DOJ Seizes $3.25 Million from Discovery

2 June 2004

The U.S. government further demonstrated its opposition to Internet gambling on April 6, when U.S. marshals seized $3.25 million from Discovery Communications, the company whose television network, The Travel Channel, broadcasts World Poker Tour.

Tropical Paradise of Costa Rica paid the money to Discovery in October 2003 to advertise its online poker site, But three weeks later, amid the U.S. Justice Department's well publicized warnings to I-gaming advertisers, Discovery told Tropical Paradise that it would stop airing the commercials and would refund the money for un-aired commercials.

By April 20, 2004, Tropical Paradise still had not received its refund and filed a lawsuit against Discovery for breaching its contract. Discovery does not contest that the money is entitled to Tropical Paradise, but stated that it is unable to refund it because it was confiscated by U.S. marshals.

The contract between Tropical Paradise and Discovery, dated Oct. 5, 2003, states that Tropical Paradise would pay $3.5 million to Discovery, which would then broadcast 308 30-second commercials for over the course of six months. A later agreement, dated Oct. 14, entailed Tropical Paradise paying $350,00 to have some of its advertisements appear on Discovery's Web sites. Some of the commercials aired before Discovery pulled the ads on Oct. 25. At the time, Tropical Paradise should have had a net balance of about $3.25 million for the un-aired commercials.

But by April, Discovery had still not returned the money, prompting Tropical Paradise to take legal action.

Discovery has not indicated why it has stalled so long in returning the money, and at the time of this posting, representatives for the network were not available for comment. An unnamed source close to the situation told IGN that Discovery probably knew all along that the government intended to seize the funds and was holding the money until the Department of Justice could obtain a warrant.

Tropical Paradise, it seems, took action just a little too late. By the time the group filed a lawsuit, the money had already been in the possession of the Department of Justice for over two weeks.

Prior to the confiscation of the funds, the government's assault on Internet gambling had consisted of warnings that online gambling is an illegal activity and that those who provide services (especially advertising) to gambling companies could be guilty of aiding and abetting. The Justice Department also attempted to gain information about the industry by issuing subpoenas to portals and broadcasters.

This first seizure of assets could represent another phase in the government's plan to suffocate the online gambling industry. The implications suggest that any American company that has received money from any offshore gaming operation could have those funds confiscated in a similar fashion.

Lawrence Walters, a legal expert who has written and spoken frequently about the "chilling effect" used by the government to scare advertisers away from the industry, called the seizure "a strategy of intimidating anybody who is in the chain of commerce."

For now, it is still not clear how the Justice Department is justifying its action, and its representatives are still declining comment. Legal experts, however, are adamant that such methods are unprecedented and perhaps illegal.

Bradley Vallerius

Articles by Bradley P. Vallerius, JD manages For the Bettor Good, a comprehensive resource for information related to Internet gaming policy in the U.S. federal and state governments. For the Bettor Good provides official government documents, jurisdiction updates, policy analysis, and many other helpful research materials. Bradley has been researching and writing about the business and law of internet gaming since 2003. His work has covered all aspects of the industry, including technology, finance, advertising, taxation, poker, betting exchanges, and laws and regulations around the world.

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