The Justice Department has issued subpoenas to at least four Wall Street
investment banks as part of a widening investigation into the
multibillion-dollar online gambling industry, according to people briefed on
the investigation. The subpoenas were issued to firms that had underwritten
the initial public offerings of some of the most popular online gambling
sites that operate abroad. The banks involved in the inquiry include HSBC,
Credit Suisse, Deutsche Bank and Dresdner Kleinwort, these people said.
While online gaming sites like PartyGaming and 888 Holdings operate from
Gibraltar and their initial public offerings were held on the London Stock
Exchange, companies that do business with them and have large bases in
United States have come under scrutiny by regulators in Washington.
None of the biggest United States banks like Goldman Sachs or Citigroup
underwrote the initial public offerings in London, in part because of the
legal ambiguity of the sites; they are illegal in the United States, but
still accessible to residents. The subpoenas, earlier reported by The Sunday
Times of London, appeared to be part of an indirect but aggressive and
far-reaching attack by federal prosecutors on the Internet gambling industry
just two weeks before one of its biggest days of the year, the Super Bowl.
Unable to go directly after the casinos, which are based overseas, they have
sought to prosecute the operations’ American partners, marketing arms and
now, possibly, investors. The prosecutors may be emboldened by a law signed
by President Bush last October that explicitly defined the illegality of
running an Internet casino. Even before that law, the Unlawful Internet
Gambling Enforcement Act, was adopted, the government said that Internet
gambling was illegal under a 1961 provision. These offshore casinos,
typically based in Costa Rica or Antigua, allow American bettors to use
their home and office computers to place wagers on a range of contests.
Millions of Americans participate; more than half of all bets placed to
major offshore casinos are from residents of the United States. The
prosecutors’ efforts have already taken a toll in the last two years on
offshore casinos, most notably with the arrest last year of David
Carruthers, the chief executive of an Internet sports book, BetonSports. The
company is based in Britain and has operations in Costa Rica, but Mr.
Carruthers was detained at the Dallas airport while traveling through the
United States.

The arrest led to BetonSports’ decision to stop taking bets from the United
States, crippling its business.

Several weeks later, agents of the Port Authority of New York arrested Peter
Dicks, the chairman of Sport-ingbet, which offers online sports betting and,
like Mr. Carruthers’s company, trades on the London Stock Exchange. Mr.
Dicks was arrested at Kennedy Airport.

Last week, a British online money transfer business, Neteller, said it would
cease handling gambling transactions from United States customers because of
regulatory uncertainty.

“It appears that the Department of Justice is waging a war of intimidation
against Internet gambling,” said I. Nelson Rose, a professor of law at
Whittier Law School in Costa Mesa, Calif., who is an expert on Internet
gambling law.

Another lawyer, Lawrence G. Walters of Altamonte Springs, Fla., said the
development was disconcerting because the prevailing wisdom had been that
investment in a company that is legal and licensed in its jurisdiction was
not grounds for prosecution.

“It would be the first time that that kind of liability has been imposed,”
Mr. Walters said.

But he cautioned that the subpoenas could be part of a government
fact-finding effort and might not signal a plan to prosecute banks.