Jay Cohen of World Sports Exchange was charged by the U.S. government with violating 18 U.S.C. 1084(b), which prohibits interstate usage of wire communication for wagering. IGN has received a copy of the pre-trial motion filed on his behalf.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA
-against-
JAY COHEN,
Defendant.
Indictment No.
98 CR 434 (TPG)
MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT
JAY COHEN'S PRE-TRIAL MOTIONS
Brafman Gilbert & Ross, P.C.
Attorneys for Defendant
JAY COHEN
767 Third Avenue, 26th Floor
New York, New York 10017
(212) 750-7800
Of Counsel:
Benjamin Brafman, Esq.
Melissa M. Beck, Esq.
Table of Contents
Preliminary Statement
Statement of Facts
POINT I -
THE INDICTMENT MUST BE DISMISSED BECAUSE THE DEFENDANT'S ACTS FALL
SQUARELY WITHIN THE STATUTORY EXCEPTION TO PROSECUTION UNDER 18 U.S.C.
§ 1084(b). THUS THE INDICTMENT FAILS TO ALLEGE A CRIME FOR WHICH
THE DEFENDANT COULD BE CONVICTED AS A MATTER OF LAW.
A. The Defendant's Conduct Falls Squarely Within the Statutory Exception
to Prosecution Under 18 U.S.C. § 1084(b) Because it is Legal to Place
a bet in New York and Legal to Receive a bet in Antigua
B. Even Assuming, Arguendo, That 18 U.S.C. § 1084(b) is
not Applicable to Placing Bets, the Defendant's
Conduct Remains Squarely Within the Statutory Exception to Prosecution
Under 18 U.S.C. 18 U.S.C. 1084(b) Because Information Assisting in the
Placement of Bets was Transmitted From one Legal Jurisdiction to Another
POINT II -
THE INDICTMENT MUST BE DISMISSED BECAUSE THE UNITED STATES LACKS JURISDICTION
OVER THE DEFENDANT'S ACTS WHICH OCCURRED WITHIN THE SOVEREIGN NATION OF
ANTIGUA
POINT III-
THE INDICTMENT MUST BE DISMISSED BECAUSE THE DEFENDANT'S ACTS DO NOT
VIOLATE 18 U.S.C. § 1084(a) AS A MATTER OF LAW
A. The Indictment Must be Dismissed Because the Defendant Lacked the
Requisite Mens Rea to Violate 18 U.S.C. § 1084(a)
i. The Defendant Purposefully Established his Business in Antigua, Where
the Antiguan Government has Taken Affirmative Steps to Regulate, License
and Legalize On-Line Gambling
ii. The Defendant's Open and Legitimate Business Operation Belies a
Finding of Criminal Intent
iii. The Defendant's Use of the Internet Makes it Impossible for him
to Know that the Alleged Bets Were Being Placed in Interstate of Foreign
Commerce
B. The Indictment Must be Dismissed Because the Defendant's Acts are
not Within the Intended Purview of 1084(a)
POINT IV -
THE INDICTMENT MUST BE DISMISSED AS A MATTER OF LAW BECAUSE THE INTERNET
IS NOT A "WIRE COMMUNICATION FACILITY" WITHIN THE MEANING OF 18 U.S.C.
§ 1084(a)
POINT V -
THE INDICTMENT MUST BE DISMISSED BECAUSE THE PROSECUTION OF THE DEFENDANT
THEREUNDER WOULD VIOLATE HIS DUE PROCESS RIGHTS
A. The Internet Gambling Prohibition Act of 1997 Demonstrates That the
Defendant had no Notice That His Acts Were Illegal
B. The National Gambling Impact Study Commission Established in 1996
to Determine the Jurisdictional Issues Presented by the Regulation of On-Line
Gambling Demonstrates That the Defendant had no Notice That his Acts Were
Illegal
C. The Involvement of the United States Government in Assisting Antigua
to Establish Their Licensing Procedure for On-Line Gambling Web-sites Demonstrates
That the Defendant had no Notice That his Acts Were Illegal
D. The Existence of State Operated On-Line Gambling Web-sites Demonstrates
that the Defendant had no Notice That his Acts Were Illegal
CONCLUSION
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA,
-against-
JAY COHEN,
Defendant.
Indictment No. 98 CR 294 (TPG)
MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT JAY COHEN'S PRE-TRIAL MOTIONS
PRELIMINARY STATEMENT
This Memorandum of Law is respectfully submitted in support of defendant
Jay Cohen's pre-trial motions, as more fully detailed in the accompanying
Notice of Motion and Supporting Affidavit of Benjamin Brafman, Esq.
STATEMENT OF FACTS
The defendant was indicted, in a seven count indictment, charging him
with one count of conspiring to use wire communication facilities to transmit
bets and wagers, or information assisting in the placement of bets and
wagers, in interstate or foreign commerce (18 U.S.C. §§ 371/1084).
The six remaining counts of the indictment charge the defendant with using
wire communication facilities to transmit bets and wagers, or information
assisting in the placement of bets and wagers, in interstate or foreign
commerce on six separate occasions.
The facts underlying the indictment are set forth in the accompanying
affidavit at paragraphs 8 though 12. In addition, the facts underlying
the indictment are referenced within this memorandum of law where needed
to illuminate the legal arguments presented therein.
POINT I
THE INDICTMENT MUST BE DISMISSED BECAUSE THE DEFENDANT'S ACTS FALL
SQUARELY WITHIN THE STATUTORY EXCEPTION TO PROSECUTION UNDER 18 U.S.C.
§ 1084(b). THUS, THE INDICTMENT FAILS TO ALLEGE A CRIME FOR
WHICH THE DEFENDANT COULD BE CONVICTED AS A MATTER OF LAW.
