The Jay Cohen Affair: Lessons in the Legality of Internet Betting

Abstract

551 JAY COHEN AND HIS PARTNERS WERE AHEAD of the curve. Just before the great Internet boom of the late 1990s, they formed one of the world’s first off-shore Internet betting operations. Setting up shop in Antigua—where Internet gaming was legal and even licensed—Mr. Cohen’s company took the name “World Sports Exchange.” It proved a huge success, attracting eager U.S. customers who placed thousands of bets on professional and college sporting events. But the millions of dollars flowing into the company also attracted the attention of the Federal Bureau of Investigations and federal prosecutors based in Manhattan. After a six month investigation, Mr. Cohen became a pioneer of different sort: he became the first Internet gaming operator to be indicted for violating federal anti-gambling laws.1 The government charged Mr. Cohen with eight counts of violating, conspiring to violate, and aiding and abetting violations of the federal Wire Act, 18 U.S.C. § 1084. The Wire Act prohibits persons “engaged in the business of betting or wagering” from using the wires to transmit across state lines: (1) bets or wagers on sporting events; (2) any material that entitles the recipient to receive money or credit as a result of a bet or wager; or (3) any information that assists in the placing of bets or wagers.2 Because Congress was concerned with the breadth of the statute’s prohibitions, however, it also contains a “safe harbor,” which authorizes the use of the interstate wires to transmit information that would assist in the placing of bets or wagers “from a State or foreign country where betting on that sporting event or contest is legal into a State or foreign country where such betting is legal.”3 The government claimed that Mr. Cohen and World Sports Exchange had violated each of the three statutory prohibitions and, furthermore, that the safe harbor did not apply. Vowing to beat the charges, Mr. Cohen (unlike some of his partners) returned to the United States to stand trial.4 He did not seriously dispute the facts; he acknowledged that World Sports Exchange operated a substantial offshore Internet betting operation. He claimed, however, that the Wire Act—which was promulgated in the 1960s—did not prohibit offshore Internet gaming. Noting that the Wire Act’s drafters had never contemplated Internet transactions, Mr. Cohen argued that the statute could not be applied to online sports betting. Alternatively, Mr. Cohen contended that the Wire Act did not prohibit World Sports Exchange’s operations because the betting transaction actually took place in Antigua, where Internet gaming was entirely legal. Since the betting operation was authorized under the laws of Antigua, Mr. Cohen reasoned, the Wire Act’s safe harbor provision protected him from prosecution.5