last week that sought to outlaw almost all forms of internet gambling. That law must now be passed by the Senate. It is estimated that around half of the $12 billion a year online gambling industry involves US citizens, despite its difficult legal position there.
The indictment under which Carruthers and four others were arrested was returned by a federal grand jury but only released to the public after the arrests.
In addition to the criminal charges the DoJ has filed a civil action seeking to stop the company taking any more bets from US citizens. It also wants to force the firm to return all money held in betting accounts of US citizens.
BetonSports.com chairman Clive Parritt told the Financial Times that he and Carruthers had expected that there would be problems with Carruthers entering the US, but that the pair had not made contingency plans for his arrest.