It is respectfully submitted that the indictment must be dismissed because
the facts alleged therein do not constitute a criminal offense. Accordingly,
the indictment is facially defective. Specifically, all counts relate
to conduct that falls squarely within the statutory exception to prosecution
under 18 U.S.C. § 1084(b), and thus no crime has been committed under
the cited statute. Because the indictment fails to specify a crime,
each count would permit a jury to convict the defendant for conduct that
is not criminal, and, thus, the indictment must be dismissed as a matter
of law. See United States v. Sampson, 371 U.S. 75, 78 (1962) (on
a motion to dismiss, an indictment must be tested by its sufficiency to
charge an offense).
Each of the seven counts of the indictment charge that the defendant
accepted bets on sporting events over either the Internet or telephone
lines, allegedly in violation of 18 U.S.C. § 1084, commonly
known as the Wire Act. Subsection (a) of section 1084 delineates
the acts prohibited by the Wire Act, it provides:
(a) Whoever being engaged in the business of betting or wagering
knowingly uses a wire communication facility for the transmission in interstate
or foreign commerce of bets or wagers or information assisting in the placing
of bets or wagers on any sporting event or contest, or for the transmission
of a wire communication which entitles the recipient to receive money or
credit as a result of bets or wagers, or for information assisting in the
placing of bets or wagers, shall be fined under this title or imprisoned
not more than two years, or both.
There are three essential elements of the Wire Act that the government
must prove beyond a reasonable doubt: (1) the defendant must be in the
business of betting or wagering; (2) the defendant must knowingly use a
wire communication facility; and (3) the defendant must transmit bets or
wagers using wire communication facilities. Subsection (b)
of the Wire Act excepts from prosecution however "transmissions" that assist
"in the placing of bets" between two states, or a state and a foreign country,
so long as both jurisdictions permit such betting. Specifically,
subsection (b) provides, Nothing in this section shall be construed to
prevent the transmission in interstate or foreign commerce . . . of information
assisting in the placing of bets or wagers on a sporting event or contest
from a State or foreign country where betting on that sporting event or
contest is legal into a State or foreign country in which such betting
is legal.
The legislative history of subsection (b) makes clear that its purpose
is to exempt from prosecution "the transmission of gambling information
from a State where the placing of bets and wagers on a sporting event is
legal, to a State where betting on that particular event is legal." H.R.
REP. 987, 87th Cong., 1st Ses. 2631, annexed hereto as Exhibit B; Telephone
News System, Inc. v. Illinois Bell Telephone Company, 220 F.Supp. 621,
627 (N.D. Ill. 1963) (1084[b] specifically exempts transmissions sent from
a state where betting is legal to another state where betting is legal).
The exception to 18 U.S.C. § 1084 contained in subsection (b) is applicable
to this case for two alternative reasons: (1) that placing bets in New
York, and betting in Antigua, are completely legal acts Telephone News
System, Inc.; and (2) that even assuming arguendo that 1084(b) does not
cover the actual placement of bets McDonough, Blair, the undercover agents
in this case were merely transmitting gambling information to the defendant's
Internet web-site in Antigua.
A. The Defendant's Conduct Falls Squarely Within the Statutory Exception
to Prosecution Under 18 U.S.C. § 1084(b) Because it is Legal to Place
a bet in New York and Legal to Receive a bet in Antigua.
The indictment alleges that on six separate occasions, undercover agents
and/or private investigators located in New York "placed" bets or requested
information regarding the placement of bets with the defendant or his company,
the World Sports Exchange (hereinafter "WSE"), located in the sovereign
nation of Antigua. See Exhibit A. Under New York State Penal
Law Article 225, which governs New York State gambling laws, neither the
act of placing a bet, nor the act of requesting information regarding the
placement of bets, are illegal. See N.Y. Penal Law Article 225; see
also People v. Giordano, 87 N.Y.2d 441 (1995) (considering the scope of
Article 225). Instead, Article 225 prohibits accepting bets
or profiting from unlawful gambling activities in New York State.
In Antigua, it is lawful to receive bets. Under these circumstances,
this case involves acts occurring in two jurisdictions where the conduct
occurred in each jurisdiction is completely legal, thus making the exception
delineated in subsection (b) entirely applicable to this case. Accordingly,
the indictment is defective for failing to state a crime.
B. Even Assuming Arguendo That 18 U.S.C. § 1084(b) is not Applicable
to Placing Bets, the Defendant's Conduct Remains Squarely Within the Statutory
Exception to Prosecution Under 18 U.S.C. § 1084(b) Because Information
Assisting in the Placement of Bets was Transmitted From one Legal Jurisdiction
to Another.
Even assuming arguendo that subsection (b) is inapplicable to the placement
of bets or wagers, but instead only covers the transmission of information
assisting in the placement of bets or wagers, subsection (b) remains entirely
applicable to defendant's case. To be sure, the structure of WSE
is such that the information transmitted by the agents in New York only
assisted in the placement of bets. The bet itself was ultimately
"placed" within the jurisdiction of Antigua. This is because when
an individual entered the WSE web-site, he or she opened an account and
was assigned a pass-word for future use. WSE then required the client
to wire money to WSE in Antigua, prior to placing a bet. Once the
money had been received by WSE the client was able to place an actual bet.
The bet was placed by "clicking" on icons on the WSE web-site, which is
located, maintained, and operated in Antigua. See State of
Missouri v. Coeur D'Alene Tribe, et. al., 1997 WL 603834 (W.D.Mo. 1997)
(an Internet lottery web-site operated by an Indian tribe is located on
tribal lands where the web-site is maintained and operated). Accordingly,
the government agents in New York were merely sending information that
assisted in the placement of a bet, and that when it came time to actually
place the bet, the entire transaction took place in Antigua. Under
these circumstances, the exception in subsection (b) is clearly applicable
to the defendant's case, and the indictment therefore fails to allege a
crime. The indictment must be dismissed as a matter of law.
