01/21/2005 1:00AM

Case fuels debate on offshore sites


LEXINGTON, Ky. - When a federal indictment was released last week in connection with an illegal gambling ring that authorities say wagered $200 million on horse races through a number of offshore and other offtrack sites, the reaction from some racing companies was swift. The New York Racing Association, Churchill Downs Inc., and several others - including Turfway Park on Friday - cut their signals to the sites mentioned in the indictment.

For NYRA, the decision was simple. The association is operating under a federal monitor as part of a deferred prosecution for tax fraud over cash policies in its mutuel department, and it is eager to avoid any connection with impropriety. For Churchill, a publicly traded company, the decision was also relatively easy, but possibly for a different reason. Among Churchill's seven racetracks, only one, Fair Grounds in New Orleans, is currently open.

But winter racing is dominated by Magna Entertainment, a publicly traded company that is the country's biggest racetrack operator. Magna, which owns Santa Anita Park in Southern California and Gulfstream Park in Florida, had not cut its signal to any of the sites as of late Friday afternoon. Phone calls to Jim McAlpine, Magna's chief executive, were not returned.

The decision to restrict access to mutuel pools is a delicate one for racetracks, which have profited from offshore and tribal betting outlets. These outlets attract lucrative customers through rebate programs, which last year accounted for an estimated $1.5 billion in handle, or 10 percent of the national total.

Five months ago, the National Thoroughbred Racing Association released a report recommending that racetracks require such sites to supply a long list of details about their operations before allowing them to bet into the industry's pools.

Now, the indictment has threatened to move the debate about those recommendations from racing's boardrooms and chat rooms to the courtroom.

"We're in a very deep shade of gray on these problems," said Chris Scherf, vice president of the Thoroughbred Racing Associations, a racetrack trade group. "Who knows what the Justice Department's position is, and whether their position is supported by the law? There's a whole lot of ways you could look at it, and lots of ways you could take it, and some are absolutely draconian."

Racetrack officials fear that the case could jeopardize revenues from the only growth segment of the business in the past five years, aside from slot machines. Rebate shops and the players who receive the cash awards fear a backlash that will drive them from the game.

Since the indictment was released, some rebate shops have supported the NTRA's call for the shops to disclose more information. But the shops have also cautioned that the industry should recognize that rebates have become an integral part of the game.

"I do think there's an acceptance in the industry that the type of bettor who is betting large amounts of money because of the business model of the rebate would not be doing the same thing except for that rebate," said John Sullivan, the counsel for three rebate shops that were named in the indictment - Elite Turf Club, International Racing Group, and the Tonkawa Indian reservation. "I think they've come to the conclusion that overall it's a benefit to the industry for this segment of the marketplace. Now it's much more of a discussion about transparency, to make sure that things are proper."

Attention to the case, which was brought by the U.S. attorney for the Southern District of New York, was magnified because three of the people indicted are alleged members of the Gambino organized crime family, and because the gambling ring is accused of betting on a horse that had allegedly been given a performance-enhancing substance called a milkshake.

But the key issue in the case, as presented in the indictment, is the improper identification of the source of wagers.

The indictment alleges that five people opened accounts with at least four rebate shops and then allowed other bettors to place wagers through the accounts. Along the way, the chief participants collected rebates on all the bets, redistributed the rebates among the players, and sometimes claimed losses in the account as their own to qualify for tax refunds.

The rebate shops prominently named in the indictment are Racing Services Inc. in North Dakota, which is now out of business and is on trial for illegal gambling in a separate case; Euro Off-Track, a betting site based in the Isle of Man; International Racing Group, on Curacao; and a site based on the Tonkawa Indian reservation in Oklahoma. Another site, Elite Turf Club in Curacao, was also mentioned in relation to the receipt of a fax transmission.

The five main participants, and the people facing the most charges under the 88-count indictment, are Gerald Uvari; his brother Cesare; Gerald's son, Anthony; David Applebaum; and Marvin Meyerowitz. The three Uvaris are the alleged Gambino associates. In the indictment, the five are referred to as the Uvari Group. All 17 people charged in the case have pleaded not guilty.

