San Francisco, California - Attorney General Kamala D. Harris today announced that Capital Sweepstakes Systems, Inc. (Capital Sweepstakes), a major sweepstakes gambling software provider, will pay $700,000 in civil penalties and costs and admit that it violated state gambling laws, in a case brought by the joint state and local Sweepstakes Gambling Task Force.
This settlement resolves allegations that Capital Sweepstakes violated state laws governing illegal gambling and unfair competition. In addition to the $700,000 it will pay, Capital Sweepstakes is barred from conducting any kind of sweepstakes operations in the state for 10 years.
“Capital Sweepstakes profited by targeting low-income communities, misrepresenting their slot-machine style operations as legal enterprises and creating magnets for crime,” said Attorney General Harris. “My office is dedicated to combatting and dismantling illegal and unregulated gambling operations statewide. I thank our Gambling Task Force and the Bureau of Gambling Control for their tireless investigative work.”
This case stems from a joint investigation conducted by the Federal Bureau of Investigation (FBI) and the California Department of Justice, Bureau of Gambling Control that included extensive undercover work and multiple search warrants being served on Capital Sweepstakes’ California operations. Additionally, cash and accounts totaling more than $3,000,000 were seized in the investigation.
As a result of the joint investigation, Capital Sweepstakes and co-defendant Kevin Freels pled guilty to federal felony gambling charges and agreed to forfeit $1.6 million to the federal government, in addition to the $700,000 in civil penalties and costs paid to resolve the state’s suit, for a total of $2.3 million.
Software developers like Capital Sweepstakes design software systems that create interactive gambling-themed games that they represent as lawful promotional sweepstakes for play at sweepstakes cafés, but they constitute illegal gambling under state law. These illegal operations often are magnets for other crime at the local level and generally target a vulnerable low-income clientele.
Sweepstakes gambling enterprises are a nationwide problem and are estimated to earn over $10 billion a year. Attorney General Harris recently filed an amicus brief in the California Supreme Court in support of several cases that the Kern County District Attorney’s Office brought against sweepstakes gambling operations. The Supreme Court ruled unanimously that these sweepstakes gambling operations are illegal.
Attorney General Harris continues to take the lead in the battle against these illegal gambling operations, having been involved in seizures of illegal sweepstakes gambling equipment and funds across the state and pioneering the use of the Unfair Competition Law to provide stronger monetary remedies against them.
The Sweepstakes Gambling Task Force was formed to bring an end to illegal sweepstakes gambling operations in California and includes the California Attorney General’s Office, Contra Costa County District Attorney Mark A. Peterson, Fresno County District Attorney Lisa A. Smittcamp, Kern County District Attorney Lisa S. Green, Merced County District Attorney Larry Morse II, Riverside County District Attorney Michael A. Hestrin, San Diego County District Attorney Bonnie M. Dumanis, Sonoma County District Attorney Jill R. Ravitch, Tulare County District Attorney Timothy Ward, and Los Angeles City Attorney Michael N. Feuer.