POINT II
THE INDICTMENT MUST BE DISMISSED BECAUSE THE UNITED STATES LACKS JURISDICTION
OVER THE DEFENDANT'S ACTS WHICH OCCURRED WITHIN THE SOVEREIGN NATION OF
ANTIGUA
As early as 1804 courts have permitted the United States "to secure
itself . . . from injury from beyond the limits of its territory." Church
v. Hubbard, 6 U.S. 187, 234 (1804). Congress has the authority to
attach extraterritorial jurisdiction to its penal enactments and to pass
legislation that regulates extraterritorial conduct. Theoretically,
the United States may exercise jurisdiction in the event that an offense
occurred partially in the United States or was intended to affect the United
States. In determining whether federal law applies beyond the territory
of the United States, courts must look at the express language of the relevant
statute and ascertain whether it was intended to encompass acts committed
outside of the United States.
As the United States Supreme Court has observed, the exercise of extraterritorial
jurisdiction "depends on the purpose of Congress as evinced by the description
and nature of the crime and upon the territorial limitations upon the power
and jurisdiction of a government to punish crime under the law of nations."
United States v. Bowman, 260 U.S. 94, 97-98, 43 S.Ct. 39, 41 (1922).
Before a court can extend extraterritorial jurisdiction over a an extraterritorial
matter, even with regard to the enforcement of United States criminal laws,
it must assess the "reasonableness" of such an application. United
States v. Noriega, 746 F.Supp 1507, 1515 (S.D. Fla 1980). Moreover,
according to the Restatement of Foreign Relations Law of the United States,
Third, "reasonableness" is determined by balancing principles of sovereignty
and commerce against that of the need to apply the law. Courts have
traditionally abstained from hearing those cases which call into question
the wisdom or validity of a foreign sovereign's laws or protection.
Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 428-32 (1964); Shapleigh
v. Mier, 299 U.S. 468 (1937); Oetjen v. Central Leather Co., 246 U.S. 297
(1918).
In this case, the sovereign nation of Antigua has clearly determined
that online and telephone gambling is legal. The legalization of
such activity in Antigua was based on Antigua's reasonable and rational
desire to boost its economy and create jobs. It would thus be wholly
unreasonable for the United States to prosecute individuals acting within
the scope of Antigua's laws. This is particularly true in this case
where Antigua specifically passed the laws legalizing gambling businesses
such as the defendant's, in order to improve its economy.
Moreover, as the district court observed in the ACLU case, "the
Internet deserves the broadest possible protection from government-imposed,
content-based regulation." There is thus a strong policy argument
that the United States government is not the appropriate body to legislate
-- either through Congress or the Judiciary -- what the content of the
Internet should be. Clearly, the regulation of the Internet would
be better left to an international tribunal so that interests of global
diversity will be met. Even the Department of Justice embraces the
notion of international regulation of the Internet. Thus, as Deputy
Assistant Attorney General Kevin Di Gregory told the House of Representatives,
"[t]he United States needs to be very sensitive to issues of international
law and comity in the Internet context." Statement of Kevin V. Di
Gregory, Deputy Assistant Attorney General, Criminal Division, Before the
Subcommittee on Crime, Committee on the Judiciary, U.S. House of Representatives,
June 24, 1998, at p. 7, annexed hereto as Exhibit C.
The prosecution of the defendant in this case ignores the truly international
nature of the Internet. Currently, "[t]he Internet is an international
system..[and] [n]o single entity -- academic, corporate, governmental,
or non-profit -- administers the Internet," ACLU v. Reno, 929 F. Supp.
at 832, and "it would not be technically feasible for a single entity to
control all of the information conveyed on the Internet." Id at 832.
Despite this truism, the United States has indicted the defendant for acts
he allegedly committed on the Internet. The United States is not
the appropriate body to regulate the Internet, particularly in this case,
where the defendant was operating solely, and legally, within the sovereign
nation of Antigua.
Under these circumstances, the United States lacks jurisdiction over
the defendant's acts and the indictment must be dismissed.
POINT III
THE INDICTMENT MUST BE DISMISSED BECAUSE THE DEFENDANT'S ACTS DO NOT
VIOLATE 18 U.S.C. § 1084(a) AS A MATTER OF LAW
Rule 12(b) of the Federal Rules of Criminal Procedure provides that
"[a]ny defense or objection which is capable of determination without the
trial of the general issue may be raised before trial by motion."
In this case, the indictment must be dismissed on the ground that the
defendant's acts do not constitute a crime under 18 U.S.C. § 1084(a)
as a matter of law. Indeed, because the defendant purposefully
established the World Sports Exchange (hereinafter "WSE") in Antigua, where
Internet and telephone gambling is legal, licensed, and actually proactivly
encouraged by the Antiguan government, the requisite mens rea of "knowingly
and willfully conspiring" to commit the offense of illegal gambling through
interstate or foreign commerce against the United States, is absent.
Absent the necessary mens rea element of this crime, the indictment fails
to allege criminal activity in violation of 18 U.S.C. § 1084(a) and
must be dismissed. See United States v. Levin, 973 F.2d 463 (6th
Cir. 1992) (indictment properly dismissed where government was incapable
of proving beyond a reasonable doubt requisite intent required to convict
the defendant). Moreover, because the Internet is not a "wire
communication facility" within the meaning of the Wire Act, the defendant's
acts are outside of the Act's scope. Thus, the indictment must
be dismissed on the ground that the defendant's acts do not come within
the purview of behavior prohibited under 18 U.S.C. § 1084(a).
