WSEX – A Betting Site to Come and Go
Though WSEX is no longer a popular betting site, due to being at least high 6-figures in debt, unlicensed and most likely insolvent, their history of is great importance when discussing US sport betting sites. You see, back in the late 1990’s when online betting was brand-new every gambling website was making claims about their legality. This is because legal experts had advised that so long as the website was licensed abroad and conducted all transactions from within that jurisdiction they were untouchable by US authorities. The story of WSEX founder Jay Cohen, as well as Antigua’s battle with the US is one of great heroics, a man and a company willing to take on the US government on more than one occasion. Unfortunately, these GREAT AMERICANS soon learned this is no longer our ancestors’ United States; this here is their story.
Jay Cohen’s Background
Jay Cohen was born in 1968 in Long Island, NY. After graduating from UC Berkeley he worked as an options trader in San Francisco for Group One where he met Steve Schillinger. At work sports betting was an active topic among traders, and after much discussion, and taking the ideas from the active gamblers on their trading floors, Cohen and Schillinger decided that there was a fortune to be made by supplying sports gamblers with a legitimate business to make their bets offshore. In early 1997 the online sportsbook idea of Cohen and Schillinger was live on the internet. The sportsbook was called World Sports Exchange (WSEX).
The Early Years
While there were older, more established sportsbooks such as Intertops in existence, WSEX was one of the first sportsbooks to cater almost exclusively to online sports bettors. Bets could be made by phone but players were encouraged to make their bets on the website www.wsex.com. The bets flowed into their website and the money poured in. Their new internet business was an almost instant success.
Cohen hired the U.S. law firm of Orrick, Herrington & Sutcliffe and consulting firm KPMG to help them get licensed in Antigua. After a lot of work a gambling license was issued. The legal advice that he received stated that the business of WSEX was legal as long as the players opened an account and placed bets in a licensed jurisdiction. Since WSEX was licensed in Antigua, where sports betting was legal, the advice he received meant that he firmly believed that his business was legal. Cohen would even visit the U.S. on a regular basis with no fear of being arrested. Cohen filed his business operations and income with the U.S. and paid taxes just as any offshore business is legally required to do. Everything seemed to be running smoothly.
Jay Cohen would often find himself in the media spotlight. WSEX was a high flying sportsbook that had a mainstream following. Nearly everyone that bet on sports had heard of World Sports Exchange. In 1998 the Wall Street Journal printed an article about Jay Cohen and his online sports gambling business. Cohen would also go on TV by satellite and debate U.S. government figures. He would argue that his business was perfectly legal based on the advice his lawyers had given him. Since his business was not in the U.S. he felt that he was not subject to U.S. laws that forbid sports bets made by any type of communications device.
Pro Sports Leagues Demand Removal From WSEX
All of the media attention Cohen received did not go unnoticed by the major U.S. sports leagues. Cohen received a letter from Debevoise & Plimpton, the law firm representing all of the major professional sports in the U.S. The letter demanded that WSEX remove all professional sports team names from their website. They also demanded that WSEX remove all links to the sports league’s websites and cease taking bets from players in the United States. WSEX attempted to reach a settlement with the major sports leagues but the negotiations failed to please the professional sports leagues.
In March 1998 Jay Cohen was indicted along with twenty others by the Attorney General of the Southern District of New York for violating the Wire Act of 1961. Of the other twenty indicted individuals thirteen pleaded guilty to misdemeanors and paid a fine. The other seven refused to return to the U.S. to face the charges. Steve Schillinger, the other co-founder of WSEX, was among the seven that never returned to the U.S. to face the charges. Cohen decided to come to the U.S. to FIGHT THE CHARGES (he too could have likely pled guilty and paid a small fine). Based on the legal advice he had been given he felt that he had not committed any crimes in the U.S.
Jay Cohen’s Trial
Jay Cohen offered the defense that he did not violate the Wire Act of 1961 due to Article 1084 (b) which states:
(b) Nothing in this section shall be construed to prevent the
transmission in interstate or foreign commerce of information for
use in news reporting of sporting events or contests, or for the
transmission of information assisting in the placing of bets or
wagers on a sporting event or contest from a State or foreign
country where betting on that sporting event or contest is legal
into a State or foreign country in which such betting is legal.
Cohen also invoked the principle of lenity. This means that a defendant is given the benefit of the doubt in the U.S. if the law presents grey areas. Since the Wire Act did not mention internet gambling Cohen’s defense team felt there was a grey area. Cohen also invoked the Powell Doctrine. The Powell Doctrine, as presented by Cohen’s defense team, stated that a person must knowingly be committing a crime to be convicted. None of the defenses presented by Cohen worked. In February 2000 Cohen was convicted. In August 2000 Cohen was sentenced to 21 months in prison and a $5000 fine. Cohen lost his first appeal and the U.S. Supreme Court refused to hear his case.
Jay Cohen Jail Time
After Cohen lost his appeal and the U.S. Supreme Court refused to hear his case he served his sentence in a Las Vegas federal prison starting in 2002. Cohen was the first person convicted in the U.S. of operating a gambling business where that business was legal. In 2004, Cohen was released after serving just less than 18 months in prison. During his imprisonment World Sports Exchange continued to operate as a leader in U.S. sports gambling. Cohen was ordered upon release to not participate in any U.S. facing gambling business. After satisfying his probation he returned to Antigua. Cohen denied returning to WSEX until 2009 when he admitted on MSNBC that he had in fact returned to management of WSEX.
