So if I understand the situation correctly:
- OP was arbitrage betting
- 2UP (like many other sites) say to have rules against arbitrage betting (as per the snippet from the customer service representative's response) but the actual Terms of Service do not seem to explicitly mention arbitrage being disallowed.
- 2UP blocked his account and seized all his funds.
This is a bit of a sticky one. As far as I know, arbitrage betting would not fall under the definition of fraud and it's definitely not considered a criminal activity in any jurisdiction, so I'm not sure what actual term of service would be breached here. Even if there is a breach in T&Cs, seizing all the assets without giving a player a chance to dispute could be seen as unlawful in many jurisdictions (while others may allow it, if the seizure is considered justified and is proportionate to the damage caused).
On the other hand, it's a sort of general knowledge that most of sport betting sites have restrictions against arbitrage, so it shouldn't be that much of a surprise.
If the site had arbitrage betting mentioned in its Terms of Service, I would be siding with the casino, but they don't, so we have a bit of a gray area here.
Perhaps a good solution would be for 2UP to allow the OP to withdraw his deposit but not the winnings (I assume the arbitrage is the only accusation here and no other T&Cs have been broken). Updating Terms and Conditions to explicitly mention arbitrage is probably a good move too. Referring only to "dishonest or improper activity" is way too broad and open to interpretation.
How do you want to prove arbitrage? Let's say you have three different providers, and the option you need is available at 2up, but you choose it because the other two providers have a limited selection. Is that called arbitrage now?