A. The Indictment Must be Dismissed as a Matter of law Because
the Defendant Lacked the Requisite Mens Rea to Violate 18 U.S.C. §
1084(a)
The mens rea of the Wire Act is that one knew, or should have reasonably
foreseen, that interstate or foreign communication would be used to transmit
gambling information or actual bets. United States v. Southard, 700
F.2d 1, 24 (1st Cir. 1983); United States v. Barone, 467 F.2d 247, 249
(2d Cir. 1972). The Second Circuit has construed this requirement
as necessitating proof beyond "mere geographical location" in order to
establish that a defendant had the requisite knowledge. Barone, at
249. In order to prove the defendant's guilt to conspire to do an
illegal act under 18 U.S.C. § 371, it is well-established that the
government must establish that the defendant knew that the intended act
was illegal. United States v. Vanwort, 887 F.2d 375, 386 (2d Cir.
1989) (whether defendant willfully participated in activities of conspiracy
with the knowledge of its illegal ends is determinative of whether defendant
may be convicted of said conspiracy); United States v. Alessi, 638 F.2d
466, 473 (2d Cir. 1980) (whether defendant participated in alleged conspiracy
with "a consciousness of its general nature and extent" is determinative
of whether defendant may be convicted of said conspiracy); United States
v. Gleason, 616 F.2d 2, 16 (2d Cir. 1979), cert. denied. 444 U.S. 1082
(1980) (whether defendant agreed to participate in a scheme which he knew
to be illegal is determinative of whether defendant may be convicted of
said conspiracy). Here, there is overwhelming evidence that the defendant
held the reasonable belief that his actions were entirely within the letter
of the law.
i. The Defendant Purposefully Established his Business in Antigua,
Where the Antiguan Government has Taken Affirmative Steps to Regulate,
License and Legalize On-Line and Telephone Gambling.
The defendant purposefully established his business in Antigua where
online and telephone gambling is not only legal, but fully licensed by
the Antiguan government. Indeed, the Antiguan government established
the Antigua Free Trade Zone to exercise authority over the gaming industry
within that country. Within the Free Trade Zone is the Gaming Commission,
whose purpose is to receive complaints from customers and investigate fraudulent
gambling operations in Antigua. Pursuant to the licensing of Internet
gambling businesses, the Antiguan government issues the "Standard Conditions
for the Licensing of Wagering" which sets forth, among other things, the
application process, documentation, software, regulatory questions and
fees regarding online gambling. See Standard Conditions for the Licensing
of Wagering, annexed hereto as Exhibit D. Moreover, there is a due
diligence procedure, that involves government screening. See Due Diligence
Procedure, annexed hereto as Exhibit E.
It was pursuant to these standards that WSE obtained its license and
its Certificate of Good Standing prior to beginning its business in Antigua.
See Certificate of Good Standing and License annexed hereto as Exhibit
F. This rigorous, multi-tiered, government sponsored and required
licensing procedure that the defendant underwent prior to operating WSE
demonstrates the reasonableness of his belief at the time he started his
business, that the operation was squarely within the letter of the law.
ii. The Defendant's Open and Legitimate Business Operation Belies
a Finding of Criminal Intent
The defendant's actions once WSE was up and running do not suggest that
he acted with criminal intent. Thus, the defendant placed advertisements
in Pro Football Weekly, provided insights and interviews regarding online
gambling to national newspapers and television programs, debated the Attorney
General of Wisconsin on CNBC, spoke at conferences, and even submitted
testimony before the Senate Judiciary Committee in July 1997, with regard
to regulating Internet gambling. See Testimony of Mr. Jay Cohen Before
the Senate Judiciary Committee, July 28, 1997, annexed hereto as Exhibit
G. These actions hardly suggest those the activity of one engaged
in an "organized gambling" operation, that the Wire Act was intended to
abolish.
Furthermore, the legality of the defendant's business was even given
credit within the gaming industry. For example, WSE used the services
of the Las Vegas Sports Consultants, which sell odds to casinos nationwide
and internationally. It is obviously imperative, and pursuant to
their own Nevada Gaming License, that Las Vegas Sports Consultants sell
odds only to licensed and legitimate casinos. Thus, the Las Vegas
Sports Consultants web-site explicitly sets out that they "provide odds
and pointspreads to legal sports bookmaking operations and sports lotteries
worldwide." See Las Vegas Sports Consultants Web Site (emphasis added),
annexed hereto as Exhibit H. Las Vegas Sports Consultants sold
odds to WSE. This further demonstrates that even within the
gaming industry the legality of the defendant's business was assumed.
iii. The Defendant's Use of the Internet Makes it Impossible for him
to Know That the Alleged Bets Were Being Placed in Interstate or Foreign
Commerce
Because he used the Internet, the defendant lacks the knowledge required
by section 1084 that the bets were being placed interstate, or for that
matter, from jurisdictions where such acts were illegal. Indeed,
at the time a bet is placed on the WSE web site, the defendant is incapable
of knowing where the bettor is located. The only location the defendant
ever learns of is that of where the money to establish the client's account
came from. Moreover, the fact that WSE is operating from Antigua,
does not prove that the defendant had knowledge of the interstate nature
of the call, for, in the words of the Second Circuit, "mere geographical
location" is insufficient to establish this element of the Wire Act.
B. The Indictment Must be Dismissed Because the Defendant's Acts are
not Within the Intended Purview of 18 U.S.C. § 1084
The legislative history of 18 U.S.C. § 1084 demonstrates that the
defendant's acts were not with the scope of the Wire Act.
