On Wednesday, a three-judge panel of the St Louis based Eighth U.S. Court of Appeals rejected the appeal of a former online gambling company founder who sought to avoid paying $36 million in back taxes and penalties for 2004 and 2005 during his affiliation with BetOnSports, ruling that the plea deal language was “unambiguous” on the government’s right to collect.
In 2006, Gary Kaplan, along with other BetOnSports execs, was indicted in St. Louis and accused of running an illegal betting operation. He was later arrested in the US during a layover for a trip back to Costa Rica. In 2009, Kaplan struck a deal with federal authorities and pleaded guilty to bookmaking, racketeering, and mail fraud. He was sentenced to over three years in prison and ordered to pay the US Government $43 million. Kaplan argued that according to the 2009 deal, any further action by the IRS against him would essentially be double jeopardy. He also claimed that the six-year statute of limitations had expired for the tax returns in question. But as the court noted, Kaplan had never filed tax returns for 2004 and 2005; therefore, the statute of limitations had not yet even begun.
Business boomed in the early 2000’s for the former bookie and high school dropout. The website that employed nearly 2,000 people was once one of the biggest online betting websites in the world. Prosecutors said the business handled more than $1 billion in wagers a year through websites and phone lines. Kaplan decided to transfer the operations offshore to Aruba, after being arrested on sports booking charges in 1993, later moving again to Antigua and then finally settling on Costa Rica.
The following warning was issued to investors in 2004 when BetOnSports went public on the London Stock Exchange: “In general, persons and organizations engaged in the business of sports betting in the US via the telephone or internet are in violation of existing US federal law.” Kaplan’s percentage of the company made him enormously wealthy and he stockpiled money in banks all over the world. He found creative ways of hiding profits from the illegal venture including transferring $98 million to a trust in France of which he was sole benefactor. He failed to pay both the required federal and capital gains taxes on the account.
According to prosecutors, gamblers on the site were led to believe that their deposits were being held in safe keeping at BetOnSports and that the money could be withdrawn at the time of their choosing. When in reality, they were putting that money back into the company. According to the government it’s estimated that customers of BetOnSports lost more than $16 million by the time the company closed shop.