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History of Cohen Case

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  • History of Cohen Case

    Court rejects offshore 'Net gambling case'
    By Michael Kirkland
    UPI Legal Affairs Correspondent
    From the Washington Politics & Policy Desk

    WASHINGTON, June 17 (UPI) -- The Supreme Court Monday refused to review the case of a pioneer in the offshore Internet gambling industry.

    The man was convicted of setting up an offshore gambling operation, though he said he researched U.S. and international law, was advised by a U.S. law firm and consultants, and was convinced his business was legitimate.

    By all accounts, even those of law enforcement, Jay Cohen was on top of the world in 1996. At 29, the graduate of U.C. Berkeley "held a lucrative position as a top trader at Group One, a San Francisco firm trading in options and derivatives."

    Cohen watched others in his office participate in betting pools and was intrigued with how similar they were to financial markets, especially "futures" markets.

    In a petition to the Supreme Court, Cohen said he studied the New York Off-Track Betting Corp., which was authorized by the state of New York to let out-of-state customers set up betting accounts. The out-of-state customers telephoned instructions for wagers, and the subsequent bets were considered to have been made in New York, where they were legal, rather than in the home states of the customers, where most often they were not.

    Cohen also studied Sports International, a publicly traded company that among other groups was conducting legal gambling offshore.

    The clincher was the rise of the Internet in the mid-1990s.

    "By 1996 the Internet revolution was in the speed lane," a federal appeals court said. "Inspired by the new technology and its potential, Cohen decided to pursue the dream of owning his own e-business."

    With help from KPMG, an international consulting and accounting firm, and an array of lawyers, Cohen left his Group One job, raised seed money in the United States and by the end of 1996 "moved to the Caribbean island of Antigua and had become a bookmaker," the appeals court said.

    Cohen launched World Sports Exchange, or WSE, an "account wagering" operation patterned after the New York Off-Track Betting Corp.

    A customer would set up funds in an account in Antigua and then telephone authorization to use the funds for betting. WSE's rules indicated that all bets were to "take place at our (Internet) server in Antigua. "Indeed, although WSE advertised throughout the world, all of its actual operations were confined solely to Antigua," Cohen told the Supreme Court.

    On the advice of KPMG, Cohen reported all of his income to the United States government, saying that his business was "wagering," and paid U.S. taxes on the income.

    In 1997, Cohen was featured in an article on the burgeoning offshore Internet gambling industry in the Wall Street Journal, participated with U.S. officials in televised debates, submitted written testimony to Congress on the industry and spoke to groups at various places in the United States.

    But the walls were about to fall in on Cohen's "dream."

    "In late 1997 and early 1998, at the prompting of a prominent New York law firm representing the NFL, NBA, NHL and Major League Baseball, the FBI began an investigation of WSE," Cohen told the Supreme Court.

    When the federal government filed a criminal complaint against him, though he could not be extradited from Antigua, Cohen returned voluntarily to the United States to fight the complaint.

    Cohen was arrested in New York and was charged with one count of conspiracy and seven substantive gambling counts.

    His defense mainly consisted of contending that he did not have the necessary "mens rea" -- or state of mind -- to commit a crime. But a federal judge told the jury that Cohen's motives were irrelevant, and that someone could participate in a conspiracy even if the person did not understand that his actions were illegal.

    Cohen was convicted on all eight counts and was sentenced to 21 months in prison plus a small fine. When a federal appeals court affirmed the conviction, Cohen asked the Supreme Court for review.

    In Cohen's petition to the justices, his lawyers contended that the lower courts had misread and expanded the scope of federal law in a way that adds to the confusion already existing in U.S. courts as to what the law means.

    But the Supreme Court rejected his petition Monday without comment.

    (No. 01-1234, Cohen vs. United States)