Congress enacted the Wire Act in 1961 to suppress illegal "organized
gambling activity," to assist states in the enforcement of anti-gambling
measures, and to allow federal intervention in interstate gambling. See
Exhibit B at 2631; Martin v. United States, 389 F.2d 895, 898 (5th Cir.
1968). Aware of the importance of rapid "transmission of gambling
information," Congress passed the Wire Act as a means to combat organized
gambling by denying gamblers the availability of interstate wire communications
facilities. See Exhibit B at 2631. In providing
examples of the ills of using wire communication facilities, the legislative
history reveals that the telephone was the object of the legislation.
For example, the Statement asserts, "bookmakers are dependant upon telephone
service for the placing of bets and for layoff betting on all sporting
events." See Exhibit B at 2632, (emphasis added). Furthermore,
"section 1084(a) was not passed to protect bettors from their gambling
proclivities. Its stated purpose was to assist the states in enforcing
their own laws against gambling." United States v. Southard, 700
F.2d 1, 20 (1st Cir. 1983); United States v. McDonough, 835 F.2d 1103,
1104-1105 (5th Cir. 1988) (Section 1084 has two purposes, to assist states
in enforcing gambling laws and suppress organized gambling activity).
The prosecution of the defendant in this case for openly operating a
legitimate and licensed Internet gambling business would constitute a perversion
of the Congressional intent behind the Wire Act. Indeed, it stretches
credulity to define defendant's business as "organized gambling activity".
Moreover, to apply the Wire Act to the Internet, where clearly it was the
telephone that was the object of the Wire Act legislation, would be an
overbroad reading of the Act's scope. In addition, because New York
State has not made the placing of bets illegal, the prosecution of the
defendant would not assist New York in enforcing its gambling laws, but
instead run completely afoul of those laws.
Moreover, the exception in subsection (b) of the Wire Act is further
evidence that Congress did not intend to completely ban the transmission
of bets or wagers in interstate commerce. In fact, in U.S. v. Edge
Broadcasting Co., 509 U.S. 418 (1993), the Court determined that the government
has a substantial interest in supporting the policy of non-lottery States
and in not interfering with the policy of States that permit lotteries.
However, it is the nature of the Internet that web sites are available
for access in all states and foreign countries whether or not betting is
legal. Moreover, communication over the Internet can travel through
various routes prior to reaching its destination. The example provided
in the stipulated factual findings in the ACLU case bears this out, "[A]
message sent from a computer in Washington, D.C., to a computer in Palo
Alto, California, might first be sent to a computer in Philadelphia, and
then be forwarded to a computer in Pittsburgh, and then to Chicago, Denver,
and Salt Lake City, before finally reaching Palo Alto." ACLU v. Reno,
929 F.Supp. at 832. Since transmission over the Internet cannot be
prohibited from entering non-gambling States without also preventing the
legitimate transmission into States where such gambling is permitted, the
duality policy in subsection (b) would be impossible to maintain.
Therefore, the Internet presents a technology Congress surely did not consider
when adopting the interstate gambling statutes, and therefore prosecution
under the Act is improper at worst, and an application of an ambiguous
law at best.
Under these circumstances, the indictment fails to allege, as a matter
of law, acts for which the defendant could be convicted. Accordingly,
the indictment must be dismissed.
POINT IV
THE INDICTMENT MUST BE DISMISSED AS A MATTER OF LAW BECAUSE THE INTERNET
IS NOT A WIRE COMMUNICATION FACILITY WITHIN THE MEANING OF 18 U.S.C. §
1084(a).
A necessary element of section 1084(a) is that a defendant knowingly
use a "wire communication facility" to transmit bets or wagers. United
States Code Title 18, section 1081 defines a "wire communication facility"
as,
[A]ny and all instrumentalities, personnel, and services (among other
things, the receipt, forwarding, or delivery of communications) used or
useful in the transmission of writings, signs, pictures, and sounds of
all kinds by aid of wire, cable, or other like connection between the points
of origin and reception of such transmission.
Because the indictment alleges the use of the Internet, which is not
a "wire communication facility" within the meaning of section 1081, the
acts alleged in the indictment do not violate the Wire Act.
The Internet does not fall into any of the categories delineated
in section 1081 because it is not a "transmitter" of information.
Instead, the Internet is an unregulated world-wide network of computer
systems, connected by high-speed communications, facilitated by either
wire or satellite, which share a common protocol that enables the computers
to communicate with one another. The Internet's "web browsers" enables
users to easily navigate the Internet, and its graphical component, the
World Wide Web. These programs offer users the opportunity to view
pictures and hear sounds from around the world, and to move from one location
to another -- commonly called web-sites -- simply by highlighting and selecting
the destination they wish to visit. Notably, however, a web-site
cannot, on its own, communicate with those who are visiting it. It
is this characteristic of one-way communication that makes the Internet
unique, by providing links around the world, without necessarily "transmitting"
information.
Indeed, as the Supreme Court observed in ACLU v. Reno, 117 S.Ct. 2329
(1997) , the world wide web "consists of a vast number of documents stored
in different computers all over the world." (emphasis added) Id. at 2335.
The Court analogized the Internet as "comparable, from the readers' viewpoint,
to both a vast library including millions of readily available and indexed
publications and a sprawling mall offering goods and services . . .
[and] from a publishers' point of view, it constitutes a vast platform
from which to address and hear from a world-wide audience of millions
of readers, viewers, researchers, and buyers." Id. 2335. Thus, while
it is true that one may communicate with a web site by entering information
onto it or by using the "links" provided on the site, the web site itself
is not communicating with the person who has logged on. Instead,
the web site is a mere venue for pre-stored information, that is incapable
of communicating with the reader or user of that information.
