WSEX founder speaks at World Internet Gaming Conference

#1
Hello, it's great to be here at the World Internet Gaming Conference. There seems to be a lot of people here for a topic that the US Attorney's office in the Southern District of NY has declared illegal.

I am the founder and former president of World Sports Exchange, one of the earliest and most successful internet gambling sites in the world. WSEX was offering true point and click account wagering while others thought that
having static odds pages that were updated daily was a big deal. Today I will speak to you about the origins and status of my case, the hypocrisy of the US's position, the status of the industry and a few ideas I have for the
future.

Many people think that the origins of my case were in Las Vegas, or Washington DC, or as a result of the Sports Illustrated cover story that portrayed World sports Exchange so well, or my big mouth. It was none of
those.

In May of 1997 shortly after my partner and I were featured in the Wall St Journal in a very positive light I received a letter from D and P, a manhattan law firm representing the 4 major sports leagues. They threatened
me with a civil RICO lawsuit if I didn't meet their demands which included removing their team names from our site, taking down links to their official web sites and ceasing business with US residents. I sent my lawyers to meet
with them and they settled the suit with us or so we thought. We met all of their demands short of ceasing business with US residents. After all they were just a private law firm representing private companies in the US. WSEX was a totally foreign corporation that did all of it's business offshore.

What we failed to realize was that Debevoise and Plimpton was the de facto midtown office of the US Attorney for the Southern District of NY. After we thought we had reached an agreement they turned us in to the Southern District office for prosecution. But this was much more than just a
concerned citizen reporting an alleged crime. They took an active role in building the case against us. They sent 100's of exhibits showing what WSEX and other offshore companies were doing. In my own indictment, one of the
overt acts is based on a call made by a private investigator working for D and P, not an FBI agent. D and P sent several letters to the prosecutors office explaining the case and their exhibits. What was most interesting was how chummy all of these letters were. Instead of Dear Mr.. Rubin, letters were addressed Dear Tom.

After a little investigation it all became clear to me. You see there is an extremely close, I want to say incestuous relationship but one of my lawyers asked me not to, so I'll stick with extremely close relationship between the
Southern District office and D and P. Tom Rubin, the assistant US Attorney who brought this case worked at D and P from 1990 to 1994. Lorin Reisner, the D and P point person on this case worked in the Southern District office
as a asst US attorney from 1990-1994. I found out that D and P allows their attorneys to go work for the Southern District for a few years, come back and still receive credit towards seniority for the time spent with the
government. So now it all made sense, I was being prosecuted by D and P at the request of the 4 major sports leagues. All of the correspondence between Debevoise and the Southern District was also cc'ed to the sports leagues. It was through their close relationship with the Southern District that the previously widely quoted position of the DoJ in Washington was thrown out the window. Prior to my prosecution, John Russell, the spokesperson for the criminal division of the justice department had stated
that "international offshore wagering is out if their jurisdiction." I guess he should have cleared it with Debevoise and Plimpton. In my own trial when cross examined about why she hadn't subpoenaed and reviewed the records of WSEX, FBI case agent Lisa Ferrence acknowledged that Antigua was "out of the FBI's jurisdiction. "

Anyway, that's how it all started.

So after pre-trial motions that were ignored we eventually got to a trial. The one thing that is clear to anyone who attended the trial or has read the transcript is the judge concluded a conviction was in order. I am not speculating why but he did. Almost every time my lawyer made a great point he would say something to weaken it, and every prosecution blunder was propped up by some assistance from the judge. Right from the beginning.
right after opening statements. In all trials the prosecution speaks then the defense speaks and the judge then says "government call your first witness." Not here. My lawyer, Ben Brafman, was so powerful in his opening
statement that the judge saw fit to make a 20 minute soliloquy which amounted to a partial jury charge to take away our thunder. We all sat there in shock. Similarly at the end of the trial when it came time to charge the jury, the judge was rather tilted towards the prosecution. When
we objected in the absence of the jury the judge told us, "The reason I had to give such a stern charge was to undo the damage you did during your summation." He told them among other things that my testimony was
irrelevant. In spite of that the jury came back and asked for a read back of my testimony, they only got to hear an edited version. What happened in my trial was obvious. The judge hijacked the case from the jury. His jury
instructions were tantamount to a directed verdict. He all but said get in there and find him guilty. My analysis of the jury instructions was affirmed when a juror came up to me on the street after the trial and said, "We wanted to acquit you but we felt the judge gave us no choice."

