Federal Judge Recommends Kaplan's Tax Evasion, Obstruction Charges Be Dropped

Gary S. Kaplan, the jailed founder of BetonSports, notched his first victory in federal court Wednesday as a federal magistrate judge in St. Louis, Mo., recommended the U.S. government drop charges of tax evasion and obstruction.

The judge, Mary Ann Medler of Federal District Court, found that wagers placed by U.S.-based bettors, accepted by BetonSports entities in Antigua and Costa Rica, fall beyond the territorial reach of the U.S. wagering excise tax.

"Therefore," Judge Medler wrote in her recommendation, "there is no liability to impose on defendant Kaplan as owner and operator."

By way of background, federal prosecutors have sought to impose liability on Mr. Kaplan in his capacity as a U.S. citizen heading a foreign corporation.

But Judge Medler recommended that because no liability exists at the corporate level, "no amount of veil piercing" -- a judicial doctrine whereby liability is established -- "can establish liability [on Mr. Kaplan] for such a tax."

With regard to the obstruction charges, Judge Medler recommended that because wagers made with the company's Antiguan and Costa Rican entities were not subject to taxation, Mr. Kaplan had not "corruptly interfered" with the administration of U.S. revenue laws.

Prosecutors have 11 days to file objections to Judge Medler's recommendation, after which District Judge Carol E. Jackson will decide whether to dismiss the charges.

While Judge Jackson could find differently than Judge Medler, the prospect is unlikely.

"You're very seldom going to find the system would be so divided against itself," Martin Owens, a Sacramento, Calif.-based gaming attorney, told Interactive Gaming News. "Ninety-nine times out of 100 you can count on the magistrate's recommendations."

Mr. Kaplan was detained in the Dominican Republic in March 2007, and is awaiting trial in St. Louis.

He still faces charges of racketeering, mail fraud, use of a communications facility to transmit betting information and transportation of gambling paraphernalia across state lines.

No trial date has been set.

Click here to view Report and Recommendation of United States Magistrate Judge Concerning Gary Kaplan's Motion to Dismiss Counts 14-22.

Click here to view Report and Recommendation of United States Magistrate Judge Concerning Gary Kaplan's Motion to Dismiss Tax Counts for Lack of Venue.