Rochester Region at Center of Online Gambling Arrests

Gary Craig - Staff writer, RocNow.com

Local News - February 7, 2010 - 5:00am

BetOnline.com, a Panama-based online wagering site, is one of an untold number that will be accepting bets today on a premier gambling event - the Super Bowl.

Meanwhile, Joseph J. Fafone, an Ontario County man who helped build BetOnline.com, is awaiting trial on charges that he was a ringleader in a massive gambling enterprise that made millions of dollars on Internet wagering.

Fafone, 48, of Farmington, was among 30 people arrested in October on bookmaking charges stemming from involvement with offshore, Internet-based gambling sites. Authorities also charged Fafone's Ontario County-based corporation, JJF Consulting Services, which they said was a shell company that funneled and concealed illegal gambling proceeds.

Also arrested were David Valerio, 61, of Rochester and Louis Lippa Jr., 61, of Perinton. Another of those arrested, Edward P. Kenny of Florida, also previously lived in Rochester.

Police also arrested Fafone's 70-year-old father, Joseph P. Fafone, at his home in Boca Raton, Fla. He also previously lived in Rochester.

All have pleaded not guilty.

The gambling ring pulled in $587 million over 28 months, authorities allege.

Christopher Grillo, a Florida lawyer representing the younger Fafone, said Fafone operated legally. Fafone continues to maintain his innocence, Grillo said.

Attorneys for the other defendants did not return telephone calls.

In the past decade, Internet gambling has exploded in size - prompting Congress to grapple with new laws and bookmakers to search out ways to skirt any prohibitions. Offshore headquarters - such as the Panamanian home for BetOnline.com - provide an online outlet for wagers.

Despite the technological advances in gambling, the cat-and-mouse game between bookies and police officers continues as in years and eras past - as demonstrated by the sweeping law enforcement operation that led to the arrest of Fafone and others.

The next court dates for the accused - all of whom are free awaiting trial - will be later this month.

The nearly 200-page indictment alleges that traditional policing techniques - gambling-related telephone calls caught by wiretaps, the use of informants, and surveillance in which police witnessed individuals exchanging hundreds of thousands of dollars in gambling proceeds - provided the foundation of the criminal case.

Police say they dismantled a significant criminal enterprise.

"Gambling proceeds is the fuel that drives organized crime," New York City Police Commissioner Raymond Kelly said about the arrests. "The staggering amount of money in this case demonstrates just that. In this instance, however, the bookies ran out of luck."

However, months after the arrests, the online gambling sites associated with Fafone and others are still in operation.

"I can't comment on any of the activities that happened in the States," said a spokesman for BetOnline.com who asked not to be identified. "We are (legally) licensed as a sports betting site in Panama."

Airport arrest

On Oct. 20, Joseph J. Fafone planned to fly out of Rochester with his ultimate destination the BetOnline.com headquarters in Panama. Unaware that he was under the watchful eye of State Police investigators, Fafone cleared the security check at the Greater Rochester International Airport. Police waited to approach Fafone; the metal detector had assured them that he was unarmed.

Near the airline gate, police closed in, arresting Fafone on bookmaking charges and seizing nearly $24,000 in cash he was carrying.

Almost simultaneously at homes and apartments across the country, authorities arrested more than two dozen people.

Fafone and Erik Davis Harp, 36, of Las Vegas are accused of being the ringleaders of the online ventures.

A target of previous regional gambling investigations, Fafone had hoped he would no longer be under steady police scrutiny if he moved offshore, Christopher Costigan, president of the online gambling industry publication Gambling911.com, said in an e-mail response to questions from the Democrat and Chronicle.

Fafone set up his first offshore shop in Costa Rica around 2000 so he could operate legally, said Costigan, who interviewed Fafone and visited Fafone's betting headquarters in Costa Rica and Panama.

According to Costigan, Fafone said: "I got tired of having my door busted in by the police all the time."

Online wagers aren't the crux of the criminal allegations against the Fafones, however. Instead, authorities allege that the Fafones and others engaged in numerous exchanges of gambling proceeds, including one instance in which the younger Fafone allegedly delivered more than $550,000 to a bettor at a Long Island hotel.

