The sports-betting Web site operator said it was terminating the contract of David Carruthers and removing him as a director as a consequence of his detention.
"Clearly, while he remains in the custody of the U.S. government, he is unable to perform his duties," the company said in a statement.
Carruthers, 48, was arrested July 16 at Dallas-Fort Worth International Airport in Texas while trying to make a connecting flight from the United Kingdom to Costa Rica, where BetOnSports is based.
Internet gambling is now a $12 billion industry. But in April, Carruthers admitted he was operating in the gray areas of the law, CBS News correspondent Anthony Mason reports.
"If I was doing it in the United States, it would be illegal," Carruthers said. "But I'm not."
BetOnSports is listed on the London Stock Exchange, Mason reports. Fidelity, Morgan Stanley and Goldman Sachs have all been investors, but the stock plummeted 17 percent after the indictment.
The company suspended trading of its shares two days later, and the U.S. Web site has been temporarily shut down.
Carruthers and 10 others, including the founder of BetOnSports, were named in a 22-count indictment unsealed this week by federal prosecutors in St. Louis. The government says BetOnSports fraudulently took bets from U.S. residents by phone and the Internet, and failed to pay excise taxes.