On Friday, the US Attorney’s Office for the Northern District of Alabama announced a federal grand jury indicted 11 Americans who’d been managing the offshore sportsbook Red44. The Costa Rica-based operator still had a Twitter account as of today, but its dot-com site was gone, leaving little evidence that the black market site ever existed.
With a server based in Costa Rica, the defendants allegedly conducted illegal “bookmaking and betting activities” that yielded them $75 million in profits from 2019 to 2021. Further, they’d accepted “hundreds of millions of dollars in wagers from bettors” during that time, according to Friday’s press release.
The Birmingham, Ala.-based US Attorney’s Office said:
A 114-count indictment filed in US District Court charges these defendants stemming from their management of a multi-million dollar wagering excise tax evasion scheme involving an illegal sports-betting organization.
The Costa Rican Connection
Suppose a site based out of Costa Rica accepting illegal sports bets from Americans sounds familiar. In that case, it’s because the US Attorney’s Office for the Eastern District of Pennsylvania obtained a $46.8 million settlement with 5Dimes a couple of years ago.
Unlike jurisdictions like Malta and the Isle of Man, online gambling site licenses are available in Costa Rica and Curaçao without much oversight. Curaçao is slowly working on changing its regulations.
However, that’s where the similarities between Red44 and 5Dimes end. Because Laura Varela forfeited the money from 5Dimes’ proceeds in 2020 as a widow. Her husband, William Sean Creighton, the site’s owner and operator, was kidnapped and murdered in 2018.
Editor’s Note: A reader also points out another fundamental difference between the two. 5Dimes generally required users to post funds in advance of betting, while Red44 operated on credit. Although both served US customers illegally, “credit shops” pose a greater degree of risk for the end user, due to the possibility of ending up deeply in debt to a criminal organization.
Costa Rican authorities arrested two more individuals allegedly involved in the deadly kidnapping, La Teja reported on Dec. 15, 2022:
The homicide occurred despite the fact that the family paid $900,000 in bitcoin coins (just over ¢553 million) for their release; however, Creighton never returned, and in September 2019, he was found dead buried in a grave in Quepos.
Among the 12 individuals authorities previously arrested in connection with the kidnapping-turned-murder of the West Virginian living in Costa Rica were two traffic officers. The officers allegedly “stopped him before he was taken away by four men in a pickup,” according to the Daily Mail.
Red44 Indictments Include the Founder
The US Attorney’s Office for the Northern District of Alabama said:
Timothy J. Pughsley, 51, of Birmingham, Alabama, is charged with 38 counts of tax evasion, one count of conspiring to operate an illegal sports-betting organization, one count of conspiring to commit money laundering, and four counts of money laundering.
Pughsley allegedly founded Red44 about 17 years ago.
The Associated Press reported on Friday:
Prosecutors said Red44 operated similarly to a multilevel marketing business where bookmakers were paid a percentage of their subagents’ profits.
This Is What the AGA Was Complaining About
Friday’s announcement about the Red44 arrests may be among the first of many.
In November 2022, the American Gaming Association (AGA) released research illustrating the scale of the US illegal gambling situation.
The AGA estimates Americans are spending $44.2 billion a year, or the equivalent of $20 a month for every US adult, on illegal online casinos and sportsbooks, as well as gray market “skill machines.” Gamblers can often find those machines at gas stations.
The AGA believes that offshore sports betting sites, like Red44 and 5Dimes, account for less than 3% of all US gambling activity.
Most Americans who gamble online do so on legal US online casino, poker, and sports betting sites.
Even so, the AGA wrote a letter in April 2022 to Attorney General Merrick Garland. It asked him to take action against the black and gray market actors.
In June 2022, 28 members of Congress signed a letter urging Garland to take action on illegal online sportsbooks:
As this nascent legal market continues to expand, we cannot turn a blind eye to the fact that the illegal market is thriving and operating unfettered. These offshore operations, including Bovada, MyBookie, and BetOnline, have developed sophisticated platforms that are nearly indistinguishable from those of legal providers. These illegal operations also offer generous promotions and favorable odds to entice US customers and are frequently cited in reputable sports media channels. Internet searches nationwide for offshore sportsbooks increased by almost 40 percent in 2021, outpacing searches for legal ones, with Bovada constituting half of all sportsbook brand searches. These dangerous operators are not relegated to the dark web, but instead are easily accessed through any computer or smartphone. This creates confusion for many consumers who may not even know they are wagering illegally.
The Red44 Indictment, in Context
While the AGA and congressional letters don’t mention Red44 by name, the call to action is clear.
Plus, IRS Criminal Investigations and Homeland Security Investigations may have already been on the Red44 case before Garland received the letters. Still, Friday’s announcement about the indictments was likely welcome news to the AGA.
Now, Assistant US Attorneys Catherine Crosby, Kristen Osborne, and Ryan Rummage will prosecute the alleged offenders.