forbes blog
Follow Me
Nathan Vardi
The Jungle
1578Share
0diggsdigg
54
inShare
U.S. Government Moves To Shut Down World’s Biggest Online Poker Companies
Apr. 15 2011 - 2:50 pm | 24,071 views | 1 recommendation | 4
comments
By NATHAN VARDI
Image via Wikipedia
Federal prosecutors today unsealed a sweeping indictment against Isai Scheinberg and Raymond Bitar, founders of the world’s biggest online poker companies, and moved to try to shut down their businesses.
The indictment filed by Preet Bharara, the U.S. Attorney in Manhattan, charges Scheinberg, the founder of PokerStars, and Bitar, the founder of
full tilt poker, as well as nine other individuals, accusing them of operating illegal
gambling businesses. Federal prosecutors also filed a civil lawsuit seeking $3 billion in civil money laundering penalties, alleging the online poker companies disguised money they received from U.S. poker players as payments to online merchants selling jewelry and golf balls.
The U.S. Attorney in Manhattan moved to try to shut down the online poker business in America by seizing five Internet domain names, including
pokerstars.com and
fulltiltpoker.com, used by the three main companies facilitating online
poker games in the U.S. In addition, a federal judge issued a restraining order against 76 bank accounts in 14 countries utilized by those online poker firms.
The indictment sets up a complicated global legal battle between the Department of Justice and the online poker entrepreneurs who have long argued that their operations in the U.S. do not violate U.S. law. Indeed, in recent days, one of the nation’s most prominent casino billionaires, Steve Wynn,
announced a strategic relationship with PokerStars and said “
in the United States of America the Justice Department has an opinion but several states have ruled and courts have agreed that poker is a game of skill, it’s not gambling. PokerStars rests their argument on that.”
But in a 51-page indictment filed in federal court in Manhattan, federal prosecutors allege that PokerStars, Fullt Tilt Poker and Absolute Poker, “used fraudulent methods to avoid restrictions and to receive billions of dollars from United States residents who gambled.” The indictment largely focuses on financial transactions, claiming the online poker companies violated a 2006 law that Congress passed to cut off the flow of cash to online gambling companies, saying the firms “deceived or directed others to deceive United States banks and financial institutions into processing billions of dollars in payments.”
Offshore companies like PokerStars, based in the Isle of Man, and Full Tilt, which is run from
ireland, generate more than $1.4 billion in revenues in the U.S. online poker market. But for years they operated under the shadow of the Department of Justice, which took the position that online poker violated U.S. law. A lawyer for Full Tilt Poker’s Bitar described the cat and mouse game between the feds and the poker firms as “a guerrilla war” in a
Forbes article one year ago that detailed the federal government’s actions in the online poker arena.
Federal agents arrested two men, Chad Elie, a payment processor, and John Campos, a part owner of a small bank, this morning in Las Vegas and Utah. Another payment processor, Bradley Franzen, is expected to appear for his arraignment in Manhattan next week. But a number of the indicted individuals, including Scheinberg and Bitar, are not in the U.S. and have not been arrested, potentially setting the stage for extradition battles. Two famous poker champions, Howard Lederer and Chris “Jesus” Ferguson, who have strong connections to Full Tilt Poker, were not named in the indictment.
Federal prosecutors claim that the men behind PokerStars, Full Tilt and Absolute Poker, relied on highly compensated payment processors who lied to U.S. banks about the nature of financial transactions they were processing. In the past, PokerStars has maintained that payment processors who got in trouble with law enforcement had hid information from the company.
In its court filing, however, the government claims the poker companies were working with the payment processors to deceive banks and financial institutions. For example, the feds say that Bitar worked to create fictitious companies, including phony online flower shops and pet supply stores, to help facilitate credit card transactions. The government alleges that Scheinberg helped develop pre-paid debit cards or phone cards that could be loaded with funds from a U.S. customer’s credit card without using a gambling transaction code. Legal documents and
other circumstantial evidence suggest federal agents have been able to secure the cooperation of payment processors who have pleaded guilty during the government’s investigation.
“The key to the indictment is the bank fraud conspiracy charge. The factual basis for that charge includes the alleged misrepresentations about the nature of the transactions being processed, in effect, a cover-up,” says Kevin Di Gregory, a former federal prosecutor who is now a partner at Manatt, Phelps & Phillips. “The government will argue that whether poker was gambling is irrelevant to proving this charge, but that nevertheless the efforts to mask the transactions suggests the defendants knew the gambling activity behind them was illegal.
