A 45-minute hearing Wednesday in St. Louis set the groundwork for capping former BetonSports Chief Executive David Carruthers' three-year battle versus the United States Department of Justice.
Mr. Carruthers pleaded guilty before Judge Carol E. Jackson to Count 1 of the September 2008 indictment (the third superseding indictment) in the United States' case against key persons involved in the BetonSports operation.
The charge, a violation of Title 18 S. 1962 of the United States Code, alleges a RICO conspiracy encompassing numerous additional counts, including 10 Wire Act violations and the interstate transportation of gambling paraphernalia.
In the plea agreement, the government agrees to dismiss the counts 2-5 and 17-19, pertaining to mail fraud, non-RICO conspiracy and RICO forfeiture and will file a motion with the sentencing court to depart downward from the sentencing guidelines, which call for a sentence of up to 20 years in prison and a fine of up to $250,000.
Instead, the parties have agreed that Mr. Carruthers is to receive no more than 33 months in jail. He may advocate for a sentence of less than 33 months, and the government may oppose such a request. His time spent under house arrest during pretrial motions and negotiations does not count as time served.
Judge Jackson has accepted the guilty plea, but has not formally accepted the terms of the agreement. If she rejects the terms, Mr. Carruthers may withdraw his guilty plea. He waives his right to appeal the sentence if the terms are accepted.
Sentencing is set for Oct. 2, 2009 at 10 a.m., Central Daylight Time, although it could be pushed back, depending on the progress of the trial of BetonSports founder Gary S. Kaplan, which is scheduled for Sept. 21.
Mr. Carruthers has agreed to testify if asked to do so and will not be sentenced before he testifies. Therefore, if he testifies and his testimony is not complete by October 2, his sentencing will be postponed. The court has allotted 12 weeks for the Kaplan trial.
In his statement to the court, Mr. Carruthers acknowledged his role as chief executive of the online betting business BetonSports. He told the court that he joined the company in 2000 to oversee corporate strategies during the company's preparation for a float on the London Stock Exchange, and that his role evolved to include oversight of the company's day-to-day operations.
When asked by Judge Jackson whether he knew that running a United States-facing online betting operation was illegal, Mr. Carruthers replied that it was something he came to know over time.
He told the court that he did not believe at the time of his hiring that the company was breaking any United States laws, but that the legality of online gambling in the United States gradually became unclear and that he came to realize that what they were doing was illegal.
During a press conference following the hearing, United States Attorney Catherine L. Hanaway called the Carruthers plea a major step in the Justice Department's campaign against illegal Internet gambling.
"What people should take away from this--What gambling companies should take away from this--is that we are going to be persistent and aggressive in enforcing the laws of the United States," Ms. Hanaway explained.
"Gambling is not a victimless crime, especially when the Internet is used with its global reach," Toni Weirauch, special agent in charge of I.R.S. criminal investigation, said in a news release issued by Ms. Hanaway's office.
Ms. Hanaway identified the "victims" in this case as "those who had their money on deposit and did not have their money refunded" and that many BetonSports customers went unpaid because the company invested their deposits in expansion.
"BetonSports represented to bettors that money that they put on deposit with BetonSports could be withdrawn and was safe," Ms. Hanaway explained. "What they did not disclose to those bettors was that BetonSports used those deposits to support and expand its operations, including the purchase of Easybets" (an Asia-facing sports betting operation acquired by BetonSports in 2005).
Ms. Hanaway acknowledged later in the press conference, however, that it was the government's actions against Mr. Caruthers and the other defendants that ultimately destroyed the company.
When asked what the implications of the BetonSports prosecutions were for the online gambling industry, she replied, "[It has] a very chilling effect on the industry to have one of the largest companies -- one in which many investors have invested millions -- go essentially under."
Ms. Hanaway also acknowledged that she knew of no instances in which BetonSports had failed to pay customers prior to the 2006 indictments and subsequent collapse of the company.
According to Ms. Hanaway, the government estimates that American consumers lost a combined $16 million in deposits that were never refunded. She said the government does not have an accurate estimate on the number of consumers this involved but said it is definitely "in the thousands."
Ms. Hanaway added that the government is making efforts to seek restitution on behalf of those customers.
"We're doing everything we can to forfeit assets that could be used to repay (the customers)," she said. "Some of that is at the discretion of the attorney general of the United States once they're forfeited. But right now there are not assets available for the repayment."
In the most recent indictment, the government states that at least $180 million in BetonSports' assets is subject to forfeiture. Ms. Hanaway said that the government was unable to seize money from Mr. Carruthers because everything he had was in stock, and the company is worth nothing now.
Mr. Carruthers will remain under house arrest until his sentencing.