Wall St. Bets on Gambling on the Web

Wednesday, December 28th, 2005

By MATT RICHTEL
NYTimes.com

Internet casinos are outlaw operations in the eyes of the federal government, but they look like solid investments to many of Wall Street's largest firms.

Blue-chip investment houses like Goldman Sachs, Merrill Lynch and Fidelity now hold hundreds of millions of dollars in shares of online casinos and betting parlors, which are publicly traded on the London Stock Exchange and headquartered in places like Costa Rica or Gibraltar.

The growing participation by American investors underscores a striking gap between the federal law-enforcement position on online gambling and the realities behind what has emerged as a booming business.

It also highlights the difficulty of policing cross-border activity in the Internet age at the same time that electronic commerce and a global economy are creating fast economic partners across national boundaries.

Legal experts are divided over whether American investors and the investment houses that operate mutual funds could themselves be seen as criminally liable for their actions by providing financial backing for offshore casinos. To be sure, it is not uncommon for Americans to invest in overseas companies whose operations may be considered illegal or unacceptable here, from sweatshop manufacturers to European energy producers that do business in Iran.

The difference with Internet gambling is that the activity takes place on domestic shores - with Americans placing bets online using their home computers - and the Justice Department has stated clearly that the operators are violating American law.

Jaclyn Lesch, a spokeswoman for the Justice Department, said that the agency considered online gambling illegal but declined to "comment on the liability or hypothetical liability of a company or an individual."

But Internet gambling analysts and company executives said that the investments highlight how widely the federal policy is, in essence, being ignored.

Millions of Americans use the Internet to play games like poker, blackjack and roulette, or to place wagers on sporting events. Online casinos advertise in magazines and on cable television while filling big billboards in Times Square and other places where crowds congregate. Celebrities like Jesse Ventura, the former governor of Minnesota, hawk their wares.

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