Applying the qualities and characteristics of the Internet to this case,
it is revealed that when a bet is placed on the WSE web site a "transmittal"
of information has not taken place. Instead, a "virtual" visit has
been made to Antigua where the WSE web-site is operated and maintained,
see State of Missouri v. Coeur D'Alene Tribe, et. al., and all of the information
needed to place a bet is stored. United States v. Stonehouse, 452
F.2d 455 (7th Cir. 1971) presents an analogous situation. In Stonehouse
the defendant received, over a ticker tape machine, information which assisted
in the placing of bets on sporting events. The Seventh Circuit held
that because the defendant was using a ticker tape machine, he was merely
receiving information, rather than "transmitting" information within the
meaning of the Wire Act and thus, the defendant's conviction for violating
the Wire Act was reversed. In this case, the defendant's use of a
web-site presents a set of circumstances similar to those in Stonehouse,
because like the ticker tape machine, the WSE web-site is not transmitting
information but instead, is merely receiving it. Accordingly, the
defendant's acts are not criminal under 18 U.S.C. § 1084(a).
Moreover, while the Circuits are split on the interpretation of "transmit"
and whether it includes the sending or the receipt of a transmission, or
both, in the Second Circuit this issue has not been decided.
Persuasive on this issue, however, is United States v. Lamar, 240 U.S.
60 (1916), where the Supreme Court held that when a person uses a telephone
to commit a crime, the offense takes effect in the place where the hearer,
not the speaker, is located. This holding supports a finding that
for the purposes of 18 U.S.C. § 1084(a), the proper conclusion is
that transmission encompasses only the receipt of information.
Similarly, as a matter of statutory construction, the fact that subsection
(d) of section 1084 contains both the term "transmitting" and "receiving"
supports the conclusion that the use of the word "transmitting" in subsection
(a) is not inclusive of receiving. In this case, the information
regarding, and the actual placements of bets, were received in Antigua
where the defendant's acts are legal, and accordingly, the indictment fails
to specify a crime for which the defendant could be convicted.
Furthermore, the government's reliance on the bald assertion that the
defendant "used telephone wires" utterly fails to bring defendant's acts
within the purview of the Wire Act because the Internet may be accessed
in a variety of ways. Indeed, even the complaint underlying the indictment
concedes, "[t]he Internet is comprised of many smaller computer networks
that are connected to each other via telephone and other data lines" See
Complaint at 7, annexed hereto as Exhibit I. In fact, the Internet
may be accessed through methods that have nothing to do with telephone
wires; including cellular based wireless service and low-earth-orbit satellites.
See PETER WAYNER, Plugging In to the Internet: Many Paths, Many Speeds,
N.Y. TIMES, July 2, 1998, at G2, annexed hereto as Exhibit J.
These other methods of Internet access clearly remove the Internet from
the statutory definition of a wire communication facility.
Under these circumstances, where the Internet is not a "wire
communication facility within the meaning of the Wire Act, the defendant's
alleged acts do not constitute a crime and the indictment must be dismissed.
POINT V
THE INDICTMENT MUST BE DISMISSED BECAUSE THE PROSECUTION OF THE DEFENDANT
UNDER THE FACTS OF THIS CASE WOULD VIOLATE HIS DUE PROCESS RIGHTS
The United States Constitution forbids the federal government from depriving
any person of life, liberty, or property without due process of law.
U.S. CONST. amend. V. Part of this due process guarantee is
that a statute be declared void when its application is so vague or unclear
that "men of common intelligence must necessarily guess at its meaning
and differ as to its application." Connally v. General Constr. Co.,
269 U.S. 385, 391 (1926). This concept of fundamental fairness
is particularly important in criminal cases where the need for fair warning
is particularly acute because the potential for the loss of one's liberty
is at stake. Accordingly, the Supreme Court has commanded that the
judicial branch exercise restraint in determining the scope of a federal
criminal statute. United States v. Aguilar, 115 S.Ct. 2357, 2362
(1995); Dowling v. United States, 473 U.S. 207, 213 (1985). The purpose
for such restraint is two pronged; one, to give deference to the prerogatives
of Congress and two, to provide "fair warning" to "the world in language
that the common world will understand." Id. (quoting Dowling; McBoyle
v. United States, 283 U.S. 25, 27 [1931]).
Moreover, any ambiguity in the reach of a penal statute must be construed
in favor of the accused. United States v. Dowling, 473 U.S. at 213-214
("The rule that penal laws are to be construed strictly . . . [i]s founded
on the tenderness of the law for the rights of individuals; and on the
plain principle that the power of punishment is vested in the legislative,
not in the judicial department" [citations omitted]); United States v.
Bass, 404 U.S. 336, 347-48 (1981) (the principle of strict construction
is based upon the need for the legislature to provide "fair warning" to
individuals); United States v. Campos-Serrano, 404 U.S. 293, 299 (1971)
("The principle of strict construction of criminal statutes demands that
some determinate limits be established based upon the actual words of the
statute."); United States v. Margiotta, 688 F.2d 108, 120 (2d Cir. 1982),
cert. denied, 461 U.S. 913 (1983). For example, in a case construing
an earlier version of the federal statute regulating gambling activities,
the court in United States v. Whelpley, 125 F. 616 (WD Vir. 1903)
considered whether the language "from one state to another" included the
transportation of lottery tickets into the District of Colombia.
In that instance, the court stated that any substantial doubt should be
resolved against the government. Similarly, any doubt existing with
regard to the application of the Wire Act to the defendant in this case
must be resolved in his favor.
Furthermore, it is axiomatic that in our system of jurisprudence, no
person shall be held criminally responsible for conduct which could not
reasonably be understood to be proscribed. See United States v. Harriss,
347 U.S. 612, 617 (1954); United States v. Chestman, 947 F.2d 551, 564
(2d Cir. 1991). In assessing the reach of a criminal statute,
a court must "pay close heed to language, legislative history, and purpose
in order strictly to determine the scope of the conduct the enactment forbids."
