Letter to the Court - Feb. 22, 2000

MARK M. BAKER - OF COUNSEL
BENJAMIN BRAFMAN
CHARLES A. ROSS
JENNIFER A. LIANG

February 22, 2000

VIA HAND DELIVERY
The Honorable Thomas P. Griesa
Chief United States District Judge
Southern District of New York
500 Pearl Street
New York, New York 10007

Dear Chief Judge Griesa:

This letter is respectfully submitted in response to the Government's letter to this Court dated February 21, 2000. Specifically, this letter addresses what constitutes 'transmission' of a 'bet' within the meaning of Section 1084, as well as the legality In New York of placing a bet. In addition, this letter responds to the Government's request for a Pinkerton charge, which Mr. Cohen maintains is inappropriate given the facts of this case.

1. Offers to Bet and Wagering Instructions are not "Bets or Wagers" Per So

a. The Government's reliance on Ross Is inapposite

The Government relies upon Judge Wood's opinion In United States v. Ross,No. 98 CR 1174 (KMW), 1999 WL 782749 (S.D.N.Y. Sept. 16, 1999) to argue that, as a matter of law, transmission of instructions to wager a sum of money constitutes transmission of a "bet" for purposes of Section 1084. The Government's reliance on Ross is inapposite for a number of reasons.

First, the Government Ignores the procedural posture of Ross, which was decided upon the defendant's motion to dismiss. Accordingly, the question before the district court Was whether the indictment properly charged the transmission of "bets or wagers", and the court's holding is limited to the proposition that an indictment properly charges transmission of a bet or wager by alleging the act of accepting an offer to bet. The Government's attempt to convert a ruling on a motion to dismiss into a substantive instruction to the jury is entirely inappropriate.

Second, in Ross, the government argued that the issue of whether the defendant "transmitted bets" was a factual rather than a legal Issue, and that "this factual Issue could not be determined on a motion to dismiss." Id., at *3 (emphasis added). The Government cannot have it both ways.

Third, the Ross opinion, like the Government, rests its conclusion in significant part on Sagansky v. United States, 358 F.2d 195 (1st Cir. 1966), and United States v. Tomeo, 459 F.2d 445 (10th Cir. 1972), neither of which is factually consistent with the case before this Court and neither of which considered the specific question before this Court. Unlike the case here, Sagansky and Tomeo both involved the direct placement of bets with bookmakers via interstate telephone calls, without the initial establishment and funding of an account with an account wagering facility. In each case the defendant argued that the word "transmission" In Section 1084(a) encompassed only the sending and not the receiving of bets. Both courts held that the word "transmission" encompasses both the sending and receiving of bets. Neither decision, however, addressed the question of whether the transmission of an offer to bet or of wagering instructions by an account holder to an account wagering facility Is a transmission of a bet or wager per se.

Finally, Ross summarily rejects the defendant's distinction between his casino's method of prepaid betting and the activities of bookmakers who extend credit as a distinction based on "mere method of payment." Id. at *7. The court thus wholly failed to consider the well-established practice of account wagering, a practice which several states permit to take place via interstate or foreign wire communication facilities in connection with pari-mutuel betting on horse races. This practice is discussed in detail In Part I.c, below.

b. The principle that a bet occurs where accented has been recognized by numerous courts.

The Appellate Division in New York has expressly recognized that betting is conducted where the bet is received. Saratoga Harness Racing Inc., v. City of Saratoga Springs, 390 N.Y.S.2d 240 (N.Y. App. Div. 1976), was a tax case which turned on whether betting was "conducted" in the locations where telephone calls to the defendant off-track betting corporation ('OTB') originated or at the site where such calls were received. The court agreed with defendant OTB that betting is conducted only at the site at which OTB has established operating facilities to receive, record and pay out bets. The court stated:

The location of the bettor at the time he places his bet is immaterial in the same sense that no reasonable person would consider that the famous betting parlors of London (assuming they are permitted to take bets from non-Britishers) are conducting betting in any other country from which someone fight place a bet by telephone or cable.

Id.

The Fifth Circuit's decision in United States v. Truesdale, 152 F.3d 4443 (5th Cir. 1998) is consistent with this principle. In Truesdale the court reversed the conviction of the operator of a bookmaking business that accepted telephone wagers from Texas residents. The operation maintained information lines that were answered in Texas, but the lines for accepting wagers were answered only in Jamaica and the Dominican Republic. The court declared that "it is plain that the bookmaking activities occurred outside the United States," in countries where wagering on such sports events was legal. Id at 447.

As early as 1893, the Supreme Court of Virginia held that an individual could not be convicted of keeping a house for the purpose of "betting therein" where the individual leased a house in Virginia in which he merely accepted an offer to bet upon a horse race In New Jersey, took the bettor's money plus a small commission, and sent it by telegraph to the track in New Jersey. Lescallett v. Commonwealth, 17 S.E. 546, 648 (Va. 1893). According to the court, "the offer of the witness not having been accepted in the house of the accused, but at the track in New Jersey, th Ze betting was done, not here, but in New Jersey." Id. The court stated the general principle thus:

A bet is a wager between two or more persons. It involves a concurrence of wills, that is, there must be an offer to bet made on one side, and accepted on the other. When the offer is accepted, and not before, the betting becomes complete....If, therefore, an offer to bet is telegraphed by a person in this city to another in New York, and the latter accepts by telegraph, the betting is done, not in Richmond, but in New York, because the offer, being accepted there, takes effect there.

