As he sits in a Missouri jail cell this week in his prison-regulation orange jumpsuit, David Carruthers, the 49-year-old former CEO of BetonSports, one of the world's largest online gambling businesses, must be wishing he'd treated the US authorities with more respect. A week last Sunday, the balding, bespectacled executive was seized by the FBI as he waited in an airport at Dallas, en route to Costa Rica, where the firm is based, and charged, with ten others, for his involvement in a $4.5bn illegal gambling racket. By arresting Carruthers, the Department of Justice was sending out an unequivocal message, says Roger Blitz in the FT: online gambling in the US is illegal and those who flout the law will be prosecuted.
BetonSports arrest: online access to US lost
The effect was immediate. Within 48 hours of his arrest, more than £900m had been wiped off the value of UK gaming stocks, as fears rose that the sector was being "forced out of its most lucrative market" the US, says Matthew Goodman in The Sunday Times. BetonSports shares fell 16% on Monday and were then suspended. "The firm now faces financial claims running to billions of dollars and has been forced to stop dealing with the US customers who generated most of its revenues." BetonSports lost no time sacking Carruthers, as "lawyers pursued a last-ditch effort to broker a deal with the American justice department" to regain online access to the US, says Simon Bowers in The Guardian.
BetonSports arrest: an implausible villain
Carruthers is an implausible villain. He was never "marked out for stardom", says Roger Blitz. He became a shop manager at Ladbrokes at the age of 19 and stayed with the firm for 20 years, managing around 40 of its high-street betting shops on a manager's salary of about £40,000. "His profile never registered with members of the Ladbrokes board." But Carruthers did develop a fervent belief in the future of online gambling, says Goodman, and frustrated by his bosses' reluctance to take up the challenge, was lured away to BetonSports in 2000 by US entrepreneur, Gary Kaplan, who wanted to obtain a London listing for his firm. Kaplan, a shady character who, say rivals, "was always going to cause the company problems", had already come to the attention of the US authorities in 1993 for running an illegal service taking sporting bets over the telephone.
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BetonSports arrest: antagonising US authorities
While Kaplan stayed in the shadows, the "inoffensive" Carruthers stepped into the spotlight. Despite appearances "works hard, not much charisma, still wears braces", according to a former colleague he seemed intent on antagonising the authorities. He often lectured Americans about their outdated' gambling laws, arguing that a legalised, regulated and taxed online gambling industry would bring the US Treasury billions of dollars. According to The Times, he also boasted that BetonSport spent millions on advertising and relished aggressive marketing, parking mobile homes outside football stadiums so fans could place bets. Indeed, the firm"seemed to enjoy nothing better than goading US prosecutors".
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If the recent arrests represent a genuine clampdown, rather than an attempt to get at Kaplan, the repercussions could be huge. The industry is already jittery: a gaming conference in Las Vegas has been cancelled and executives are rescheduling American meetings for fear of arrest if they touch down on US soil. As for Carruthers, he must be praying that his British citizenship makes a successful prosecution unlikely.
Gary Kaplan: the BetonSports owner keeps a low profile
BetonSport's billionaire founder, Gary Kaplan, 47, is understandably publicity-shy. Following his arrest in 1993, when he avoided prosecution, Kaplan moved his gambling operation first to Florida, then Aruba, Antigua and, finally, in 1998, to Costa Rica, to avoid the US authorities. He appointed Carruthers as CEO in 2000 to get a London listing and, after the first attempt at flotation failed in 2002, "withdrew to the position of consultant", says Matthew Goodman in The Sunday Times.
The firm was floated on Aim in 2004, but it was "no normal float". Its broker, Evolution, did three to four times more due diligence than usual and highlighted the risks of working for, or investing in, the firm, warning that sports betting in the US via the phone or internet violated US federal laws. What it failed to mention was any detail about Kaplan's "colourful past", says Dominic Kennedy in The Times, or the fact that he controlled Boulder Overseas Corporation, the Panama-registered firm floating BetonSports. The only reference to Kaplan was a paragraph revealing that he would be paid $150,000 a year as a consultant. At the time of the float, he made £28.75m from the sale of 23 million shares.
According to a City source, Kaplan, who is said to be a dead ringer for the action hero Steven Seagal, "is a genuinely frightening character," says Goodman. "Often surrounded by a phalanx of bodyguards, he sometimes goes by the name Greg Champion, or simply G'. He is said to carry a gun at all times and once shot up a computer after losing a bet." He's rumoured to have fled to Israel to escape the FBI.