Well for the better that phase is behind us. Only the abominable trial record lives on. Today, three years after I returned to fight the charges we have filed our final Reply brief for the appeal and we await a date for oral argument in the 2nd Circuit Court of Appeals. We turned in a stunning appellate brief, this was countered by a government response filled with lies, innuendos, and changes in theories of prosecution. Many of our legal
arguments were plainly ignored while others were met with weak arguments barely on point. In our final Reply Brief we dismantled what little arguments they made and exposed their disingenuousness. I highly recommend
anyone interested in this subject read all three documents. I also invite and encourage any law professors out there to offer these documents to their students for analysis, let them decide who makes better legal arguments, who backs up their position with case law on point. I am confident of they will side with us.

I have no regrets for coming back and standing up for my position. I never thought what I was doing was illegal and to this day I don't believe that those who engage in it are doing anything illegal. I will fight this all of the way. In the words of MLK, "I would rather die in abject poverty with my
convictions than live a life of inordinate riches without my self-respect."

I told my lawyer early on, I don't care if they kick it down to littering, you will not hear the words guilty roll off of my tongue. And I mean mean it.

I suspect many people here would be in favor of "limited government and increased personal freedom." "Limited government and increased personal freedom." Sounds good to me, anybody know who said it? Jon Kyl, yes, the
junior senator from Arizona Jon Kyl. A few years he put it out in a press release that he was vice-chairman of the Senate Executive committee, "a group of conservative senators committed to limited government and increased personal freedom." I guess that statement only applies if you agree with his narrow views on morality. Kyl is a walking sound byte machine with only a few tracks. He has his "Crack cocaine of the internet" line and his "Mom goes out and Johnny loses all of the family's money with
her credit card, click the mouse bet the house" line. Bottom line is if gambling is so dangerous, start with the lotteries, many more youths have a problem with scratchers than internet gambling. And to Mom, besides the fact that if Johnny is stealing your credit card you have a much bigger problem on your hands, the first place Johnny is going with it is not a gambling site. He will either go to a porn site or he will go buy some CD's
or electronics from Amazon.com. Is Kyl looking to outlaw Amazon.com for the same reason? Of course not `and here's why. It is a ridiculous argument. Even if Johnny did use Mom's card all Mom has to say is unauthorized
transaction and that is the end of it.

A few years ago a two year congressional commission was appointed to study the impact of gaming in America. There were two types of people on this board, those with Vegas interests and those with religious right affiliations. It is no surprise then the one thing they all agreed on was that internet gambling has to be stopped despite no evidence to show that it is a problem. The deck was stacked from the outset. They even spent $1 million dollars for a study by the NORC out of the University of Chicago. This academic institution concluded that the economic costs of gaming were minimal and paled in comparison to drinking, smoking, and auto accidents. The annual cost to society for drug abuse is $110 billion, alcohol abuse is $166 billion, auto accidents $71 billion. Anyone care to guess where the cost of problem and pathological gambling came in? $5 Billion. Of course, those on the commission who didn't like the results said that the results were wrong and more money needed to be spent. They filed their final
report to Congress, I don't know whatever became of it.

It is funny how the government can accept the "evils" of gambling when they get a piece of the action. The lottery offers the worst odds in gaming. Some lotteries hold as much as 50% while sports betting only holds 5%. Most
lotteries use deceptive advertising that would be prohibited by the FTC if they were used in the private sector. In CA, the idea that it goes to education is a farce. Yes, it does technically, but it has allowed the legislature to allocate less money to education out of the general funds. It's just an accounting game. In the federal court house I was convicted in you could buy lottery tickets at the newsstand in the building. You had to pass the sign for it everyday as you walked towards the elevators, lotto to
the right.

It is also amusing that despite how much the government cares about the well being of the public when it comes to gambling that they still allow alcohol to be served in casinos let alone for free. That says it all, distort the
players judgment and let them play all they want, offer credit, let people get in over their heads. All of that is OK if the US is getting a piece of the action. Licensed offshore operations don't offer credit and they don't serve drinks.

So where is the industry today?

