Kentucky’s TwinSpires Goes From Internet Gambling Boycott to Ban

Governor Steve Beshear of Kentucky argues that online gambling is dangerous to children and consumers, so he is attempting to seize the domain names of 141 online casinos. Despite the muddied reasoning of his case, some in the federal government agree, and are pursuing the finalization of regulations implementing the UIGEA before the change of Presidencies.

The irony is that Beshear, whose ill-conceived court case has drawn calls across the Internet for boycotts of Kentucky industries in general and Churchill Downs and its online entity, TwinSpires, in specific, now faces a more complete move against online gambling than he desired. Beshear wanted to use protectionist policy to defend TwinSpires from competition, and excepted the site from his order.

But the feds have made no such distinction. Even though the UIGEA allows for horse race wagering online, banks have said part of their difficulty enforcing the payment ban is distinguishing legal from illegal online gambling. Thus, the regulations being reviewed give protection to banks who simply refuse all gambling payments, effectively including TwinSpires and other Internet racing sites.

Now Beshear finds himself in the unenviable position of defending TwinSpires as a legitimate, acceptable site for online gambling, while explaining how the sites facing his forfeiture order are any more dangerous to society than the home-grown Kentucky one.

As Beshear’s move was generated by money in the form of state taxes, the rumor is that undue pressure applied by a White House official acting to protect National Football League interests may be the cause of the sudden developments at Treasury. William Wichterman is currently a top aide in the White House, but as recently as March he was paid to lobby against online casinos for the NFL.

Beshear could escape the quandary of his position by dropping the pursuit of the order in Judge Thomas Wingate’s court and allying with the numerous Congressional Democrats supporting the legalization and regulation of online gambling. He would save face by using regulation as the reason for reversing his public position regarding protecting children and patrons. And TwinSpires would not be driven out of business.

Online-gaming case in jeopardy

A Maricopa County Superior Court judge on Thursday sent gambling-ring charges back to the grand jury because a county prosecutor failed to inform the jury of certain legal facts in getting the indictments.

Last Friday, Judge Roland Steinle also threw out all the misdemeanor counts in the case -mostly charges of benefiting from gambling – because the Maricopa County Attorney’s Office had failed to get indictments before the one-year statute of limitations ran out on those crimes.

More than 30 defendants faced 130 felony and 80 misdemeanor counts for placing and collecting on bets conducted through Costa Rican Web sites.

Steinle had already remanded charges against two defendants in September because the prosecutor failed to mention that the Costa Rican Web sites were possibly protected by international treaty and because of the prosecutor’s failure to answer questions about the legality of actions that took place in Costa Rica.

On Thursday, Steinle threw out charges against nine other defendants.

Twenty defendants remain charged with multiple felonies in the case.

Eugene Valentini was one of the first two defendants to have his case remanded because the prosecutor was unable to answer questions as to the legality of online gaming in Costa Rica, where the Web sites are located.

“The actions for which (my client) is accused are lawful and are controlled by an emerging body of federal, state and international law which should have been studied in detail before bringing this case before a grand jury,” said William Foreman, an attorney representing Valentini.

Foreman’s point was backed up by attorney Jean-Jacques Cabou, who represents defendant James Bennitt.

“In this case, by virtue of its treaty obligations, the United States has agreed to certain international conventions that seem to establish that this is lawful conduct,” Cabou said, referring to the Internet gambling.

Bennitt also claimed that the prosecutor had made false statements to the grand jury, painting Bennitt as a ringleader instead of a bettor; his case was remanded in September.

The County Attorney’s Office portrayed the remands and the dismissed counts as minor obstacles in the case.

“We can now take those cases back to the grand jury if we choose to do so,” said Barnett Lotstein, a spokesman for the office.

As for the dropped misdemeanors, Lotstein said, “We felt at the time we charged them that we had a viable argument because of the circumstances of the case.”

He was referring to the route it took from the Arizona Attorney General’s Office to the Pima County Attorney’s Office before arriving at the Maricopa County Attorney’s Office.The case made headlines in April 2007 when the Maricopa County Sheriff’s Office claimed it had broken up four loosely associated gambling rings. The defendants were allegedly operating gaming Web sites headquartered in Costa Rica, where online gaming is legal. At question is whether payments and bets on sporting events were made and paid face-to-face in Maricopa Countyor if the transactions took place electronically.

Sheriff’s detectives claimed to have infiltrated the rings and the courts authorized wiretaps to track the gambling.

In April 2007, sheriff’s deputies served search warrants in Phoenix, Los Angeles and Las Vegas, and arrested more than 30 men and women.

Deputies arrested some of the defendants at their homes, and as permitted under racketeering laws, they seized cash and cars and property. In at least one case, a defendant says that deputies took the wedding ring off his wife’s finger, even though the warrants said that they were not to take items of sentimental value.

