The former CEO of Internet gaming outfit BetOnSports has been sentenced to 33 months in prison after pleading guilty to one count of racketeering conspiracy.

David Carruthers' London-based business was shut down after federal investigators linked to illegal online gambling in the United States. BetOnSports took in $1.25 billion in bets in 2004, 98% of which came from the United States. Carruthers and other executives were indicted in 2006, and he was arrested in Dallas on his way back to Costa Rica after attending the company's annual meeting in London.

Thanks a lot, Vladimir Putin. The former Russian president (now prime minister) signed an anti-vice law in 2006 that has led to the closure of most casinos in the struggling nation. This move quickly killed more than 400,000 jobs as of July 1 in a country already in the throes of an economic crisis. More than 40,000 casino workers were impacted in Moscow alone, which was home to 30 major casinos and 500 smaller operations.

Four remote Russian regions have now been established as special gambling zones, and gambling is now illegal anywhere outside of these locations.

PartyGaming co-founder Anurag Dikshit has agreed to pay $300 million to the United States government as part of his decision to plead guilty to charges related to operating an illegal online casino. Mr. Dikshit owns a 27% stake in the company, which is publicly traded in the United Kingdom.

I guess this is good news because the federal government really could use the money right about now. But in a moral sense, everything about this case is hypocritical and infuriating. Mr. Dikshit operated an online business that provided a service to people who wanted to participate. There has never been any suggestion that consumers -- who were required to be 18 years old to play -- were being ripped off by PartyGaming. He did not rip off investors as Bernard Madoff has done, nor did his product cause cancer like Philip Morris' (NYSE: MO). So all that the company really did was break laws banning the operation of an illicit casino -- laws that, by the way, serve to protect the monopoly of the 39 states that offer the lottery.

If there's anything morally repugnant about offering people an opportunity to gamble, why do state governments do just that? If there isn't, why persecute an entrepreneur like Mr. Dikshit?

It's unfortunate that federal officials don't devote their energy to stopping businesses that actually rip people off.

This week, I've been working on a list of penny stocks to buy. Given that any recovery is likely to be led by the small-cap space, I'm looking closely at the smallest of the small to drive my portfolio higher.

Not for the faint of heart, these so-called penny stocks can generate some really fat returns. I'm not talking about just doubling your money here. Stories abound of returns of 300% or much more on stocks that started out trading for less than $5 per share.

One of the stocks on my list is in the poker space, and to give you a bit of a preview, I want to visit one other player in the space that was worthy of consideration, but did not make the final list.

CryptoLogic (NASDAQ: CRYP) is a leading provider of software for the Internet gaming space for non-U.S. players. It is that last piece about non-U.S. players that has me quite excited about the stock.

The company has benefited from the explosion of online poker playing, but stagnated due to tough enforcement of rules and regulations against U.S. players. It is illegal to gamble online, and that is a huge problem for companies like CRYP.

My take on this stock is that regulations will change for a few reasons. At the top of the list is a new administration that claims to bring a non-lobby-based form of governing to Washington.

That means the Vegas lobby is out of luck when it comes to online gaming. Every other modern country allows it, why not ours?

Another big plus is the taxable revenue that would come from legalizing online gaming. Given the economy and massive debt loads, one would think this would make sense.

I think the space makes for a reasonable speculation, and CRYP looks like a strong play in my opinion.

With shares at $2 and change, off a 52-week high of $21.97, there is plenty of fuel here.

Of course, there is risk, but that's what penny stocks are all about.

I am merely suggesting that there is a legitimate trigger here for some serious upside. Sometimes that's all it takes for a penny stock like CRYP to take off.

And if you're interested in penny stocks, be sure to check out my Top 5 Penny Stocks to Buy Now.

Jamie Dlugosch is a contributor to InvestorPlace.com.

The is talk that the United States may reconsider its ban on online gambling and, if it is repealed, several companies stand to benefit. The House of Representatives has said it will hold a hearing to look at online gambling on Friday, and Barney Frank, Chairman of the House Financial Services Committee, has said that online gambling ought to be legalized, and introduced a bill in April that would repeal the ban.

It's hard to justify the ban on online gambling, given that so many other forms of gambling are legal. The passing of the ban was a classic example of special interest politics, with Las Vegas casinos lobbying hard, not wanting to lose gambling dollars to the internet. Frank has called the issue "a matter of individual freedom" and a repeal of the ban should stand a good chance at passing.

If it does, Cryptologic (NASDAQ: CRYP), which provides software for numerous on ling gaming sites, could be a huge beneficiary. And while World Poker Tour Enterprises's (NASDAQ: WPTE) gambling site hasn't allowed American gamblers in years, its television show would likely prosper in the event of legalization. If people can player poker online, interest in the game will increase.

But stock picks aside, I've never understood the justification for the ban on online gambling. Given that most states have lotteries, how can the government claim to be banning it for moral reasons? The ban appears to have been a result of a desire to protect the Lottery and Las Vegas's monopoly, and that's wrong. Who are these guys in Washington working for anyway?

As part of a port securities bill passed by the House and Senate recently, online gaming in the US would be outlawed for foreign-based companies that offer online betting transactions in American currency. Though the comapnies are generally based in the Caribbean or Central America, they derive the bulk of their revenues from US gamblers. If this legialation is signed into law by President Bush, US gamblers will not longer be able to transfer money to foreign-based gaming companies using credit cards, checks, or electronic fund transfers. I guess gamblers could mail big wads of cash to their off-shore bookies. The legislation is designed to make it harder for terrorist organizations to move money around under the guise of legitimate businesses. Also, domestic gambling operations, such as those in the Gulf Coast region, would have fewer competitors for consumer access to real money poker.

PartyGaming, the world's largest online gambling company, indicated it would cease business operations in the US if this legislation is enacted, as would 888 Holdings PLC and Sportingbet PLC. Shares in PartyGaming have already plummeted by over half, closing recently at 84 cents. 888 Holdings in down by 26% and Sportingbet is the big loser, declining by 65% to close at $1.24.

The legislation seems also to prohibit many forms of sports-related gambling, including wagering on the games leading up to the World Series, as well as the monumental betting pools for the Super Bowl in early 2007.