There are hundreds if not thousands of companies involved in offshore internet gaming. Most of them are not regulated at all. The only real regulation out there is offered by Antigua, Australia, England, Curacao, the
Isle of Mann, and Gibraltar. The only thing my prosecution accomplished was it forced many of WSEX's competitors to shuffle their ownership papers. Now, almost no one uses their real names. This has allowed the scam artists
to blend in with the legitimate operators. When they are pressed why they can't give out their names and background they cite the hostile legal environment. Since even legitimate companies are doing this the scam artists get away with it. It is also interesting to note that the US has no interest in pursuing scam operations. prior to my prosecution if you called the D o J and said I have been ripped off by an offshore sports book they would have told you it is out of their jurisdiction. Even when they prosecuted me in March of 1998 they were well aware of places that had stiffed players, many operations that had US divisions. But they would fall on their own. The government was never interested in protecting the
consumer, just at stopping the industry.

Costa Rica is the wild west of sports books and casinos. There is no regulation there. Many of them advertise that they are licensed but that license is not a gaming license, just a general business license. This is why year after year, the scam outfits seem to flock to CR. While these type
of places are almost defunct thanks to the internet, watchdog sites, and the speed at which the word gets out, they always seem to be operating from CR. Watchdog sites do a great job of spreading the word quickly.
Unfortunately, more people need to do their due diligence before opening accounts. With minimal research a player can rapidly determine who is reputable and who isn't.

The biggest problem facing the offshore sports book industry is operators operating off of the customer float. They believe they really don't need their own capital, that they can just pay their bills with the customer money because in the end it will be theirs. There are several disasters out there waiting to happen, some already did this year. This concept of operating off of the float leads me to the second biggest problem facing the industry, the bonus game.

Some books have this idea that all they have to do is get the money there and they will eventually win it. It is simply not true. When pressed they say, "well after our great service the customers will stay with us." Again,
simply not true. Very few books distinguish themselves in terms of service, software, or products. Those that do don't need to rely on bonuses for fresh accounts. The ones that do rely on bonuses are generally drawing in people who are just there for the bonus. Now if that's the case they will
always leave and take a new bonus elsewhere. So then they introduced the "re-up" bonus. And that proved my theory that bonuses don't get you permanent customers. And if you offer a "re-up" bonus you are constantly
paying for the same customer over and over again.

The irony about the bonus game is that usually the ones not offering them are the ones that could but don't need to while the ones that are offering the bonuses many times can't afford it. I personally think there are far too
many places operating off of the float and they think it is okay to do this. In many cases, this is what fuels their need for new customers at any price. But it will catch up with them.

Another threat to the industry in my opinion is the turn key software with remote servers. These software companies, some in cahoots with local jurisdictions allow people to get set up for a small fee, dump a server in a
remote location and disappear. Many of these operators are undercapitalized and lured in by the software companies promises of big returns.

So where do we go from here?

Governments need to learn that they can not dictate what happens on a server outside of their jurisdiction. It is impractical and not appropriate. Places like the US should start addressing legitimate solutions to their own
demagoguery instead of calling for prohibition.

Here are a few simple ideas:

1. Western Union Gold, WU used to be the most efficient method for a sports book to receive money. The customer had to go to a WU outlet pay cash and it was at the Sports book within minutes. After pressure from the Fl AG
that service was cut off to Sports books. Instead of that the government should embrace WU, it gives them records of all of the transactions plus I am calling on WU to offer a new service called "WU Gold." It costs an extra $3 or something and it requires the agent to verify that the sender is 18 years old. With a simple solution like that you have eliminated over 99% of your worries about minors.

2. Why don't credit cards require PIN numbers like ATM cards? IF a person using a credit card online for any purpose was required to enter a PIN number then all of the problems with Johnny stealing the credit card would
go away for gambling or other activities. This would also lower the amount of fraud perpetrated by online scam artists. Or in the alternative, eliminate them entirely until such a system can be implemented.

3. Implement reasonable money laundering standards at all of the licensed offshore casinos. There should be local boards that know what they are looking for, not just a blanket rule that turns over everything to some other government but people who actually can differentiate between money laundering and big players.

4. Cooperation with the sports leagues- They claim to be so worried about the integrity pf their games. Wouldn't they rather work with the offshores and be notified of suspicious activity or submit a prohibited player list?
Or so they just want to fight forever?

(Ban Horse racing ads from NTRA, Alcohol ads)

5. Watchdog sites- There are several out there today. They need to distinguish themselves from Promoters. They need to reach more people.

6. Interactive wagering/Futures markets

7. At Bat/Per play wagering
 
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