Arizona Attorney General Terry Goddard stepped off the case because he was being investigated by the county attorney’s and sheriff’s offices over his handling of a criminal case against former state Treasurer David Petersen. To avoid the appearance of a conflict of interest, Goddard sent the case to the Pima County Attorney’s Office.

At stake were an estimated $30 million to $35 million in cash and property seized from the defendants under racketeering statutes.

David Henderschott, chief deputy for the Maricopa County Sheriff’s Office, allegedly told Pima County prosecutors that he would not cooperate with their handling of the case, so the Sheriff’s Office sent its attorney, Dennis Wilenchik, to bring the case – and the money – back to Maricopa County.Wilenchik did just that. It is now being prosecuted by the Maricopa County Attorney’s Office.

In February, the Maricopa County Sheriff’s Office was fined by a Pima County court for failing to turn over public records in the case to a Tucson newspaper in a timely manner.

Indictments in the case were obtained on March 8.

The 33 defendants were charged with 250 crimes, including racketeering, illegal use of wire or electronic communication, promotion of gambling, benefiting from gambling, money laundering, betting and wagering, and extortion.

Neither the Attorney General’s Office nor the Sheriff’s Office would comment.

Looking deeper into iMEGA’s Kentucky appeal

The first volley in what is anticipated to be a number of appellate challenges to the ruling in the Kentucky domain name case has been lobbed by the Interactive Media Entertainment and Gaming Association (iMEGA), the trade association representing many of the affected domain name registrants.

Last week iMEGA’s attorneys filed a 55-page writ seeking to overturn the ruling by Kentucky Circuit Court Judge Thomas Wingate granting forfeiture of 141 domain names to the Commonwealth of Kentucky, as well as his earlier seizure order which gave Kentucky control of the domain names. iMEGA is also seeking dismissal of the case its entirety.

“Gambling devices,” legal standing at issue

In its writ, iMEGA identifies a number of procedural and legal errors by Judge Wingate, beginning with the claim that the judge wrongfully found jurisdiction against the domain names despite the fact that they are not tangible and have no presence in Kentucky.

The writ also claims Judge Wingate erred by misapplying the Kentucky statue that pertains to the seizure of “gambling devices” which, iMEGA argues, refers only to physical items located in the state and not to intangible domain names.

The relevant Kentucky statute is unambiguous in its definition of a gambling device as being either a slot machine or: “Any other machine or any mechanical or other device, including but not limited to roulette wheels, gambling tables and similar devices, designed and manufactured primarily for use in connection with gambling and which when operated may deliver, as the result of the application of an element of chance, any money or property, or by the operation of which a person may become entitled to receive, as the result of the application.”

iMEGA argues that Judge Wingate exceeded his authority by expanding the definition to include domain names, in effect rewriting the statute.

The issue of Judge Wingate’s denial of iMEGA’s legal standing to represent any of the domain name registrants is also raised in the writ. iMEGA represents registrants, or “users,” of the domain names that are issued by a registrar, such as GoDaddy or Network Solutions.

iMEGA had appeared at the forfeiture motion on behalf of its member registrants, but the court ruled – contrary to the law, according to iMEGA – that it lacked legal standing to appear in court on their behalf.

Beyond additional jurisdictional arguments that were raised, the writ also invokes a number of constitutional issues. It argues that the Kentucky action results in prior restraint of commercial speech in violation of the First Amendment by taking away the domain names which are used to advertise the Web sites.

Further, the authors of the writ argue that Kentucky’s seizure of the domain names violates the Commerce Clause by interfering with interstate commerce, a protectionist move to benefit Kentucky’s gambling industry at the expense of the rest of the world.

The writ takes special objection to the manner in which the Commonwealth first obtained the seizure order, which iMEGA asserts was a violation of their members’ First Amendment and due process rights. The hearing was “ex parte,” meaning the defendants had no notice or opportunity to participate.

Only the Commonwealth presented evidence to the judge, and the entire court file including the seizure order itself was sealed until five days after the order was handed down. Thus, iMEGA argues, the members’ domain names were seized without any opportunity for them to defend themselves in court.

Attorneys for iMEGA indicated that they filed the writ now rather than waiting until after the Dec. 3 forfeiture hearing because of the “irreparable harm” which would be suffered by their members if the Commonwealth took control of the domain names and immediately moved to close them.

The respondents to the writ have 10 days to file a written response to iMEGA’s petition. When their response is filed, or when the 10 days has elapsed, the matter will be submitted to the three-judge appellate panel for its review.

If the appeals panel rules against iMEGA, their next step is to appeal to the Kentucky Supreme Court. Based on their allegation of “irreparable harm,” it is expected that iMEGA would then request a stay of the forfeiture hearing pending that appeal.

Next step

As of now, the judge has ordered the defendant domain names to prove to the court that they have geo-blocked their sites from Kentucky residents, or turn their names over to the Commonwealth. So far only one company, MicroGaming, has complied with the court’s order and geo-blocked Kentucky residents from accessing the online poker rooms that are part of its poker network.

