Eliot Spitzer Terrorized Online Gambling Industry

In 2002, it was Eliot Spitzer - then Attorney General - who nearly shut down a booming online gambling industry.  His actions forced the hand of many banks, threatening prosecution to those who allowed credit cards for transactions identified as online gambling. 

Ironically, it appears to be these very same banks that led to Spitzer's dramatic downfall this week.  Spitzer announced his resignation Wednesday morning after getting caught up in a "prostitution sting".

His own bank branch in Manhattan turned him in to the Internal Revenue Service as someone who might be engaged in suspicious currency transactions, according to sources familiar with the investigation.

After the governor transferred $10,000 by breaking it into smaller amounts, he then called the bank asking that his name be removed from the transactions, the sources said.

Agents of the IRS Criminal Investigation Division initially started a probe fearing that the governor was the victim of some sort of blackmail scheme or because he was being victimized by an impostor, the sources said.

Newsday on Wednesday reported Spitzer's suspicious banking activity:


Spitzer last year had wanted to wire transfer more than $10,000 from his branch to what turned out to be the front for the prostitution ring, QAT Consulting Group, which also uses a number of other names, in New Jersey, the sources said.

But Spitzer had the money broken down into several smaller amounts of under $10,000 each, apparently to avoid getting around federal regulations requiring the reporting of the transfer of $10,000 or more, the sources said. The regulations are aimed at helping spot possible illegal business activities, such as frauds or drug deals.

Apparently, having second thoughts about even sending the total amount in this manner because it still might reveal what he was doing, Spitzer then asked that the bank to take his name off the wires, the sources said.

Bank officials declined, however, saying that it was improper to do so and in any event, it was too late to do so, because the money already had been sent, the sources said.

The bank then, as is required by law, filed an SAR, or Suspicious Activity Report, with the Internal Revenue Service, reporting the transfer of the money that exceeded $10,000, but had been broken down into smaller amounts, the sources said.

"The bank did the right thing," said one source familiar with the situation. The name of the bank could not immediately be determined.

Odds are Spitzer wasn't hailing the banking sector this week as he did back on February 11, 2003, when his office applauded several banks for signing agreements to block cardholders from using their credit cards for online gambling purposes.

"This is a turning point in the credit card industry," Spitzer said. "The vast majority of credit card issuers – and all issuers doing significant business with New York consumers – have now recognized their legal, ethical, and business obligation to block credit card transactions identified as online gambling."

Spitzer commended ten banks on that day, including Wells Fargo.   His actions from that day forward made using a credit card for online gambling purposes difficult as a result of the coding and "domino" effect, whereby other credit card issuing banks followed the lead of those congratulated by Spitzer.

The initiative began in June of 2002 when the Attorney General obtained Citibank's agreement to block such transactions.  Spitzer also went after the popular online payment processor, PayPal, which had only been involved in the online gambling industry for just over a year at that point.  Last year, the US Government arrested two founders in another popular payment processor dealing in online gambling, Neteller. 

The banks in question also paid a combined total of $335,000 in costs to New York State.  That's about 75 percent the amount Spitzer has spent on hookers over the years.

"My office has worked with the industry to define an accepted standard of conduct in the banking world," Spitzer said at the time. "Those who continue to extend credit to cardholders for online gambling transactions in violation of state law will be held accountable for their actions."

Approximately one year later Spitzer could do nothing when now defunct BetonSports spent $300,000 on bus advertising with the Metropolitan Transit Authority (MTA), a New York Government agency.

Asked if his office and the MTA were at odds, Spitzer said, "It would be a fair conclusion."

"Unless they have broken the law, they are entitled to advertise," said MTA spokesman Tom Kelly.

In an ironic twist, BetonSports and nearly a dozen principals involved with the company were indicted nearly three years later.  Spitzer's former law professor, Alan Dershowitz, is now representing BetonSports Founder Gary Kaplan, who is expected to stand trial for tax evasion, money laundering and moving gambling paraphernalia across state lines much the same way Spitzer is alleged to have moved high paid call girls across state lines.

"He should fry!" a former Manager of BetonSports told Gambling911.com, not referring to Kaplan but instead to Eliot Spitzer.  The BetonSports employee blames Spitzer to some degree for what has happened to his former boss.  "The CEO of BetonSports, David Carruthers was at odds with Spitzer in 2002 over a $20 million billboard and taxi ad with Clear Channel.  Carruthers called him out in the media."

The investigation into BetonSports began at around the same time the multi-million dollar ad blitz started in New York City.  Carruthers, a British citizen, is also awaiting trial for identical charges as Kaplan.  He was captured in July 2006 while transferring flights in Dallas/Fort Worth, Texas en route from England to BetonSports headquarters in Costa Rica.  Carruthers remains under house arrest awaiting trial in a suburban St. Louis, Missouri hotel where he is equipped with an ankle monitoring bracelet.  Kaplan has been deemed a "flight risk", hence, he was denied bail after being captured on the run in the Dominican Republic last March. 

Sources close to Gambling911.com insist that Spitzer himself may have been betting on sports events over the Internet, though these reports are yet to be confirmed. 

Outside of Senator Jon Kyl and United States Attorney Catherine Hanaway (who is overseeing the BetonSports matter), Spitzer was among the most feared political forces in the world of online gambling.

"Now we see what a hypocrite he was," said the former BetonSports employee, alluding to the fact that Spitzer had prosecuted those involved in running prostitution rings in the past.

And in another ironic twist, it is chairmanship of the House Financial Services Committee, Barney Frank, who has become the biggest advocate for legalization of Internet gambling.  Ironic in the sense that he too had been linked to a "male prostitute" back in 1989, the prostitute claiming that Frank knew he was operating a sex den out of his home. 

Eventually, in July 1990, the House Ethics Committee, in a 57-report, rejected as untrue Gobie's charges that Frank knew about the prostitution ring or that Frank had committed sexual acts with Gobie in front of President Bush's locker in the House gymnasium.

"Who cares if Frank was involved with a male prostitute!" snarled one angry online casino operator.  "Barney Frank didn't go prosecuting gay prostitutes and preaching on a podium about his integrity like Spitzer has."

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Christopher Costigan, Gambling911.com Publisher CCostigan@CostiganMedia.com

Originally published March 12, 2008 7:30 pm EST