Illegal Sports Betting Arrests
[toc]Organizers of an American Gaming Association conference on June 30 advocated for the legalization and regulation of sports betting in the United States, for which the association said it will formally lobby Congressas early as the beginning of 2017.
The rationale for such a legal framework, which everyone from the U.S. Conference of Mayors to NBA commissioner Adam Silver has called for, is grounded in part in the idea that it would curb the proliferation of illegal sports wagering, and the resultant criminal activity often associated with such enterprises.
The federal law on illegal gambling and gaming was passed in 1955, but the rise in online and sports gambling has implicated several other statutes of the U.S. Code and federal law. Illegal gambling could be prosecuted under several different criminal statutes, each with a different degree of punishment and potential outcome.
This argument begs the question: Just how widespread is illegal sports wagering?
- It is strictly forbidden to make payments to or to receive payments from persons or entities offering illegal gambling services, including (but not limited to) illegal sports betting, casino games.
- The 101-page report alleged it had new evidence that linked Wirecard to money laundering of betting proceeds from offshore poker sites back into the United States, where online gambling was illegal.
- 29 people were arrested in New Jersey and New York in an illegal sports gambling enterprise around Bergen County that netted $3,000,000 over a year by accepting wagers on various sporting events.
As if on cue, Brooklyn (New York) District Attorney Ken Thompsonannounced on the morning of the June 30th conference that his office had leveled a 57-count indictment against one of the largest illegal sports gambling rings ever prosecuted the United States. The four-person sports betting operation allegedly took in more than $900 million in bets in 2015 alone.
Illegal sports betting by the numbers
The AGA estimates sports bettors wagered approximately $145 billion illegally in the United States in 2015. Other estimates of the annual illegal U.S. sports betting handle range in size from $80 billion to $380 billion. Whatever the true size of America’s illegal sports betting market, it dwarfs the$4.2 billion in legal wagersthatNevada sportsbooks accepted during that same time span.
Where and how are some of these billions being bet illegally?
An examination of nearly a dozen sports gambling busts in the first six months of 2016 alone indicates that illegal sports betting activity is happening consistently, is facilitated through a complex mixture of money laundering, front businesses and offshore websites, and often involves additional criminal activity not related to sports betting.
U.S. authorities have uncovered these rings of widely varying size and scope across severalstates, including New York, Massachusetts and California (two additional sports betting busts also occurred in these states in late 2015). There are likely other indictments against sports betting rings currently under seal as well as other pending investigations that have not been made public.
While the criminal probes to bring down these gambling rings are keeping law enforcement busy, they appear to constitute a Sisyphean task of sorts, eradicating only a small fraction of the illegal activity taking place, and doing little to curb the continued existence of illegal sports wagering.
Sports betting busts in 2016
The following list does not include arrests, seizures or raids occurring prior to 2016 that resulted in criminal verdicts or sentencings in 2016. It also does not include the multiple arrests, seizures or raids that took place against non-sports gambling rings thus far in 2016.
- On Jan. 27, 22 peoplewere charged by the U.S. Attorney for the Southern District of California with participating in an illegal sports gambling ring, which also engaged in drug smuggling. Authorities made 19 arrests across four states related to the ring. The operation gained notoriety for being run by several former University of Southern California athletes, including former USC tight end Owen Hanson. Authorities said Hanson ran his operations in part through a cross-country network of “runners” and a series of online websites operated by an associate from Peru, and that he threatened violence against delinquent gamblers, one of whom owed more than $2 million to Hanson’s operation.
- On Mar. 1, Pennsylvania Attorney General Kathleen Kane charged a Pennsylvania state representative with using his elected position to help a friend with ties to a Pittsburgh crime family run an illegal video poker and sports betting ring.
- Polk County (Fla.) authorities arrested 25 people in late March as part of a sting called “Operation Parlay.” Authorities said those implicated ran a sports wagering operation out of separate check cashing and cell phone business storefronts in Winter Haven, Fla., and Lakeland, Fla., respectively. Authorities seized $139,000 in cash, assets and guns.