The core of the government's case revolves around the ability of gamblers to bet through the accounts without making their identities known or providing Social Security numbers to the rebate shops. That qualified the Uvari Group as the operator of an illegal gambling operation under the federal Wire Act, since the participants were in effect brokering the bets.

For the prosecution, the awarding of rebates allowed the case to be expanded to anyone who received a portion of the cash award, since the rebates were based on illegal gambling activity. The indictment said that rebates from one offshore site were distributed with the help of International Players Associates, a company formed in 2003 by two officials of a New Hampshire dog track, Lakes Region Greyhound Park. IPA recruited players to Euro Off-Track, the indictment states, including the members of the Uvari Group.

Harry Manion, the lawyer for Rick Hart, one of the principals in IPA, , said this week that he is confident his client will be exonerated of the charges.

"The Uvari applications we referred to Euro Off-Track were no different than any other player we referred over there, and there's nothing illegal about doing that," Manion said. "Whatever they did internally, we didn't know anything about."

Rebates typically increase along with handle, so by amalgamating bets from multiple people through one account, the Uvari Group members qualified for a higher cash award. The rebate was then split by the Uvari Group members and the unidentified persons who were betting through the account, the indictment said. If the numbers presented in the indictment are accurate, the scheme likely netted at least $20 million in rebates.

Members of the Uvari Group also extended credit to players who had been tapped out, the indictment states. One member, Applebaum, is charged in the indictment with using "threats of violence" against an unidentified bettor who had not paid his debt back to the group.

The indictment also claims that one member, Anthony Uvari, received a tax refund in 2003 of $156,794, although the indictment does not say whether the refund was due entirely to gambling losses.

The U.S. attorney's office declined to comment on the indictment this week, citing the department's policy. In previous statements, officials have said that the investigation is ongoing.

No rebate shop has been indicted in the case. But, according to legal officials who have reviewed the government's case, there is a possibility that the government could eventually link rebate shops to the illegal gambling operations, using the same argument that tied the recruiting company, IPA, to the charges.

Sullivan, the attorney for three of the rebate shops, acknowledged that the indictment was a black eye for his operations. But, he said, the rebate shops did not have any control over what the Uvari Group was doing.

"You obviously have some guys who were doing some really bad things," Sullivan said. "But [the rebate shops] weren't doing anything improper along with these people, and these locations had no reason to suspect that they were. And I think when all of that comes out, everything will be fine."

Some professional gamblers said that they believed many in the industry will aggressively move to end rebating. One gambler said that the NTRA and many racetracks have been eager to cut off rebate shops, and that the indictment would provide the ammunition for their argument.

Many racing officials, however, disputed that notion, pointing out that rebate shops were providing millions of dollars in revenues to an industry that is operating on thin margins. In fact, the racing officials said, it was the need to get business from rebate shops that led many racetracks to turn a blind eye to many of the potential problems.

"This part of the business represents an awful lot of revenue," said Andrew Skehan, the chief operating officer of Churchill Downs, which said it is developing strict requirements for rebate shops along the lines of the NTRA's recommendations. "If we're going to shut these people off, we have to figure out how to do it right."

The comments of gamblers who receive rebates reflect a level of concern that they are unfairly being targeted. Many gamblers said they feared that racetracks would attempt to get lists of the names of rebate-shop customers. However, the NTRA recommendations do not request that rebate shops disclose any names except in the case of bettors who use computer-assisted programs that have a direct link into the bet-processing network.

Greg Avioli, the NTRA executive vice president who was the chairman of the task force that developed the recommendations, said that rebates themselves are not a target. Still, he said, the industry would be remiss if it did not press for changes in the way offshore sites operate.

"This has nothing to do with whether someone offers a rebate," Avioli said. "But in the past, there has definitely been a reticence from rebate shops to provide any information, and that's because they had the leverage. They had the wagering dollars. Now that the industry has determined that in many cases whatever profit can be earned from letting these sites into the pools could be more than offset by the problems associated with not knowing basic information about them, the leverage has switched. These sites now have real concerns about what they have to do to prove to the racing industry that they are legitimate."