Busted for Betting Online

#161 © Copyright 2003, all rights reserved worldwide Gambling and the Law® is a registered trademark of Professor I Nelson Rose, Whittier Law School, Costa Mesa, CA

Jeffrey Trauman has made history. As best I can tell, he is the first, and only, person who has actually been charged and convicted of online gambling.

From the email Jeff sent me, I know that all he wanted was to be left alone.

(For the record: A gambler in another state wrote me that she was raided the same day, her computers and equipment seized and not returned, and her bank account frozen for months, but she has not been charged with a crime. And a former Florida State quarterback actually went to trial, with a hung jury and plea bargain, for making sports bets, some apparently with online books. The gambling charges were secondary to a felony stolen check charge. Of course, there is a big difference between a star quarterback betting on sports events and a car salesman.)

According to Jeff, he was charged with “placing a wager over $500,” a misdemeanor in North Dakota. Rather than fight it, he pleaded guilty, was fined $500 and given a one-year deferred sentence, and split to Kentucky.

Jeff was the top local Saturn salesman for six years. But he found he could make more money making sports bets on his home computer than he could ever hope to make selling cars. Assistant Cass County State’s Attorney Bud Myers is reported as saying that Jeff “went a little beyond” the $500 minimum. The police searched Jeff’s house in April 2003 and discovered $43,000 in cash in one desk drawer. He had another $300,000 in overseas accounts.

Jeff thinks his problems started because he was too honest. Since sports betting was his major source of income, he put “professional gambler” as his occupation on his federal tax return.

The State Gaming Division acknowledged that a tip from an outside source started their investigation. Jeff says he thinks it was the IRS. This is unlikely, because the IRS is bound by the “silver platter” doctrine, which prevent the IRS from turning over a gambler, and his required tax returns, on a silver platter to local law enforcement.

In 1952 Congress created a special tax, which acted like a trap for illegal gambling operators. Bookies who did not pay the tax were charged with tax evasion. Bookies who did, were charged with violating federal anti-gambling laws. The U.S. Supreme Court knocked that out as a violation of the Fifth Amendment’s protection against self-incrimination. So the Feds. starting turning illegal operators, and their tax returns, over to state law enforcement agencies as if they were on a silver platter. In 1968 the U.S. Supreme Court said this maneuver also was unconstitutional.

I think it is much more likely it was someone at his bank. In fact, under the Bank Secrecy Act, financial institutions must report large, suspicious cash transactions.

My guess is that the state thought he was a bookie. After arranging a raid, gaming agents would have been embarrassed if they could not charge his with something. So, they dug up illegal betting.

If he had wanted to spend the time and money, Jeff had a number of possible defenses.

The first is the crime itself. North Dakota does not have a specific law against Internet betting. In fact, the statute dates back to 1913, and may not even apply.

Jeff was charged with violating North Dakota Century Code 12.1-28-02, which makes it a misdemeanor to “Engage in gambling on private premises where the total amount wagered by an individual player exceeds $500 per individual hand, game, or event.” Is betting with a sports book in another country “gambling on private premises?”

Incidentally, it is only an infraction, like a traffic ticket, to bet more than $25. Keith Laurer, Director of the State Gaming Division, said that bets less than $25 are still illegal, although there is no criminal punishment. Illegal contracts are not enforceable, so a winner could not collect on a bum check for, say, $20 after a poker game.

Jeff’s cases raises problems of jurisdiction and sovereignty. Where did this gambling take place? Does North Dakota have the power to interfere with licensed overseas operators? There is also a strong presumption that a statute does not apply outside the state’s boundaries unless the legislature explicitly says so.

The real story here is the state’s hypocrisy. It is fair to say that North Dakota has more forms of gambling than Nevada: full-scale tribal casinos, charity blackjack, sports pools on professional sports events and calcuttas. Nevada does not have a state lottery; in 2002 North Dakota voters approved a state lottery with the right to join multi-state games, like PowerBall.

Does this mean regular players are in danger of being arrested? Half the states do have ancient laws on the book making it illegal to make a bet. But, probably 20 million Americans make technically forbidden wagers each year. With odds like that, you are more likely to be elected Governor of California than charged with illegal gambling.

Professor I Nelson Rose is recognized as one of the world’s leading authorities on gambling law. His website is www.GamblingAndTheLaw.com