- A Queens County (N.Y.) grand jury charged former professional poker player Jay Sharon on Apr. 5 with acting as a sports bookmaker for a ring that annually accepted more than $3.5 million in bets. The allegation came as part of an eight-person,85-count indictment against the New York and Nevada-based illegal ring. The ring allegedly used a combination of runners, toll-free phone numbers and offshore websites to transact bets, and funneled all money directly to Sharon.
- Just over one week later, Rhode Island authorities searched at least three restaurants and raided a beach home in Narragansett, R.I., and arrested 20 people for their involvement in two separate sports gambling rings. Authorities said one of the operations was run out of the restaurant, and that the operations used offshore websites BetCapri.com and VIPBettors.com to facilitate bets. Authorities seized 300 pounds, or$1.5 million worth of marijuana as part of the raids that they said the ring planned to sell. They also seized hundreds thousands of dollars in cash and assets related to sports wagering.
- Just down the road in Providence, R.I., authorities on Apr. 14 arrestednine people and seized $70,000 in assets related to an unrelated illegal sports betting ring that they said was run out of a cell phone retail storefront. As part of the investigation, authorities seized $60,000 worth of Fentanyl, an ingredient commonly used to synthesize heroin.
- On Apr. 14, federal prosecutors charged five Boston-area men with operating an illegal gambling ring, as well as loansharking and extortion. The type of gambling operation the defendants were alleged to have been involved in was not specified, but the leader of the defendants, organized crime figure Joseph A. Yerardi, has a criminal history of helping facilitate Costa Rica-based sports betting operations for the Boston mob.
- Federal authorities on May 12 reportedlyarrested 14 members and indicted 18 members of the Genovese crime family across four New York boroughs for a wide range of crimes, some of which were running an illegal gambling business. Per NBC New York, the sports gambling side of the family’s operations allegedly took in more than $2,000 per day.
- 46 people across three states were arrested in late May in connection with an illegal sports gambling ring ran by Robert D’Alessio. The ring was estimated to handle “tens of millions of dollars” per year, and targeted more than 300 bettors in the New York and New Jersey area. Authorities seized $2 million in cash from the ring, which used a Costa Rica-based website, a 1-800 number and more than 50 gambling agents to process bets.
- Not to be outdone by the Genovese family, the Lucchese crime family operated another Costa Rica-affiliated online sports book that took in more than $13 million. That effort was broken up by the Brooklyn district attorney’s office on May 27, and those implicated were hit with a 37-count indictment.
- Far and away the largest U.S. sports gambling operation busted in 2016, a $927 million operation ran by four men in New York and California was broken up by the Brooklyn district attorney on June 30. Like several other recent online gambling busts, authorities allege this operation used a wire room in Costa Rica and offshore websites (www.wagerabc.com and www.hustler247.org) to process bets during the 2015 football season. Authorities claimed the defendants used elaborate tactics to launder their gambling proceeds, including the purchasing of more than 20 homes.
Other ‘illegal gambling’ in 2016
Traditional sports betting isn’t the only sports-related gaming product to come under fire from authorities in 2016.
Attorneys general in Texas, Tennessee, Mississippi, Hawaii, Idaho, Alabama, Vermont and Georgia have each opined in the past six months that daily fantasy sports constitutes illegal gambling. There have been no actual charges brought against any DFS company, however.
Illinois AG Lisa Madigan released an opinion similar to those states in late 2015. FanDuel and DraftKings are both engaged in court cases pertaining to DFS’ legality in that state.
Mississippi and Tennessee’s state legislatures promptly passed bills legalizing DFS, and TexasAG Ken Paxtonreached a settlement with FanDuel where the operator agreed not to operate in the state.
While New York’s legislature recently passed a bill legalizing DFS in response to a settlement agreement with AG Eric Schneiderman, some foresee that the bill could face a constitutional challenge from opponents.
If you log onto some overseas website to bet on sports, or you do it through a bookie at the local bar, or even if you and your buddy have $20 riding on the Giants/Cowboys game, you’re betting illegally.
Hundreds of billions of dollars are bet illegally on sports every year in the United States. Not surprisingly, the exact number is hard to track down. Still, as Connecticut lawmakers ponder bills to legalize sports betting this legislative session, capturing some of that revenue stream is a motivating factor.
