BetonSports: The world is yours

David Carruthers improbable rise to the top of an online gambling firm with roots in Brooklyn have made the world sit back and take notice, but more so because of what could be the climatic ending. 

Carruthers along with 10 of his peers from BetonSports.com, including the firm's colorful founder, Gary Kaplan, were indicted last Monday on various felony charges stretching the gamut from the Wire Act violation, Racketeer Influenced and Corrupt Organizations (RICO) Conspiracy, interstate transportation of gambling paraphernalia, interference with the administration of Internal Revenue laws and tax evasion.

When David Carruthers was arrested last Monday night at Dallas Airport, panic spread through the online gambling industry and those industry moguls who once thought they were beyond reach of US government officials as a result of their nationality suddenly learned otherwise.

Flamboyant and outspoken Canadians the likes of Calvin Ayre announced the abrupt cancellation of his company's much anticipated conference to be held in Las Vegas starting today.  Execs from British gaming firms, including Sportingbet, were thanking their lucky stars having been in the United States at the time of Carruthers arrest, fortunate enough to leave for Europe without incident. 

More than £600m was wiped from the value of the sector as investors took fright.

And now word of a potential class action suit by investors against the online gambling giant, BetonSports.

Curruthers and Kaplan

Not since Bonnie and Clyde has there been an odder pairing. 

Carruthers, who started his career with Ladbrokes as a betting shop manager in Edinburgh, was arrested while changing planes en route from London to his new home in Costa Rica.  Hardly the type you would expect to be sitting in a dark prison cell. 

The Financial Times describes David just one week prior to his arrest.

"David Carruthers was sitting in a London restaurant overlooking the Thames, a clear view of the City financial district beckoning. He was hungry, impatient for service, troubled by a persistent cough, but otherwise in typically feisty, talkative mood.

"The smartly attired 49-year-old BetonSports chief executive was keen to expand on the British company he had taken to market two years ago and the online gambling industry at large. He was clearly relishing the opportunities for growing the company further. Barely a week later, this Edinburgh-bred food fanatic, lover of fine wines and expert snooker player appeared in a Dallas court dressed in a prison-regulation orange jump suit, his hands and legs shackled to a chain-gang of other inmates."

Edinburgh-born Carruthers is described by the Times Online as a balding, bespectacled 49-year-old who has spent all his working life in the betting industry. He joined Ladbrokes at 19, rapidly became Britain’s youngest betting shop manager and rose to Midlands area manager before parachuting into the lucrative but dangerous waters of internet gambling.

Carruthers wanted more, however, and his visions would soon pay off.  The internet had begun to explode and Ladbrokes seemed less inclined to pursue those untested waters.  Gary Kaplan on the other hand was not.

Kaplan has a colourful past, having been arrested in New York on bookmaking charges in 1993. Legends about the man abound, including a story that he once pulled out a gun and shot his computer screen after losing a pivotal football game.

Then there was the time he greeted a lawyer who entered his office unannounced.  Kaplan, recklessly juggling a gun in his one hand asked:  "Should I shoot you now, or should I wait?"  Instead, his goons were sent out to beat up the frazzled lawyer.  Kaplan reportedly sent his goons after the man once more. 

A former female Kindergarten teacher and employee of bookmaker Delmar - located about a mile from the BetonSports office - had been driving the bloodied man to the hospital in her brand new BMW when Kaplan's goons approached the vehicle in a busy San Jose intersection.  They proceeded to smash the BMW and drag the attorney out onto the street, brutalizing him to a pulp.  Kaplan ultimately paid to have the damaged car fixed. 

One competitor told of another unconfirmed horror story.

"We had a guy apply with our company for a security job position.  When we checked over his application, we were surprised to see that he had previously worked at BetonSports.com.  When asked why he left there after such a long stint, the guy told us how he had grown tired of 'doing all the dirty work'."

