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Internet casinos are outlaw operations in the eyes of the federal government, but they look like solid investments to many of Wall Street's largest firms.
Blue-chip investment houses like Goldman Sachs, Merrill Lynch and Fidelity now hold hundreds of millions of dollars in shares of online casinos and betting parlors, which are publicly traded on the London Stock Exchange and headquartered in places like Costa Rica or Gibraltar.
Legal experts are divided over whether American investors and the investment houses that operate mutual funds could themselves be seen as criminally liable for their actions by providing financial backing for offshore casinos.
Jaclyn Lesch, a spokeswoman for the Justice Department, said that the agency considered online gambling illegal but declined to “comment on the liability or hypothetical liability of a company or an individual.”
But Internet gambling analysts and company executives said that the investments highlight how widely the federal policy is, in essence, being ignored.
Millions of Americans use the Internet to play games like poker, blackjack and roulette, or to place wagers on sporting events.
Rep. Bob Goodlatte, R-Va., an opponent of gambling, said that the federal government had essentially given up enforcing laws against offshore casinos. He noted, for example, that casino operators now travel freely within the United States, gathering at trade conventions even though, he said, prosecutors would be within their rights to arrest and bring charges against them.
For their part, the investment houses have taken the position that they indeed know there are legal risks involved in investing in offshore casinos, but that the risks are outweighed by the benefits of owning shares in growing, highly profitable businesses.
The ownership rolls of offshore casinos read like a Who's Who of America's top investment firms. For example, public filings show that tens of millions of shares of SportingBet, a company listed on the London Stock Exchange that allows people to place bets on sporting events, are owned by Fidelity, Merrill Lynch and Goldman Sachs.
Similarly, Goldman Sachs and Morgan Stanley Securities hold big positions in Bet-OnSports, another publicly traded firm in London that facilitates sports betting, according to public filings.
“There is no other leisure business in the world with the same potential for growth and shareholder returns as online gaming,” said David Carruthers, the chief executive of BetOnSports, noting that the major casinos each project 20 percent annual sales growth. “We're in our embryonic stages.”
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