Dowling v. United States, 473 U.S. at 213; see United States v. Rooney,
986 F.2d 31, 33 (2d Cir. 1993).
Applying these principles to the facts of this case, where neither the
plain language of 18 U.S.C. 1084, nor its legislative history, see supra
Point III, support a conclusion that the defendant's actions are within
the purview of the Act, this Court should apply the rule of lenity, and
conclude that the Act is not applicable to his case. See United States
v. RLC, 503 U.S. 291, 303-304 (1992) (rule of lenity applies to situations
where a "reasonable doubt persists about a statute's intended scope even
after resort to 'the language and structure, legislative history, and motivating
policies' of the statute.'") (citations omitted).
In this case, the defendant had no notice, nor any reason to believe,
that his acts were illegal. In fact, the only notice that the defendant
did have was that operating an Internet gambling site was squarely within
the letter of the law. Indeed, at the time the defendant committed
the acts alleged in the indictment: (1) the Internet Gambling Prohibition
Act -- amending 18 U.S.C. § 1084(a) to expressly prohibit Internet
gambling -- was pending in the United States Congress; (2) the National
Gambling Impact Study Commission National Commission was in the midst of
studying the legal issues presented by the Internet; (3) the United States
had assisted in setting up the licensing process in Antigua where the defendant's
business is located; and (4) there existed numerous state-run on-line gambling
web sites. Moreover, neither the plain language nor the legislative
history of 18 U.S.C. § 1084 gave the defendant notice that his acts
were illegal. Under these circumstances, where the defendant did
not have fair notice that his acts were prohibited at the time he did them,
the indictment violates his due process rights under the Federal Constitution.
Accordingly, the indictment must be dismissed.
A. The Internet Gambling Prohibition Act of 1997 Demonstrates
That the Defendant had no Notice That his Acts Were Illegal
The Internet Gambling Prohibition Act (hereinafter, "IGPA") would have
prohibited gambling over the Internet by amending 18 U.S.C. §§
1081 and 1084 to create criminal penalties for those engaged in the business
of betting and wagering, as well as individuals who engage in betting and
wagering over the Internet. See Internet Gambling Prohibition Act,
S. 474, 105th Cong. (1997), annexed hereto as Exhibit K. The IGPA
would impose fines and possible prison sentences on operators of on-line
gambling as well as private gamblers. Additionally, the law would
give local authorities the right to seek injunctions against Internet service
providers who fail to block access to the gambling sites once they have
been notified and have failed to block access. Ultimately, the bill
would penalize online gambling more harshly than off-line gambling.
Thus, the Act would subject amateur bettors to federal liability for gambling,
whereas the existing Wire Act, by contrast, applies only to people "engaged
in the business of betting or wagering." The bill would also eliminate
any ambiguity concerning terms and application of the statute as well as
extend liability to on-line gamblers and access providers. The existence
of this Act demonstrates that there is an implicit understanding in the
legislative branch of the United States government that the Wire Act does
not cover the Internet.
Indeed, when Senator Jon Kyl, the Bill's sponsor, introduced the IGPA
on the Senate floor, he stated that the IGPA was necessary because "[i]t
dispels any ambiguity by making clear that all betting [on line], including
sports betting, is illegal." See Internet Gambling Prohibition Act,
comments of Senator John Kyl, (emphasis added) annexed hereto as Exhibit
L. In addition, Senator Kyl observed that the IGPA would "mak[e]
explicit the intent of Congress to create extraterritorial jurisdiction
regarding Internet gambling activities." Id. A similar
admission regarding the ambiguity of the applicability of existing laws
to the Internet was articulated by Congressman Bob Goodlatte when he introduced
the IGPA in the House of Representatives. Congressman Goodlatte stated
"[w]ith the development of the Internet, however, prohibitions and regulations
governing gambling have been turned on their head." See Introduction
of the Internet Gambling Prohibition Act of 1997 -- Hon. Bob Goodlatte,
annexed hereto as Exhibit M. These comments make clear
that the United States government does not believe that the Internet is
governed by the existing Wire Act.
Moreover, it was not just members of the legislative branch that were
articulating the need for the IGPA to close a gap in the existing Wire
Act. Indeed, the Department of Justice was also aware that the Internet
was not within its scope. Thus, Kevin V. Di Gregory, the Deputy
Assistant Attorney General of the Criminal Division of the Department of
Justice, told the House Judiciary Committee that, "the Department generally
supports the idea of amending the federal gambling statues by clarifying
that the Wire Communications Act applies to interactive casino betting
and that the Act covers all Internet use, even if the Internet transmissions
use modern technology -- such as satellite communications -- that may not
be included in the traditional definition of "wire communication".
See Exhibit C, at 4.
The clearest statement by the legislative branch that the IGPA was necessary
to cure the ambiguity regarding the applicability of 18 U.S.C. § 1084
to the Internet was made just weeks ago when, on July 23, 1998, the United
States Senate voted 90-10 to attach the IGPA to a Commerce, State and Justice
Appropriations Bill, which is a "must-pass" federal spending bill.
See Senate Endorses Kyl Bill Prohibiting Internet Gambling With 90-10 Vote,
Press Release, Office of Senator Jon Kyl (R-Arizona) at www.senate.gov/~kyl/mainpres.htm,
annexed hereto as Exhibit N. The fact that the IGPA was attached
to this "must-pass" bill lends further support to the conclusion that the
government does not believe that the Internet, or the defendant's alleged
acts, are properly within the scope of the existing Wire Act.