According to the job candidate, that "dirty work" included throwing a hand grenade onto the property of a disgraced former BetonSports employee who allegedly stole a customer list from that organization.

"It blew away the entire landscaping.  He (the employee) and his family immediately moved from the house and went into hiding."

But other employees seemed to get a kick out of taunting the bad ass Brooklynite and his brother. 

The two dozen or so computer geeks employed by BetonSports would frequently hack into company databases and change information.  After one employee got caught hacking into an administrative database, he was simply reprimanded by Kaplan, but he left the office with a smile on his face suggesting the boss gave him nothing short of a slap on the wrist.  Other long term loyal employees have left the company without incident, most speaking highly of their former boss. 

Kaplan stepped down from the BetonSports board to ease the way for the company's flotation on the Alternative Investment Market in 2004. He fell out with Carruthers

Certainly relations between Kaplan and BetonSports seem strained. A BetonSports spokeswoman said: "I have no idea where Kaplan is. I would like him to come forward so that he can take some of the heat."

Present day management routinely bashes the old regime and vice versa. 

When the first attempt at Betonsports’ flotation failed in 2002, Kaplan withdrew to the position of consultant — though keeping a 15% stake — and the company was successfully floated on AIM in 2004.

"It was a tough decision for Gary," commented one individual who had known and worked for Kaplan.  "Going public was his 'out' but he would later regret it after seeing the direction his company was going in.  He had worked so hard to build BetonSports and felt it was being poorly managed and neglected when he stepped away."

Whereas Gary could make decisions at a whim, the new look publicly traded BetonSports incorporated a network of individuals that were not always overseeing the operation and a whole lot of bureaucracy. 

Kaplan ran a company best described as "organized chaos" - employees running around like chickens with their heads cut off, job orders piling up, but all the time work was getting done.  The "new" BetonSports at times resembled something lacking any form of organization or chaos.  There tended to be complacency pervading the entire firm our last couple of visits.   

Kaplan's employees - many of whom worked for the company several years up to and after his departure - embraced a keen understanding of the boss man's philosophy: Hard work and aggressive marketing.  This did not always transfer down to the BetonSports clerks, most of whom were underpaid by industry standards and unmotivated.  You would often catch BetonSports clerks smoking pot in one of the many company bathrooms or outside in the covered garage parking lot. 

BetonSports most recent "wannabe chiefs" could not even pass for Indians.  Marketing personnel in particular were unruly and disobedient, which resulted in heated clashes with the very advertising mediums they had attempted to forge relationships with.  Furthermore, "lazy" employees were not reprimanded but rather re-assigned.  Gambling911.com had grown so fed up with the poor communications with BOS, the website had no other choice but to pull all ads prematurely last month, only weeks before the indictments.

"Something just was not right there," commented Gambling911.com Marketing Director, Payton O'Brien.  "We would tell them to stop sending us promotions asking our readers to call in and mention 'bonus codes', explaining that Gambling911.com does not encourage phone wagering.  It went in one ear and out the other."

Carruthers may have been more antagonizing

It has been suggested that looks can be deceiving.  Carruthers - not Kaplan - led an aggressive campaign against US state lines from various stadium football games to City Hall in Manhattan. 

He regularly boasted of how he was able to travel through the US, and wrote articles for American newspapers calling for changes to the law which would make online gambling legal.

Clive Hawkswood, chief executive of the Remote Gambling Association - of which BetonSports was not a member - told Scotland on Sunday: "I think the US authorities looked at BetonSports and saw them in a different category. BetonSports has gone out of its way to target the US market, so if anything was going to happen, the feeling is that it would happen to them.

"The indictment caught everyone by surprise because David Carruthers has been through the US loads of times. It looks like [the US authorities] were trying to build up a case for some time."

But there are many who believe the case goes far wider than one rogue bookie and his Scottish successor.

John Hagan of Harris Hagan, a law firm which specializes in gambling cases, told Scotland on Sunday: "It is in the interests of [the US authorities] to have the industry believe this is part of a wider campaign. The US has been trying for a long time to ban online gambling."

