Online Poker Site Crackdown puts the Industry in Jeopardy

The news about the FBI crackdown against Full Tilt, PokerStars and Cereus (Absolute Poker and Ultimate Bet) still has the gambling community reeling.  In a somewhat surprising move on Friday the FBI charged management and former owners of the 3 poker networks with money laundering and bank fraud. According to the claim by the DoJ, the poker companies were working with payment processors and a bank in Utah to conceal the true identity of transactions. The claim suggests that Raymond Bitar, the CEO of the software and marketing company that runs Full Tilt Poker worked to create fictitious companies, including phony online flower shops and pet supply stores to ensure credit card transactions would go through unabated. The government also suggests that Isai Scheinberg, the founder of Pokerstars.com created pre-paid debit cards and phone cards for the sole purpose of skirting the rules of the UIGEA.  According to U.S. law all gambling transactions have to be marked with code 7995 to identify them as gambling transactions and for the most part online companies complied. However, after the passage of the UIGEA regulations in 2007 many companies started looking for ways around the rule since banks started looking for those transactions and evidently these companies did just that. Coincidentally, PokerStars has always maintained that they never disguised transactions, which makes the allegations against them surprising. If arrested and charged the sentence carries a maximum of 30 years in prison. The government is also seeking $3 billion in civil damages.

As is the prerogative of the U.S. government where a company is operating illegally (at least in their eyes), the DoJ seized the domain names for all 4  dot com companies and replaced it with a warning that the FBI seized the domain pursuant to an arrest warrant. Consequently all the .com domains are now unavailable. It appears that the FBI went straight to the .com registry, VeriSign to take the domains as compared to going to the registrars like GoDaddy or Network Solutions as they have in the past when they attempted to seize domain names in other instances. Pokestars.eu along with other foreign domains are still available as they are off limits to U.S. law enforcement but all affected sites have indicated they will not be allowing wagers from Americans, at least for the time being.  John Pappas, Executive Director of the Poker Player’s Alliance issued a statement on their website castigating the actions of the government:

“Millions of Americans across the country today are outraged over the U.S. Department of Justice’s clear attack on internet poker. While the government’s focus may be on the companies who operate these games, this is plain and simple a declaration of war on poker players and poker players’ freedoms. Not only are the over 10 million online poker players left without a place to play the game they enjoy, and from which many earn their livelihood, but they also have concerns over the availability of their funds. The PPA believes that no players’ money should be jeopardized by this prosecution.

Let me be clear, online poker is not a crime and the honest poker players across the country will not stand to be restricted from one of America’s greatest pastimes. On behalf of over one million members, the PPA is working hard to protect the interests of our players and is committed to U.S. citizens’ right to play online poker.”

I asked Martin Owens, a California Attorney specializing in Interactive gaming what he made of the situation and his comments reflected what many in the gambling industry have been thinking; namely the timing of the seizure is suspect:

“The first thing that I noticed was the timing. To strike at the three biggest independent I-poker operators, just as Nevada is moving an online poker bill forward. How far can coincidence be stretched? You see, it's not enough to simply show up in the marketplace. The operators like Absolute and Stars have been building a loyal clientele for years and years. That counts big in Internet gambling. So how do you win the race when the other fella has a head start? The sure and certain way is break the other guy's legs.

In any case, the debate about whether to allow Full Tilt or PokerStars to compete for state issued system licenses is now at an end. They are not merely under a cloud, not just on the bad boy list- they have been formally indicted. From the regulatory point of view that makes them radioactive until further notice. So that would seem to leave the field clear for vested state-level gambling interests and their new offshore strategic allies. But ironically, it is by no means certain that they will avail themselves of this opportunity.  After all, this is the fourth year of trying.

Is this the end of Internet poker as we know it? Internet poker as we know it is always ending. It is always changing; new operators, new payment solution, new formats, new possibilities. It's what makes this line of work so interesting.

(Here are) possible outcomes: first that the accused come to one of those expensive "settlements" just like Neteller. Another possibility is that they dig in their heels and fight this to a standstill. I think that is much less likely, for these are primarily businessmen, after all and what they want to do is get past the problem and get back to making money. But if they do decide to fight, it should be very interesting- there are massive holes in the DoJ's theory of prosecution and of recovery, not to mention flaws in the UIGEA which may in fact serve to make it unenforceable.”

I called spokespeople in Kahnawake and the EU but they both said at this time they were unavailable for comment.

Of course the timing issue also leads one to believe that California and Nevada may be closer to initiating a poker network than one thought. No doubt when Wynn casinos announced a partnership with PokerStars and Station Casinos announced a partnership with Full Tilt, many in the federal government became nervous. The government views Wynn and Station as U.S. gambling success stories and the offshore poker sites as pariahs. This move was a way to ensure that the partnerships would never succeed. As well, there have been rumours surfacing that California is ready to move forward with their poker network any time now but the companies they are planning on partnering with want “the street cleaned up” to ensure they are the only online game in town. And it has been made clear that offshore poker sites that cater to the U.S. like Stars and Full Tilt are barred from applying from a license in California.

Regardless of the reason, the actions of the DoJ have already had some major consequences. Pokerscout.com shows cash game traffic at all 3 sites way down and major tournaments like the Full Tilt Poker sponsored Onyx cup have been cancelled. It’s also expected that other tournaments like the North American Poker Tour will be scrapped as well. Moreover, ESPN removed the Poker Stars sponsored inside deal from their site and some are wondering if any of the major poker magazines can survive without advertisements from PokerStars, Full Tilt or Cereus. Even though the magazines only advertise the .net play sites, they defeat the purpose if Americans can’t join the real money sites. Sponsorships with poker players for wearing the .net clothing certainly are in jeopardy.

An insider who spoke on anonymity also wondered if there will be major fallout if and when the books of the major sites fall into the hands of the DoJ. Just as Hollywood actors sweated it out when there was belief that Heidi Fleiss would reveal the names of all her famous clients, some suspect that there may have been deals and cash exchanged between PokerStars and Full Tilt with major business owners and poker players that no one wants disclosed.

Perhaps the mood in the gambling industry was expressed best by a poster at an online poker forum. “People who were running legitimate online poker games have been charged by the FBI. These games were played by people on their own volition and with their own money and harmed no one. Yet not one Wall Street scam artist who played with the public’s money and harmed numerous people has been charged with sending the world into a global recession. It’s nice to know where the government’s priorities lay

 

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