A look back at a gambling operation 20 years later felled by a failed justice and trade system
It was 20 years ago this month that one of the most innovative offshore sportsbooks, WSEX, began operations. Two traders on the Pacific Stock Exchange, Jay Cohen and Steve Schillinger discussed sports betting and the parallels between it and trading on the stock market. Consequently, they came up with a unique idea. What if instead of traditional bookmaking where the bookie posts a line and a player bets on one team or the other with 10% vig they instead offer a stock market type of bet where players buy or short shares of a team? The concept is fairly simple. All lines are based on $100, so in a game of say the New York Giants versus San Francisco 49ers a line could be posted at 55-60 on the Giants meaning a gambler would risk $55 to get back $100 (4/5 odds) betting the Giants or they could put up the $60 and take the Giants to lose with a return $100 (2/3 odds), essentially making the player the bookie. What is unique about the option is that most games are in-play meaning that the lines would change throughout the game and players could buy or sell while games are in progress and those who backed a team could sell for a profit and those who shorted a team could buy at odds that guaranteed a profit. Along with individual games WSEX also offered stock market type futures, so one could buy say the Seattle Seahawks at $5 to get back $100 at the beginning of the year and by the time the playoffs occurred that share could be worth $50 or more. While this is common place today, one must recall that 1997 was before Betfair began and long before sportsbooks offered in-play wagering, which is now the norm.
WSEX consulted with U.S. lawyers and were told that as long as the company was based offshore and bets were accepted offshore, it was legal. So, Cohen and Schillinger looked at options, put up $600,000 in capital and decided that Antigua offered the best solution for a place to operate from. The small island country passed the Free Trade and Processing Zone Act in 1994 apparently spurred on by the U.S. government, which allowed companies to set up websites and offer services without paying taxes to the country they were located in. Online gambling seemed like a logical vehicle for this option, so the Antiguan government created the Antigua Gambling Commission which set rules in place for operating there and if companies followed the rules on issues like underage and problem gambling they could get a license for a $100,000 yearly licensing fee. A few companies like Intertops moved operations to Antigua to avoid having to charge taxes or a premium on bets and Schillinger and Cohen decided that Antigua offered the safest and most technologically advanced solution for online gambling. So, they paid the hefty $100,000 licensing fee and began operations. At its heyday over 100 gambling companies operated in Antigua. WSEX advertised heavily in newspapers, on websites (especially gambling watchdog and news forums) and on radio. Some of the largest bettors flocked to the website and the company's innovation was recognized with a feature on HBO and in various newspapers including the New York Times and U.S.A. Today.
WSEX was an instant success and it appeared that Cohen and Schillinger, along with Haden Ware who they brought with them from the Pacific Stock Exchange, were on easy street living in an island paradise. But things changed early on when the professional sports leagues told WSEX to stop putting team names and logos on their website as those were copyrighted, so WSEX just listed city names instead without logos. As well, Republicans, led by Senator Jon Kyl introduced a bill to try and stop online gambling claiming it was dangerous and wrought with issues. Upon introducing the first bill, the Internet Gambling Prohibition Act, Kyl suggested that one could simply "click the mouse and lose the house." The Republicans and sports leagues wanted action against the Caribbean operators so the Department of Justice (DoJ), headed by Attorney General Janet Reno, took action and issued indictments against WSEX and some other sportsbooks for illegal gambling and violating the 1961 Wire Act. In a famous statement, Reno said "We have a simple message. You can't hide online and you can't hide offshore." In total 14 companies (20 individuals) were cited and 7 individuals returned to the U.S., pled guilty to misdemeanor charges and paid a large fine. Most of the other owners remained offshore and didn't respond to the charges, but the owners of WSEX had a different idea. Upon hearing the indictments Cohen stated, "We're licensed to do what we do here by a sovereign government," and Cohen's lawyer Benjamin Brafman agreed calling the charges a reach and added "I think it's an interesting and novel theory that's being advanced by the (U.S.) Government, but I think it's a theory that will in the final analysis be rejected by the courts."
To clear his name and to set a precedent, Cohen returned to the U.S. to face the charges while Schillinger and Ware stayed in Antigua to continue operating WSEX. Cohen appeared in court, pled his case and by all accounts had a sympathetic jury. But that potential outcome was derailed when the judge in the case instructed the jury to ignore much of Cohen's testimony, saying it was irrelevant. In fact, one jurist was said to have stated "we wanted to find him not guilty, but the judge's instructions gave us no option." Cohen was found guilty of violating the Wire Act, was sentenced to 21 months in prison (he served 17 months) and paid a $5,000 fine. WSEX management often criticized the others charged with taking a deal rather than working with them to fight the charges but Steve Budin from SDB Global, one of the people that returned and faced charges, claimed in a book that he knew that fighting the U.S. justice department was futile.
