When US authorities snatched BetonSports chief executive David Carruthers while he waited to change planes in Dallas, they shook the online gambling industry out of its mildly complacent mood . . . despite ongoing sabre rattling from a Republican lobby incensed at what it sees as flagrant flouting of US law.

Industry shoulders had shrugged at the previous week's passage through the House of Representatives of a bill cracking down on online gambling. The feeling was the 'Goodlatte' bill wouldn't make the senate before mid-term elections. In any case, similar bills made it through twice in the past eight years only to stumble in the upper house.

Concerns in the senate ranged from suggestions the US would be hypocritical to lecture China about regulating the internet while doing the same back home, to cries of foul play because the bills sought exceptions for state lotteries and horse racing.

Last week was an entirely different matter, despite the timing. The current furore arises from the interpretation of the 1961 Wire Act, which outlaws the use of telephone wires for betting across borders and refers specifically to sports betting.

Nothing like a high-profile arrest, coupled with Caponestyle Department of Justice noises about racketeering, to sharpen the gambler's mind.

Carruthers's arrest prompted an indiscriminate sell-off of gambling stocks on Monday and Tuesday. As the week progressed, however, market movements showed investors are starting to draw lines between traditional bookmaking stocks and online gambling stocks, and also to distinguish between those online companies that offer sports betting in the US and those that stick to online poker and casino.

Paddy Power chief executive Patrick Kennedy was upbeat. "My conscience is clear and if I had a good reason to go to the US I would feel fine, " he said. In support of his virtue, he cited the fact Paddy Power doesn't accept US bets, doesn't advertise in the US, doesn't accept dollars as payment, doesn't accept US credit cards and doesn't accept US addresses.

"We're pretty much as pure as pure can be in this space."

Not all can say the same.

Online gambling law in the US is a very grey area, which is why the established landbased casino behemoths have left it to pretenders to colonise the online space. It is also an area where the US authorities are at odds. The DoJ has argued the 1961 act bans all online gambling, but court judgments have implied the antiquated law does not apply to the internet applies only to sports betting.

The DoJ has brought just one successful prosecution under the act. In 1998, it prosecuted Jay Cohen, who took online bets from the US from an offshore base in Antigua and came back to test the law. Despite Cohen's confidence, he was sentenced to 21 months in jail.

In 2001, in what is known as the Mastercard case, an appellate court found that online gambling debts incurred on credit cards were legal debts and had to be paid.

The debts in question did not relate to sporting bets and the court ruled that the Wire Act does not prohibit non sports internet gambling.

Nervous investors are watching to see whether the DoJ is on the rampage against the entire sector or whether it has concerns specific to BetonSports, as a number of those arrested last week were from companies linked to it.

Another concern is the DoJ may use BetonSports to run a test case including online casinos.

"These stocks aren't for the faint-hearted, " says David Jennings of Davy Stockbrokers. He suggests that the average retail investor stick to established bookmaking stocks, Paddy Power, Ladbrokes and William Hill. Neither Paddy Power nor Ladbrokes are exposed to the US. William Hill has run poker and casino in that market for four years but doesn't take US sports bets.

The traditional bookies are increasingly exposed to the explosion in online gambling.

For Paddy Power, for example, online business accounted for three quarters of profits in the second half of last year. The company's online sports book revenues grew by 44% and it is planning to expand its online operations into new European markets. A small operation is already up and running in Germany, and France, Spain, Italy and Scandinavia would all be attractive destinations.

For those feeling more adventurous, and who can afford to take a hit, now could be a good time to buy into the purely online players that don't offer sporting bets to US investors. Jennings is keen on leading operator PartyGaming, which took an initial wallop along with the rest of the sector but recovered by Thursday to trade at around eight times earnings.

"Based on its performance the stock looks cheap. We have earnings growth of 34% in for next year, it grew by 56% last year and it had operating margins of 58-59%."

Strip out the legal uncertainty (admittedly a big stripping out) and Jennings reckons the model is very attractive. About 150,000 gamblers play poker through PartyGaming every day. "It's the number one in poker and when it launched a casino product last February at the flick of a switch it became the biggest online casino in the world, " Jennings noted.

"The only thing it is lacking is a European sports book."

Another option for gambling investors is online operator 888. com, which is not exposed to US sporting bets.

After that, though, things get tricky. BetonSports is suspended, so that's one option out of the picture. Sportingbet's stock price halved last week, showing investors are in something of a lather about its future. The fact that a spokesman for Sportingbet admitted later in the week the company had even taken telephone sports bets from US investors didn't help.

Even for the more attractive online options, investors are unlikely to be keen on the prospect of substantial share price dips over the next few years every time the DoJ makes an unexpected swoop.

Some UK-based chiefs will no doubt be reassessing their US holiday plans, having nightmares about the 'NatWest Three'. For now, it's all a bit of a gamble.