Id. at 547-48.

Likewise, the Supreme Court of New Hampshire recognized in 1904:

Had it appeared that parties in New York telegraphed proposals offering to bet upon horse races with persons in Nashua, who accepted the same by telegraph, the contracts would be completed at Nashua when the messages of acceptance, directed to the parties in New York, were delivered at the telegraph office.

McQuesten v. Steinmetz. 58 A. 876 (N.H. 1904); see also Burton v. United States, 204 U.S. 344 (1906) (reaffirming basic principle of contract law that a contract is formed at the time and place of acceptance).

These cases make clear that the notion that an offer to bet or wagering instructions constitutes mere information assisting in the placing of a bet or wager is not a novel concept devised for purposes of legitimating offshore gaming operations, but is well-grounded in the common law.

C. The notion that in offer to offer to bet or wagering instructions constitutes mere information assisting in the placing of a bet or wager Ii recognized and given effect in a number of states.

World Sports Exchange, like the business in Truesdale and OTB in Saratoga Harness Racing, requires the bettor to establish and fund an account at the site where the business accepts the bet. This is identical to the longstanding practice of account wagering in connection with off-track betting on horse racing.

Account wagering is the practice by which a customer of a licensed racing association or off-track betting corporation establishes an account with an account wagering facility and causes wagers to be made from that account by sending instructions to the facility operator. A number of states, including New York, ¹ Pennsylvania² and Oregon,³ permit the establishment and operation of wagering accounts for individuals located outside the state In which the facility Is located. These out-of-state account holders may lawfully instruct the facility via telephone or other electronic means to place a bet from their account.

The Oregon statute authorizing account wagering on horse racing is instructive. This statute defines "account wagering" as

a form of mutuel wagering in which an individual may deposit money In an account with a race meet licensee and then use the account balance to pay for mutuel wagering conducted by the licensee. An account wager may be made in person, by direct telephone call or by communication through other electronic media by the holder of the account to the race course.

Or. Rev. Stat. § 462.142(2). The Oregon Racing Commission, which is authorized to develop and adopt rules to license and regulate businesses that conduct pari-mutuel wagering on races, or "hubs," see Or. Rev. Stat. § 462.725; Or. Admin. R. 462-460000, has promulgated the rule that wagering accounts "can be established and operated for people whose principal residence is outside of the State of Oregon including residents of foreign jurisdictions' as long as such wagering Is lawful in the person's piece of residence and the hub complies with the provisions of the Interstate Horseracing Act, 15 U.S.C. §§ 3001-3007."⁴ The applicable rules further provide that:

(1) Any wager that is made from an account maintained by the hub operator Is considered to-have been made In the State of Oregon.

(2) Account holders may communicate instructions concerning account wagers to the hub in person, by mail, telephone, or electronic means.

Or. Admin. R. § 462-060-050 (emphasis added), attached as Exhibit C.

The coexistence of such lawful account wagering facilities with the Interstate Wire Act reflects the prevailing view that offers to bet or wagering Instructions from out-of-state account holders to account wagering facilities constitute merely "information assisting in the placing of bets or wagers,' and not bets or wagers per se, within the meaning of Section 1084.

II. Placing a Bet Is Legal in New York

Gambling offenses in New York are defined in Article 225 of the New York State Penal Law, which prohibits neither the acts of placing a bet nor the act of requesting information regarding the placement of bets. While the New York State Constitution provides, in pertinent part, that "no lottery or the sale of lottery tickets, pool-selling, bookmaking, or any other kind of gambling ... shall hereafter be authorized or allowed within this state," N.Y. Const. art. I, § 9, the legislature, which "shall pass appropriate laws to prevent offenses against any of the provisions of this section," id., chose to make criminal only promoting gambling by advancing or profiting from unlawful gambling activity, possession of gambling records, and possession of gambling device, N,Y. Penal Law §§ 225.05 - 225.30. The act of placing a bet is not a crime In New York.

The New York State Court of Appeals has recognized in no uncertain terms that "[t]he evil which the law chiefly condemns (N.Y. Const. art. I, § 9) and makes criminal (Penal Law, art. 88) is betting and gambling organized and carried on as a systematic business." Watts v. Malatesta, 262 N.Y. 80, 82 (1933). The Court of Appeals has also recognized:

'The statute against betting and gaming was enacted as a protection of the public morals. The intention of the legislature was to discourage and repress gambling in all its forms, and the law. . is to be construed so as to accomplish, so far as possible, the suppression of the mischief against which it was directed.' But casual betting or gaming by individuals as distinguished from betting or gambling as a business or profession, is not a crime. The distinction between the two species has long 'obtained in this state where ordinary betting has never been made a crime…while the keeping of a gambling house, selling lottery tickets and the profession of a common gambler have been subjected to severe punishment.'

