Three former fraternity brothers were charged Tuesday in what officials described as one of the largest pari-mutuel wagering frauds ever attempted, a $3 million payoff involving the Oct. 26 Breeders’ Cup at Arlington Park.
The three–Derrick Davis of Baltimore; Christopher Harn of Newark, Del.; and Glen DaSilva of New York–appeared before a federal magistrate after surrendering to the FBI. Each faces a single count of conspiracy to commit wire fraud, punishable by up to five years in prison, though prosecutors said more charges could be forthcoming.
James Comey, U.S. attorney for the Southern District of New York, said the men exploited security weaknesses in an off-track betting system in an attempt to turn their wagers into a sure thing.
“They also bet that law enforcement couldn’t catch them,” Comey said at a news conference at the federal courthouse in this suburban Westchester County town north of New York City. “But that’s a bet they couldn’t fix.”
The scandal already has had huge repercussions in horse racing circles. The Illinois Racing Board on Tuesday temporarily suspended group bets like the Pick Six option that the three allegedly exploited during the Breeders’ Cup. The board said the betting options would not be reinstated until adequate security measures are in place.
Industry officials also are concerned about possible fallout. “You can’t have the kind of coverage that this event has had and not have a negative impact,” said Stan Bergstein, executive vice president of Harness Tracks of America. “It has been a huge public relations crisis for racing, and it’s not a story that will die.”
Suspicions that something was wrong with the Breeders’ Cup bets arose when it was discovered that there were six winning Pick Six tickets, each worth about $428,000, and Davis held all of them. He also held 108 consolation tickets worth about $4,600 apiece.
Then there was the unusual way in which Davis had made his bets. Using a touch-tone telephone system run by an off-track betting facility in upstate New York, Davis had placed single bets on the winners of the first four races of the Pick Six, then bet on every horse in the last two races.
Those two highly unusual circumstances led to an investigation by the company that handled the bets, racing officials and later, federal prosecutors.
U.S. Magistrate Judge Mark D. Fox set bail at $200,000 each. DaSilva, who tested positive for cocaine and marijuana before his hearing, also will be tested three times a week for drugs, officials said.
The defendants, all 29 years old, were members of Tau Kappa Epsilon fraternity at Drexel University in Philadelphia during the early to mid 1990s. They said little in court and betrayed few emotions.
Their attorneys maintained that the men are innocent.
Law enforcement officials provided few details, saying their investigation was ongoing. But a seven-page federal complaint released Tuesday alleged that Harn exploited his position as a computer programmer at Autotote Systems Inc., the firm that processes many of the off-track wagers placed on horse races in America.
Autotote Systems handles the bets placed through Catskill Off-Track Betting, which Davis and DaSilva used to place bets on races in Illinois and New York.
According to the complaint, the conspiracy started when DaSilva opened an account at Catskill Off-Track Betting on Oct. 3. Later that day he placed a Pick Four bet on races at Balmoral Park in south suburban Crete that won him $1,851. Two days later, he placed a Pick Six bet that paid $107,608 for races at Belmont Park in New York.
He later deposited an $80,000 check, representing most of the winnings less taxes.
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On Oct. 18, Davis, a computer consultant, opened his own account with Catskill. On the day of the Breeders’ Cup, he placed his Pick Six wagers through Catskill’s touch-tone automated system.
That same day, the complaint stated, co-workers saw Harn at Autotote’s Newark, Del., offices, although the computer programmer was not scheduled to be in the office on a Saturday.
The complaint charges that during the day, Harn accessed the Autotote system at the Catskill OTB hub in Poughkeepsie, N.Y., where Davis’ Pick Six bets were being held before they were transmitted to Arlington.
Phone records show that Harn and Davis spoke several times, according to the complaint.
Racing officials called for an investigation within days of the Breeders’ Cup, and the $3 million payoff has been withheld pending the outcome.
Autotote fired Harn after an internal investigation, saying there was evidence he had tampered with Davis’ bets.
Cracking the conspiracy involved the FBI, the New York State Police, and the New York State Racing and Wagering Board, but Comey said the case had posed no great challenges.
“It was garden-variety fraud,” Comey said. “There was nothing really fancy here.”
The case demonstrates the need for simulcast and off-track betting facilities to improve the security of their computer systems, said Michael J. Hoblock, chairman of the New York State Racing and Wagering Board.
“With 85 to 90 percent of the [betting] handle now in simulcast, things are moving so fast that security can’t keep up,” Hoblock said. “The technology moves faster than the bureaucracy.”
Catskill OTB has switched to using operators who takes bets, and the conversations are recorded, as they are in most OTB parlors, officials said.
Illinois racing officials have said a similar scam could not be pulled off in this state, largely because of a requirement that bettors hold paper tickets as confirmation of their wagers.
“The problem involves a tote company and the Catskill OTB in New York,” said Billy Johnston, CEO of the Balmoral and Maywood Park harness tracks. “They had their heads in the sand. This is not about anything anybody in Illinois did wrong.”
But the state racing board still voted to suspend Pick Four through Pick Nine wagering options on live races in the state and simulcasts from outside the state.
“We should convince everyone across the country to drop the Pick Six and Pick Four and these type of bets until we’re certain we have gotten to the bottom of [the scandal],” said Bill Jackson, a racing board member and chairman elect of the Association of Racing Commissioners International.