At the center of this case is a highly ambiguous and dated Wire Act originally passed into law during the early 60's to combat organized crime. 

Even experts interpret the law differently, some saying it only covers sports betting via the phone.  Others suggesting that it covers the whole gamut of online gambling since poker and other games of chance involving money transactions could not be applied to the phone in 1961.

But all would agree that taking sports bets from US citizens over the phone is a risky proposition no matter where one might be located.  In the case of BetonSports, that company was licensed to do so in Great Britain while taking most of its phone bets from inside Costa Rica, a nation that has also legalized sports betting call centers. 

A stricter interpretation of the law means just about anyone in the world can be arrested on US soil for engaging in acts deemed legal in their own country if they target the United States directly. 

Carruthers, like many of his British online gambling counterparts along with some Canadians and Australians, have not feared using their given names in public.  Such was the case with US owners of offshore gambling establishments as well prior to 1998 when 21 individuals were indicted and charged with violating the now obscure 1960's Wire Act.  Jay Cohen, founder of World Sports Exchange, was the only individual charged who elected to fight the US government and lost.  Others either plea bargained, received probation or remain fugitives to this day.  Some of those who turned themselves in have even re-entered the online gambling industry. 

Professor Scott Lucas, from Birmingham University's Historical Studies department, tells the Birmingham Post the detention of Mr Carruthers was an example of "moral posturing" by the US as it attempted to exert its own laws globally.

"Racketeering - making money from illegal gambling - is associated with mobsters and applying it to cyber businesses, which is a grey area at best, means this is a very important test case," he said.

"This business is regis-tered in Costa Rica and its only contact with the US is that some of its customers are from the US.

"Say someone in Amsterdam is a prostitute, where it is legal. If she has a US client and if she goes to the US, can she be arrested over illegal earnings? Where do you draw the line?"

He added: "There is a lot of moral posturing going on here by the US. In states where betting is illegal, betting still goes on and it is easy.

"This is a really silly use of federal resources."

The fate of both men

Betonsports adverts clearly promoted sports betting via the net, illegal in the eyes of the Justice Department. The firm even parked coaches with internet access outside sports stadium in New York so customers could sample its service. And it took bets over the phone, a complete no-no under American laws.

“The way they behaved has been a red rag to a bull,” said the boss of one rival firm.

“They were running everything but a dog and pony show to promote that company,” said another US gambling source.

Kaplan would be sitting back smiling right now if not for the fact that some of his other close family members have been arrested including a loving sister, tough as nails like Gary, and a "tough acting" but timid younger brother who once had to be rushed to a hospital by taxi cab after employees fed him a pot-laced brownie without his knowledge that induced pains mimicking a heart attack. 

Gary would much rather see the company shut down than head in the direction it was going prior to the raid.

"We had strict controls," commented one former manager.  "The new management came in and let every wise guy, sharp and bonus whore play there and eat away at the profit.  Then they started bitching and moaning a few months ago, shutting all these guys accounts down.  We let them play but within certain ground rules."

Thus far, Costa Rican authorities have already suggested they will not be extraditing Kaplan back to the United States, insisting his activities were legal in their Central American nation of just over 4 million people.  The industry itself employs an estimated 10,000 people both directly and indirectly via telecommunications and other support services.  Online gambling is widely believed to be the second highest paying industry in Costa Rica after telecommunications with BetonSports among the country's largest employers.  Doctors and lawyers would often moonlight at BetonSports in order to make extra money. 

As for Carruthers, he waived a hearing on Friday with indications being that he 49 year-old, from Bromsgrove, Worcester-shire, will await trial.  His wife and grown son will meanwhile await his release.  That may not happen any time soon.  Carruthers is facing a five year prison sentence.

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Christopher Costigan, www.gambling911.com

Originally published July 23, 2006 10:38 am EDT