Judge Wingate had originally set Nov. 17 as the date for the forfeiture hearing, but has moved the hearing to Dec. 3. This delay is a result of a request for a Motion for Stay made last week by another online gambling association, the Internet Gaming Council (IGC). Judge Wingate ended the hearing on IGC’s motion by stating he would “take the request under advisement.”

It is unclear what will happen on Dec. 3 if the foreign registrars simply refuse to come to court and hand over the domain name Web sites. One domain name registrant, Golden Palace, has submitted an affidavit asserting that it does not belong on the list of “unlawful gambling sites,” but the judge has indicated that a separate hearing on that issue will have to be scheduled.

There are dozens of other registrars located outside of the United States and without their cooperation it is unclear how Kentucky will actually take possession of their domain names.

Call for boycott

There has been a growing movement for an organized protest against the actions of the Commonwealth of Kentucky and, specifically, its governor, Steve Beshear, who spearheaded the domain name seizure action. Last week, Online Casino Advisory’s Senior Gaming Analyst Sherman Bradley called for a boycott of all gambling in the state of Kentucky.

The boycott was picked up by a number of Web sites, including domainnamewire.com which listed “ten ways to pressure Kentucky to drop its assault on the internet,” including boycotting Kentucky’s own online gambling Web site, TwinSpires.com, and its big sports/gambling event the Kentucky Derby. The site also suggests writing to Beshear’s office.

There is also a Web site devoted solely to the boycott, aptly named BoycottKentucky.com. As stated on the site, “BoycottKentucky.com was created to educate the public about the over-reaching and unconstitutional actions of Kentucky Governor Steve Beshear and to harness the economic, political and social pressure necessary to force a reversal of his actions”.

The site has a number of suggestions for ways to have an impact on various businesses operating in Kentucky who might then put pressure on the governor to drop the lawsuit. There is also a petition on the site for supporters of online gambling to sign and forward to the governor’s office.

In addition to the petition, BoycottKentucky.com is also organizing a call-in campaign for this Friday, Oct. 31, asking those opposed to Kentucky’s actions to flood Governor Beshear’s office with phone calls opposing Kentucky’s unprecedented and outrageous attack on the Internet.

Advise Your Online Gambling Clients to Block Kentucky?

Noted online gambling attorney I. Nelson Rose was recently quoted in Poker News Daily as saying he would want his clients to block access to the state of Kentucky.

A Franklin County Circuit Court judge ruled that 141 online gambling domain names are to be forfeited over to the commonwealth if they fail to block access to Kentucky citizens.

But are we talking about China or Kentucky here?

“I can’t decide if Nelson Rose is an idiot, a coward, or both,” commented an industry analyst who wished not to be named.

Rose: I would advise my clients to block Kentucky residents. There is no real downside to doing that. Kentucky isn’t a major market. The Judge made it clear if companies didn’t block Kentucky residents, then their name will be forfeited. You don’t want to become the test case. All you’re giving up is the little market of Kentucky. If a bunch of other states start copying, then you have to fight it, but for now, you have to leave the market even though Kentucky might be in the wrong.

“So, let’s get this straight: even though what Kentucky did was wrong, Rose recommends just going along with what Kentucky demands (blocking gaming traffic in and out of their state). But if more states do it, then you fight it?

“Great logic. Why fight one expensive, principled battle against an over-reaching government when you can fight multiple expensive, principled battles against over-reaching governments?

“Thank goodness most of the domain owners do not seem inclined to take that kind of legal advice.”

Site Advocating Boycott Adds Petition for Online Casinos Defense

Dr. Jeffrey Reynolds’ site, BoycottKentucky.com, has added a page allowing interested individuals to sign a petition asking Governor Beshear to stop in his efforts to force forfeiture of the domain names of 141 online casinos. The website, which Reynolds began in protest of the unconstitutional action without proper jurisdiction by the governor and a Kentucky court, lists ways to boycott aspects of Kentucky’s economy.

The petition states, “We, the undersigned, urge you to immediately cease and desist your efforts to undermine Internet commerce and civil liberties in your state and beyond. Your wanton seizure of 141 gaming-related domain names is capricious and has become a source of embarassment worldwide for the Commonwealth of Kentucky.

“As Kentucky endures the fiscal crisis sweeping the entire nation, we are apalled that taxpayers must foot the bill for your misguided crusade and we urge you to publicly disclose the total costs to date associated with your investigation and prosecution of this case. Please let us know that you will withdraw this case and re-focus your attention on governing responsibly and the multiple challenges facing Kentucky.”

Reynolds states the petition wil be delivered to the governor and to the presiding judge, Thomas Wingate, before the next hearing in the ongoing case.

Reynolds joined the call to boycott first suggested by Online Casino Advisory gambling analyst Sherman Bradley as news of the idea swept through the online gambling industry and expanded to sites dedicated to promoting Internet business and protecting Internet freedom from censorship.