New York State attorney general Eliot Spitzer's Internet and Investor Protection bureaus were investigating Suffolk County, New York-based casino WIGC.
Spitzer's office said that along with accepting wagers, the casino was "selling shares in the casino gaming business for $10,000 each. It's estimated that the defendants raised $1.8 million from 114 investors, including 10 from New York."
WIGC argued that it was not subject to New York state gambling laws because its servers are located in Antigua. The firm could not be reached for comment.
In a 20-page decision, New York state Supreme Court Justice Charles Edward Ramos ruled: "It is irrelevant that Internet gambling is legal in Antigua. The act of entering the bet and transmitting the information from New York via the Internet is adequate to constitute gambling activity within New York State."
In addition, the judge found WIGC "liable for violating state securities laws for failing to register with the Attorney General before selling securities and failing to disclose that 46 percent of investors' funds would be used to pay salaries, commissions, and consulting fees to the corporation's principals," Spitzer's office said in a statement.
Internet gambling has been a hotly contested issue. Last month, a Senate committee voted overwhelmingly in favor of a ban on Net sports and casino gambling. But online gambling is poised to become a booming business, studies have shown.
In the New York case, Ramos ruled: "The Internet site creates a virtual casino within the user's computer terminal," therefore WIGC broke state and federal gambling laws, including the Federal Interstate Wire Act.
A hearing will be held to determine the restitution to be paid to investors, as well as penalties and other costs, the attorney general's office said. A pre-hearing conference is set for September 9.
This is not the first time a New York attorney general has cracked down on Net gambling. In addition, Spitzer has gone after online privacy violations and spam, and in March set up an Internet Bureau, charged with coordinating "statewide the investigation and prosecution of civil law enforcement actions involving computers, online services, and the Internet, as well as child pornography and other crimes being committed through the use of the Internet," according to the attorney general's Web site.
Other states also have sought to curb online gambling. In September 1998, the Missouri state attorney general won a case that effectively ran a Pennsylvania Internet gambling firm out of Missouri, where riverboat gambling is legal.