Allegations of connections to organized crime have followed both Fafones, though their attorneys have contended there are no ties.

Queens District Attorney Richard Brown said that the alleged betting ring busted in October "had links to both the Gambino and Genovese crime families."

In 2002, the elder Fafone, nicknamed "Boca Joe," was arrested with his son and a reputed Gambino family associate - Frank "The Bear" Basto - by a Florida police investigation dubbed "Operation Goodfellas."

Basto and the elder Fafone were accused of conspiracy to distribute cocaine while Fafone and his son were charged with illegal bookmaking.

In allegations similar to the current case, authorities said the two ran a Costa Rica-based online betting operation and made cash payoffs in Florida.

Basto's criminal record dated back to 1956, and included convictions of conspiracy to commit murder and arson. He and the Fafones pleaded guilty to criminal charges in Florida.

The elder Fafone served almost two years in prison, while the younger received probation. Basto served about five years.

Were it not for an appellate ruling, the elder Fafone would have been in prison for the past two decades.

In 1989, a Massachusetts jury convicted him after hearing evidence that he was an accessory to the shipment of major amounts of cocaine from Florida into western Massachusetts.

Prosecutors portrayed him as an upper-tier dealer who lived lavishly without evidence of legal employment.

In 1990, a judge sentenced Fafone to 30 to 45 years in prison. Three years later, however, an appellate court reversed the conviction.

While living in Florida, Fafone may have sold cocaine to a major drug dealer, the judges ruled, but he did not know the drugs were destined for Massachusetts. Under state law, the appellate court determined, he could not be an accessory to the drug transactions in the state.

Before that case, the only conviction for the elder Fafone occurred in 1971 in Rochester. Fafone and two other men sold almost $200,000 worth of counterfeit $20 bills, authorities alleged at the time.

Old habits?

Costigan said the younger Fafone may have suffered from a common problem among bookmakers trying to transition into an online world: He couldn't break with his old habits of dealing with bettors in the United States.

"Joe has been well regarded in the industry, but online sports betting was started by bookies who ran stateside businesses and, for many, it is very tough to get away from that part of the business," Costigan said in the e-mail.

Online betting sites such as BetOnline.com navigate within a legally murky area. They can legally accept bets if allowed in their countries of operation. The BetOnline.com spokesman said bettors are the ones responsible for knowing whether there are legal prohibitions on making wagers.

Department of Justice officials contend that longstanding federal Wire Act laws, prohibiting the transfer of gambling proceeds by wire communications, extend to Internet gambling. However, in 2006 Congress passed the Unlawful Internet Gaming Enforcement Act (UIGEA), trying to specifically outlaw online wagering by forcing banks and payment conduits to monitor and report Internet-based gambling transactions.

"What the UIGEA does is it goes after the payment providers who do have exposure in the U.S.," said David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas. "It definitely makes (online gambling) less legitimate. Basically what it does is it forces anyone with any kind of illegal exposure in the United States out of the picture."

The offshore gambling site operators "don't have any kind of legal exposure in the U.S.," he said.

The UIGEA has been placed on hold, however, after gambling industry and banking lobbyists argued that the statute is too difficult to enforce. Meanwhile, U.S. Rep. Barney Frank, D-Mass., has been pushing a bill to legalize and regulate online wagering.

Longtime gambling critic John Kindt, a business and legal policies professor at the University of Illinois, says that legalized online wagering would provide an easy front for money laundering and spur more gambling addiction.

Online gambling will be "the crack cocaine of creating new addicted gamblers," he said. "It would place gambling at every school desk, at every work desk, and in every living room."

Department of Justice officials concur, opposing the legalization of online wagering. The battle over online gambling is likely to be rejoined in the current congressional session.

As for today, however, the Internet will be alive with what some experts predict will be millions of online wagers.

"It's not just Super Bowl Sunday," Kindt said. "It's Super Gambling Sunday."

Said Schwartz, from UNLV: "It's kind of like Christmas for little kids, that's what this Sunday is for the sports books."