United States v. Jay Cohen
2001 WL 863590, 2001 U.S. App. LEXIS 17000, 260 F.3d 68 (2001)
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Rule of Law:
Under the Federal Wire Act, 18 U.S.C. § 1084, an individual knowingly violates the law by using a wire communication facility for the transmission of bets to or from a U.S. state where such betting is 'unlawful,' regardless of whether it is criminally prosecuted. The statute's safe harbor provision (§ 1084(b)) does not apply when betting is illegal in one of the jurisdictions, and a defendant's good-faith belief about the legality of their conduct is not a defense.
Facts:
- Jay Cohen, an American citizen, moved to the Caribbean island of Antigua to establish an online sports betting business.
- Cohen became president of the World Sports Exchange (WSE), which was staffed by American citizens and focused its business on bookmaking for American sports events.
- WSE targeted customers in the United States through advertisements on radio, newspapers, and television, inviting them to place bets via a toll-free telephone number or the internet.
- To place a bet, a customer was required to open an account, wire a minimum of $300 to WSE in Antigua, and then contact WSE to request a specific wager.
- Upon receiving a bet request from a customer, WSE would issue an immediate, automatic acceptance and confirmation, maintaining the bet from the customer's pre-funded account.
- Over a fifteen-month period, WSE collected approximately $5.3 million wired from U.S. customers and received thousands of phone calls from customers in New York.
Procedural Posture:
- The FBI initiated an investigation into offshore bookmakers, during which agents in New York opened accounts and placed bets with World Sports Exchange (WSE).
- Jay Cohen was arrested and charged in an eight-count federal indictment with conspiracy and substantive offenses in violation of 18 U.S.C. § 1084 in the United States District Court.
- Following a ten-day jury trial, Cohen was convicted on all eight counts.
- The district court judge sentenced Cohen to a term of twenty-one months’ imprisonment.
- Cohen was released on bail pending the outcome of his appeal to the United States Court of Appeals.
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Issue:
Does the Federal Wire Act, 18 U.S.C. § 1084, prohibit an individual from operating an offshore sports betting business that uses telephone and internet communications to accept bets from customers in a U.S. state where betting is 'unlawful,' even if it is not criminally prosecuted in that state?
Opinions:
Majority - Keenan, District Judge
Yes. An offshore sports betting operation that uses wire communications to accept bets from customers in a U.S. state where betting is unlawful violates the Federal Wire Act. The court reasoned that WSE's conduct did not fall under the 'safe harbor' provision of § 1084(b) because that provision requires betting to be 'legal' in both the origin and destination jurisdictions. Betting is expressly 'unlawful' under New York's Constitution and state law. The court rejected Cohen's argument that 'legal' should be interpreted as 'non-criminal,' adhering instead to the plain meaning of the statute. Furthermore, the court held that the communications between WSE and its customers—an offer from the customer and an acceptance from WSE—constituted the 'transmission of bets or wagers,' not merely assisting information. Finally, the court concluded that the statute's 'knowing' requirement only applies to the act of transmission, not to knowledge of the law itself; therefore, Cohen's belief that his conduct was legal was irrelevant.
Analysis:
This decision was significant for affirming the application of the 1961 Federal Wire Act to the then-emerging technology of internet gambling. By interpreting the statute's key terms broadly, the court established a strong precedent that offshore sportsbooks targeting U.S. customers were illegal. The ruling that 'unlawful' gambling activity in a state is sufficient to preclude the Act's safe harbor, even without specific criminal penalties for the bettor, closed a potential loophole and solidified the Wire Act as a primary tool for federal prosecution of online sports betting for nearly two decades.