Editorial Comments: I mentioned in my article on the history of bookmaker.eu that BetMaker.com founders Mike Hale and Scott Barrett were not hiding either. The same was true of Charles Bauer of Infinity, Gary Austin of Tradewinds (justbet.cx), Dalton Wagner of MVP and V-Wager, and dozens of other American citizens that operated sportsbooks abroad and believed fully their business was legal and legitimate. If you read this January 1998 article from the NY Times where US Department of Justice Department (DOJ) spokesman John Russell is quoted as saying “We have no jurisdiction, the offense has not been made on U.S. soil” and a comment from Senator John Kyle, “we need a new tool to prosecute the same old activity” you can clearly see this was a major grey area.
Considering each of these sportsbook owners filed their taxes and followed advice from respectable law firms, Jay Cohen being sentenced to prison was perhaps the greatest injustice at the hands of the United States that decade. This completely shocked the industry and led to many Americans scrambling to sell their businesses, while it left others who were once legitimate businessman as career criminals for whom it was no longer worth the risk to visit their families and friends back in the States. To create a new law is one thing, to put an innocent man in prison over a vague law drafted in 1961 is another. These sorts of things are routine in Myanmar, Afghanistan, Somalia, Uzbekistan and Turkmenistan…never in their wildest dreams could any freedom loving American have believed such a great injustice could happen at the hands of the United States.
Antigua vs U.S.
Enraged by the conviction of Jay Cohen, the tiny island nation of Antigua took the U.S. to the World Trade Organization in March 2003. Antigua alleged that the U.S. was violating trade agreements that the U.S. had signed with them. The allegation was that the U.S. was protecting their country’s gambling industry by refusing to allow legal, licensed Antiguan gambling businesses, access to the lucrative U.S. market. This was based on the fact that the U.S. allowed internet horse racing wagers under the Interstate Horse Racing act. On March 24, 2004 the WTO ruled in favor of Antigua. This ruling was kept confidential to give the U.S. time to resolve the conflict with Antigua. Talks between the two countries failed and on November 10, 2004 the WTO released the ruling to the public.
On January 7, 2005 the U.S. appealed the original ruling. The U.S. maintained that federal law prohibited all internet gambling regardless of what jurisdiction the gambling was being offered. On April 7, 2005 the Appellate Body of the WTO ruled to uphold the earlier ruling. The language of the ruling was ambiguous though. It allowed a way for the U.S. to abide by the ruling without allowing Antigua access to the U.S. market. “IF” the U.S. outlawed all online gambling then they could abide by the ruling. The US never did this, yet they falsely claimed victory in the press.
The U.S. was allowed until April 3, 2006 to comply with the WTO ruling or be subject to punitive damages. That date passed and the U.S. had not corrected the laws that were ruled a violation of their trade agreement with Antigua. In June 2006 Antigua took the U.S. back to the WTO stating that the U.S. was still not in compliance with the WTO’s ruling. The U.S. claimed, while not changing any U.S. gambling laws or its position on online gambling, that they were in compliance under the “morals defense”.
In March 2007 the WTO ruled that the U.S. was still not in compliance and in fact had gone the opposite direction by creating legislation called the Unlawful Internet Gambling Enforcement Act (UIGEA). The UIGEA made it illegal for U.S. banks to process illegal online gambling transactions. The U.S. then attempted to withdraw from its trade agreement with Antigua. While this was allowed the U.S. was still required to settle with Antigua since a ruling had already been made on the trade violation. Antigua demanded $3.4 billion in annual trade sanctions but the WTO ruled that Antigua was only entitled to $21 million. This means that Antigua is allowed to suspend U.S. copyrights up to $21 million annually.
Antigua fought the good fight and won in this battle, but the US was able to spend years stalling and then back out of an agreement they signed. Although a victory, it was more loss than win due to the US showing little respect for international laws.
The Demise of WSEX
While the licensor of WSEX was fighting the U.S. at the World Trade Organization WSEX’s business was crumbling. In April 2006 WSEX became the first existing online poker room to offer rake free poker. This was done to try and lure poker players into football betting. While there was a lot of excitement in the online poker community the concept failed due to the inability of WSEX to control bots and cheating.
In late 2008 WSEX started having problems paying winners on time. WSEX blamed a lack of processors for payment problems. As time went on WSEX payments became slower and slower. It became apparent that there were liquidity issues at WSEX. It is estimated that players are currently owed over $700,000. Today WSEX operates unlicensed underground in Antigua after failing to renew their Antiguan gaming license. It does appear the company is still trying to make good. In November 2011, a partial $6,000 payment was made to a player who had requested a $60,000 withdrawal more than a year earlier. And other similar partial payments do get reported from time to time. Jay Cohen, who used to frequent forums under the handle JC, has been a complete ghosts since this started. It is unknown if he is still with WSEX, but leaked rumors popup now and then that he is hiding in Antigua, has gained a substantial amount of weight and is extremely depressed.
While Jay Cohen was once a hero to American gamblers, and a friend actually said to me on MSN messenger after UIGEA, “if WSEX.com ever stiffs US players then we know it’s the end” he’s now well outcast from the gambling community. Many have made comments that he stole millions of dollars from players and used these funds for his own trial and the Antigua battle against the US with the WTO. If there’s truth to this, it’s only likely partial truth. Since UIGEA the cash grabs at the hands of the US DOJ have been massive. These guys shutdown Ultimate Bet, Absolute Poker and Full Tilt Poker, and probably all but did WSEX in. For history sake I’d like to believe the reason WSEX still runs is because they are doing their absolute best to someday pay back players. It’s however a bad situation, mostly that started with the US sending an innocent man to prison over a vague 1961 law. At this point as sad it is to say all players should absolutely steer clear of www.wsex.com.