Local radio personality Joseph Schlosser used to be a morning talk show host known as “Sebastian” on The Rock 106.9 (WCCC-FM). He's also a handicapper at Sebastiansports.com – meaning people go to him for betting advice.
In 2010, he and about a dozen others were arrested on illegal gambling charges for betting through a bookmaker named Paul Graziano.
“I guess local bookies get customers through referrals and who do you know,” Sebastian said. “Somebody that had bought my sports picks at one time – I guess was making bets with him – asked me if I wanted to put bets in through him and I said sure.”
Sebastian said his punishment was accelerated rehabilitation and a small fine.
When you add up the total bets he made through the bookmaker, his handle -- the total amount of wagers in a given account -- was something like $300,000. But Sebastian doesn’t think he should have been arrested for it.
“I’ve been called by media people, friends, relatives -- everybody I know that’s ever placed a bet -- and they were just beyond words as to how they could arrest somebody for making a bet,” he said
Last May, the Supreme Court overturned a federal law that made sports betting illegal outside of Nevada, but left it up to the states as to what to do next. Since then, seven states including Rhode Island have legalized it. Most experts expect that to make a dent in the illegal market and Sebastian agrees.
“Any state that’s complaining that they’re in the red -- I still don’t know why they’re taking so much time to work this out because there’s a definite market for this,” he said. “It would take the place of tolls. It would take the place of other taxes.”
Bookies will still let some people bet on credit and not everyone wants to wait in line at a casino, so the illegal market likely won’t die off.
State police in Rhode Island, who run periodic wire taps to investigate criminal gambling, have said that since sports betting was legalized in that state, no arrests have been made related to illegal bookmaking. But police Lt. Cmdr. Joseph Philbin said a couple of things may be going on here.
“Special investigations unit will always keep an eye on subjects that are known to do this and frequent these establishments and commit these type of crimes,” Lt. Cmdr. Philbin said. “When it becomes legal, it’s a tougher sell to the people committing the resources and doing these big cases. We’re always going to do them – if they come our way -- and we’re going to keep an eye on people. But, legalizing it – I would imagine is going to put a dent into it.”
The American Gaming Association has lobbied for the legalization of sports betting on behalf of casinos like Twin River in Rhode Island. The AGA also has a sense of the size of the market. The association’s research indicates that about $6 billion was bet on the outcome of this year's Super Bowl. And 97 percent of those bets were made illegally.
Illegal Sports Betting Arrests 2020
Dave Forman, the AGA’s senior director of research, said that another part of the reason why states want to bring sports betting “out of the shadows” is so that customers don’t have to worry about being paid out on their winnings.
“The problem with that, especially the bookies and the online sites, is that there’s no consumer protection for these folks, no assurance that their bet is going to be paid by some of these shady operators,” Forman said.
As Connecticut’s legislature takes up bills related to sports betting, they are thinking about how to police the market, but they’re really driven by the money. State Rep. Joe Verrengia, (D-West Hartford), is helping determine best practice for sports betting, including what to tax would-be sports book operators. He said he recognizes both the opportunity and the difficulty of going up against a flourishing black market.
Sports Betting Legal Vs Illegal
“I think it’s important that you have a reasonable tax rate because the reality is we’re competing with the underground so it’s important that we don’t have these astronomical rates or astronomical fees,” Verrengia said.
The bills were recently discussed in a public hearing at Hartford’s Legislative Office Building.
“The illegal market exists -- estimates range but a number that people have seemed to migrate towards is a $150 billion underground industry,” said Chris Cipolla, an executive for the online daily fantasy sports giant Draftkings who showed up to testify at the hearing. “We view it as how do you move that money into the regulated space, and that goes back to making it convenient enough for people to move into the regulated space.”
Draftkings' answer to convenience is mobile: being able to place a bet not by traveling to a casino, but right on the device that’s always in your pocket. The company currently hosts a mobile platform in the legalized sports betting state of New Jersey. That’s something Cipolla and his colleagues want Connecticut lawmakers to get in on.
It’s an alternative to offshore gaming – where many people now go to bet online illegally. But with the promise of convenience in mobile betting, comes a problem -- the threat of addiction. That’s what we’ll explore in the next in our series on sports betting.