Expanded U.S. Prohibition on Online Gambling Is Upended by Judge

(Bloomberg) -- The U.S. Justice Department’s recent move to expand a prohibition on online gambling under a 1961 law was overturned by a federal judge who ruled that the measure only bans sports betting that involves interstate transactions.

The decision Monday by U.S. District Judge Paul Barbadoro in New Hampshire will be a big relief to operators of interstate lotteries and other internet-based gambling sites who feared that the Justice Department’s expanded reading of the law, disclosed in January, could jeopardize all online wagering that crosses state lines.

The New Hampshire Lottery Commission, which uses a vendor with servers in Vermont and Ohio, sued to have the broader interpretation of the U.S. Wire Act overturned because its operations could now be considered criminal activity. The state would lose more than $90 million in annual revenue if it had to suspend lottery sales involving interstate transactions. New Jersey, Pennsylvania and Michigan backed New Hampshire in the lawsuit.

The states "faced the choice between risking criminal prosecution, winding down their operations, or taking significant and costly compliance measures that may not even eliminate the threat," according to Barbadoro’s decision.

The expanded interpretation by the Justice Department’s Office of Legal Counsel dated Nov. 2 and made public in January said an opinion issued about seven years ago that the 1961 Wire Act only banned sports gambling was a misinterpretation of the statute. The conflicting readings of the statute were prompted by the ambiguous grammar used in a key passage.

Barbadoro said he had to look beyond the grammar to the context of the law to decide its meaning. A separate law passed simultaneously with the Wire Act, the Paraphernalia Act, showed Congress’s intention, according to the judge.

“That these two gambling statutes were passed the same day sends a strong contextual signal concerning the Wire Act’s scope," Barbadoro said. "The Paraphernalia Act demonstrates that when Congress intended to target non-sports gambling it used clear and specific language to accomplish its goal. In other words, when Congress wished to achieve a specific result, ‘it knew how to say so.’"

©2019 Bloomberg L.P.

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