Id. (citations omitted; emphasis added).

More recently, in determining the scope of Article 225 of the New York Penal Law, the Court of Appeals expressly stated that the act of placing a bet is not a crime in New York:

[I]n the statutory scheme [of Article 225] a mere 'player' or bettor is not criminally liable, but one who, in some capacity other than as a player, participates in any gambling enterprise or activity is guilty of a crime. The basic inquiry in each case is whether the game or scheme in issue constitutes gambling and whether defendant's conduct is other than as a player.

People v. Giordano, 640 N.Y.S.2d 432, 446 (1995).

In prior submissions to this Court, the Government has relied upon Section 5-401 of the General Obligations Law of New York for the proposition that placing a bet is illegal in New York. This reliance is inapposite. Article 5 of the General Obligations Law addresses civil enforcement of contractual obligations. Section 5-401 merely prohibits the enforcement of contracts based upon bets or wagers; it is not concerned with criminal liability of individuals for the act of placing a bet. In fact, it does not appear that any individual has ever been convicted under the General Obligations Law for placing a bet.

Efforts by the New York State Legislature to protect Now York consumers who wager with offshore Internet gambling companies make clear that the act of placing a bet not illegal in New York. Senate Bills No. S4186, S4714 and Assembly Bills No. A8044, A7818 would require offshore Internet gambling companies to post bond and register with the State prior to doing business with its citizens. Senate Bill No. S4186 passed in the Senate. The existence of this proposed legislation to protect New York bettors against fraudulent or deceptive practices demonstrates that even the lawmakers of New York recognize that the act of placing a bet in New York is not unlawful.

III. A Pinkerton Charge Is Inappropriate in this Case.

Mr. Cohen objects to a Pinkerton charge on the facts of this case.

Where there is no direct proof that a defendant committed a substantive offense for which he is charged and where there is insufficient proof that he was a member of a conspiracy in furtherance of which the substantive offense was committed, it is error to give a Pinkerton charge as a means of obtaining a conviction on the substantive count. See United States v. Cantone, 426 F.2d 902, 904-05 (2d Cir.), cert. Denied, 400 U.S. 827 (1970) (defendant's convictions on both substantive and conspiracy counts were reversed due to an erroneously given Pinkerton charge). The Second Circuit again cautioned against giving a Pinkerton charge "as a matter of course" in United States v. Sperling, 506 F.2d 1323, 1341-42 (2d Cir, 1974), cert. Denied 420 U.S. 962 (1975).

In this case, as in Cantone, the Government has offered absolutely no proof that Mr. Cohen committed the substantive offenses for which he is charged -- there is no evidence that any of the communications identified in Counts Two through Eight involved Mr. Cohen. In addition, the Government has offered no evidence that Mr. Cohen was a member of a conspiracy in furtherance of which the substantive offenses were allegedly committed.

As conceded by the Government in its Requests for Charge, in order to show that a conspiracy existed, the evidence must show that two or more persons, came to an understanding to violate the law and to accomplish an unlawful plan. There is no evidence that Mr. Cohen or any of his alleged co-conspirators came to an agreement to knowingly use a wire communication facility for the transmission of bets or wagers in violation of U.S.C. § 1084. Rather, the evidence merely shows that a wire communication facility was used for the transmission of information assisting in the placing of bets or wagers on a sporting event or contest from a state in which betting on that sporting event or contest is legal into a foreign country in which such betting is legal. Furthermore, the evidence reflects that Mr. Cohen took specific measures to ensure WSE's compliance with United States law. Accordingly, there is no evidence of any conspiracy and, thus, a Pinkerton charge is inappropriate.

For the reasons discussed in this letter and previous submissions to this Court, Mr. Cohen respectfully urges the Court to decline to give the Government's requested instruction on "Transmission of a 'Bet'" and to instruct the jury as requested in Mr. Cohen's requests to charge. To instruct the jury as the Government suggests would be the equivalent of directing that they must convict Mr. Cohen. Based on the truly unique distinguished Court should not become part of the Government's effort to deprive Mr. Cohen of his trial by jury on all questions of fact.

Respectfully,

Benjamin Brafman

cc: Joseph V. DeMarco, AUSA
Teresa A. Pesce, AUA
Jay Cohen

FOOTNOTES:

¹ See N.Y. Rac. Pari-Mut. Wag. & Breed. Law § 1012; www.nyra.com/saratoga/phone.html, attached as Exhibit A.

² See 4 Pa. Cons. Stat. § 325.218; 58 Pa. Code §169.3. www.philadelphiapartk.com/phonebet, attached as Exhibit B.

³See Or. Rey. Stat. § 462.142; Or. Admin. R. § 462-060-010(2), attached as Exhibit C.

⁴ The interstate Horseracing Act ("Act") provides that an off-track betting system may accept an "interstate off-track wager," or a legal wager placed or accepted in one State Wth respect to the outcome of a horserace taking place in another state" as long as consent is obtained from the host racing aviation, the host racing commission, and the off-track racing commission, 15 U.S.C. §§ 3002. 3004. The Act does not address the specific activity of account wagering from account holders located outside the state where the account is located.