FARGO - A federal appeals court has overturned the conviction of Susan Bala, who was sentenced to 27 months in prison in what authorities said was the largest illegal gambling case in North Dakota history.

Tuesday's ruling from a three-judge panel of the 8th U.S. Circuit Court of Appeals said the evidence was insufficient to convict Bala, of Fargo, and Racing Services Inc., the company she founded as North Dakota's first simulcast racing service

Bala, 52, was convicted by a jury in 2005 of 12 felonies involving charges of running an illegal gambling business. Bala and RSI were ordered to forfeit more than $99 million, an order that was overturned by the appeals court.

Prosecutors said Bala broke state law by failing to give money to a charity from October 2002 to April 2003. The appeals court said the state Racing Commission's rules were not clear on how the charities were to be paid.

"Rather than pursue possible violations in state court, the commission brought the complicated situation to federal authorities, who then commenced a federal prosecution based upon flawed interpretations of state law," the ruling said.

"The result was a trial at which the government failed to prove any of the offenses charged," the appeals court said.

U.S. Attorney Drew Wrigley said he was disappointed but not surprised by the ruling.

"We have a difference of opinion with the 8th Circuit on that," Wrigley said. "We tend to agree with the verdict of the 12 jurors."

Wrigley said his office would decide whether to ask for a review from the full appeals court. Other options could include bringing charges in state court or a civil suit, he said.

"The decision seems to acknowledge there were state statutes that were violated," Wrigley said.

Attorney General Wayne Stenehjem said he would wait for federal prosecutors to decide their plans. Stenehjem also had charged Bala and Racing Services with illegal gambling, but the federal court verdict came before the state's case could be resolved.

"I thought that the federal government had a good case against the defendants. One of the defendants pled guilty," Stenehjem said, referring to Bala's business partner, Raymundo Diaz Jr. "Beyond that, my plan is to simply digest the opinion and determine where we go from here."

Lizabeth McKibben, Bala's attorney for the appeal, said her client was "railroaded" by prosecutors.

"Susan Bala never did anything wrong, and I think it's time for them to accept the fact that this was an ill-conceived action from the beginning," she said. "I think it's time for them to stop the persecution and look at the fact that just because they lost, they don't need to take another bite out of her."

U.S. District Judge Ralph Erickson ordered her release on Tuesday afternoon, but McKibben said she was unable to contact Bala at the minimum-security prison camp in central Illinois.

"I was extremely pleased that we were vindicated and that my client's convictions were overturned," Mark Beauchene, Bala's attorney during her trial, said Tuesday. "But there's also a great deal of mixed emotions obviously with Susan, a wonderful client and a very good person, having spent many months now in a federal prison."

Bala originally was scheduled to be released in September.

"No one can really put into words how personally and emotionally and financially devastating this experience has been for her," Beauchene said. "But Susan has a strong will. She's the type of person that will come back."

Bala testified for two days in her own defense during the three-week trial, often sparring with Assistant U.S. Attorney Keith Reisenauer. Bala said state racing rules were vague and that her employees did not keep her informed when they stopped using the site for Internet gambling that would not require payment of state taxes.

In sentencing Bala, Erickson scolded her for failing to protect the state from "unsavory characters." One of the Racing Services clients was an alleged member of the Gambino crime family charged in a New York indictment for illegal gambling.

"It's about as bad as I can imagine," Erickson told Bala.