Infuriated with the decision against Cohen and realizing this could cause a domino effect, WSEX convinced Antigua to lay a complaint with the World Trade Organization in 2003 against the United States for violating an agreement the U.S. made in a GATS (General Agreement on Trade in Services) agreement. The WTO, after a long process, ruled for Antigua and awarded $21 million in annual trade compensation which they said could be used in violating Trademarks and Copyrights, but this just infuriated the USTR more who decided to take it out on Antigua and WSEX even though Antigua never used the ruling and were warned by the U.S. government if they tried to violate intellectual property rights.
According to a source formerly with the DoJ, this case enraged the U.S. government who made it a priority to shut down offshore gambling by any means necessary. They played hard ball with Antigua and refused to even sit down with the country and effectively told the WTO arbiters to get lost. In the meantime, WSEX introduced a no vig poker site hoping that those playing poker there would then use some of those funds on sports. But they soon realized that poker was a different beast altogether with rooms filled with bots and colluders they couldn't control and more importantly most poker players either no interest in sports or already had an account with WSEX. So, the poker room was shut down fairly quickly.
The beginning of the end for WSEX occurred in 2006 with the passing of the UIGEA. Some processors already withdrew their services to WSEX after Cohen was found guilty, but the clear majority of payments to and from WSEX were done through the NETeller e-wallet. In January of 2007 NETeller shut down operations to North American customers and WSEX was forced to turn to 3rd party processors who proved to be rogue. The company also became a victim of the Stanford Bank scandal. While Cohen claims that WSEX never had any assets at Stanford Bank it seems illogical since it was the only bank in Antigua. Regardless, U.S. banks refused to deal with any Antiguan banks and cut off many other Caribbean banks, so WSEX lost all payment options aside from very few 3rd party processors, who couldn't keep up with the requests for withdrawals.
WSEX tried some innovative ways to stay alive. They introduced World Fantasy Sports Exchange, using their stock market style operation for fantasy sports. According to sources, the company realized that the UIGEA exempted fantasy sports so they hoped that maybe by introducing a "legal" fantasy sports sites that all payments for the sports exchange could be made using the fantasy sports site and that payments wouldn't be flagged or stopped because it was all being funneled through a fantasy sports company. It didn't work.
Soon slow pay became the norm from around 2010 onward and slow pay became no pay. Unable to receive payments or pay clients watchdog sites denounced them as a non-viable sportsbook and the run to the bank was on. Even the most loyal customers, some with tens of thousands in funds wanted to withdraw them.
Schillinger, Ware and Cohen, who had returned to the business after serving his sentence, made it their mission to turn the company around and pay every player what was owed money. They got a few investors to provide them with some funds to keep them going and pay staff but most investors wouldn't go near them. In 2011, the company relinquished their Antiguan license and continued to operate without one, showing a license from Cyprus on their website (one a Cyprus official told me was never issued), but the number of clients continued to dwindle and the outcome was inevitable.
On April 20 of 2013 WSEX closed its doors for good and shortly thereafter Schillinger took his own life, leaving a message that he couldn't live with himself knowing that so many loyal customers were stiffed. It's unfortunate that Bitcoin wasn't as prevalent at that time as it is now, or that could have been a salvation for the company. Ware went to Ireland with his wife but returned in 2016 to face charges and Cohen's whereabouts are unknown although it is believed he still lives in Antigua. Cohen who was very active on posting forums condemning the U.S. government on a regular basis has all but stopped posting. In the meantime, Intertops continues to operate in a new jurisdiction and many the operations that were caught up in the 2008 indictments either continue to operate under a different name or were absorbed by a competing site and operate without hindrance.
It's hard to believe that it was 20 years ago this month that WSEX started taking bets, but it's even harder to believe that it was almost 4 years ago to this day that this innovative company was forced to shut its doors through absolutely no fault of their own. I have no doubt that in a few years when online sports betting is taking place everywhere in the United States and when offshore gambling is not looked down upon, that WSEX will be looked at by historians as a pioneer of the industry and whose end was a real travesty of justice.
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