Moreover, the defendant in this case was well aware that, at the time his
alleged acts took place, that the Act was pending in Washington.
Indeed, the defendant submitted testimony regarding the IGPA to the Senate
Judiciary Committee. See Exhibit G. Accordingly, the existence
of the then pending IGPA provided the defendant with a good faith basis
to believe that the existing Wire Act did not proscribe his acts.
Moreover, the fact that the IGPA has had such support in Washington and
the Department of Justice, lends further support to the fact that people
"of ordinary intelligence must necessarily guess" at whether the
existing Wire Act is applicable to the Internet. Conally v. General
Construction, 269 U.S. at 391.
B. The National Gambling Impact Study Commission Established in 1996
to Determine the Jurisdictional Issues Presented by the Regulation of On-line
Gambling Demonstrates That the Defendant had no Notice That his Acts Were
Illegal
In further support of the argument that the defendant had no notice
that his acts were illegal is the existence of the National Gambling Impact
Study Commission. This Commission, created in 1996 at the request
of Senator Paul Simon and Congressman Frank Wolf, was to study the proliferation
of gaming in the United States, and more specifically, to determine whether
the Internet posed particular jurisdictional dilemmas for the United
States. See 18 U.S. C. § 1955 (Pocket Part Statutory Notes).
The Commission has not, to date, concluded its study. However,
the very fact that the legislative branch established the Commission lends
further support to the existence of ambiguity regarding the application
of the Wire Act to the Internet.
Indeed, Deputy Assistant Attorney General Di Gregory informed the House
of Representatives that the IGPA should not be passed until the Commission
concludes its study. See Exhibit C at 1-2. The fact that the
Commission -- established by the legislature where "the power of punishment
is vested" Dowling -- was working on the very question of whether
the United States had jurisdiction over Internet gambling at the time the
defendant's committed the alleged acts, demonstrates that his belief that
his acts were legal were entirely justifiable.
C. The Involvement of the United States Government in Assisting Antigua
to Establish Their Licensing Procedure for On-Line Gambling Web-Sites Demonstrates
That the Defendant had no Notice That his Acts Were Illegal
The United States government has already given an implicit "stamp of
approval" on Antigua's legalization of online gambling. Indeed, the
United States Advisor on Computer Fraud worked along-side those in Antigua
to regulate and establish licensing procedures for the Antiguan gaming
industry. These communications reveal that from an early date the
United States was not interested in challenging the licensing of gambling
operations in Antigua. In fact, the United States expressed an interest
in assisting Antigua in establishing a regulatory scheme. See Report
to Prime Minister Lester Bird on Meeting With Mr. Scott Charney and Mr.
Jonathan Winer, 21st and 22nd in Washington, D.C., annexed hereto as Exhibit
O. By providing assistance to the Antiguan government in establishing
their licensing procedure, the United States government verified the reasonableness
of the defendant's belief that his acts were legal at the time.
D. The Existence in the United States of State Operated On-Line Gambling
Web-Sites Demonstrates that the Defendant had no Notice That his Acts Were
Illegal
The existence of state operated on-line gambling web sites in the United
States is demonstrative of the fact that the defendant had no reason to
believe that his acts were illegal.
For example, in New York State, pursuant to the Racing Pari-Mutual Wagering
& Breeding Law § 1012 (McKinney Pocket Part), the New York State
legislature has legalized betting on horse races on the Internet and over
the telephone. Thus, OTB facilities for example are able to open
telephone accounts for persons residing in other states. When a patron
calls from out-of-state, he simply informs the OTB facility to place a
bet at the facility, using funds available from his account -- opened prior
to placing the bet. Because the facility must withdraw the funds
and then place the wager, the Legislature concluded that the information
provided by the telephone call was wagering information, as opposed to
the wager itself. The OTB web-site, facilitates this entire transaction.
See www.capitalotb.com; see also, www.ctotb.com (Connecticut OTB web-site);
www.philadeplhiapark.com (Pennsylvania OTB web-site). The procedure
followed by OTB is identical to the one used by WSE, giving the defendant
further reason to believe his acts were squarely within the letter of the
law.
Finally, in a case of first-impression, where the defendant had an entirely
reasonable belief that his acts were lawful, any existing doubt with regard
to the proper application of the Wire Act must be resolved in the defendant's
favor. Under these circumstances, it is crystal clear that the defendant
in this case lacked the requisite fair notice that the operation of his
on-line gambling web site was illegal. Accordingly, the prosecution
of the defendant under this indictment violates the defendant's Due Process
rights and must be dismissed.
CONCLUSION
WHEREFORE, for all of the reasons cited herein, this Court should
dismiss the indictment as it fails to state a crime for which the defendant
could be convicted because: (1) the defendant's acts fall squarely within
the exception to 18 U.S.C. § 1084(b); (2) the United States lacks
jurisdiction to prosecute the defendant; (3) the defendant's acts do not
violate 18 U.S.C. § 1084(a) as a matter of law; (4) the Internet is
not a "wire communication facility" within the meaning of 18 U.S.C. §§
1081 and 1084(a); (5) the defendant had no notice that his alleged acts
were illegal and therefore the prosecution of the defendant would violate
his Due Process rights under the Federal Constitution.
Finally, this Court should grant such other and further relief as this
Court deems just and proper.
Dated: New York, New York
August __, 1998
Respectfully submitted,
____________________
Benjamin Brafman, Esq.
Brafman Gilbert & Ross, P.C.
Attorneys for the Defendant
JAY COHEN
767 Third Avenue, 26th Floor
New York, New York 10017
(212) 750-7800
TO: Clerk
United States District Court
Southern District of New York
Joseph V. De Marco
Thomas S. Rubin
Assistant United States Attorneys