With just three weeks to go before the end of this session of the California state congress, new online poker legislation has just been introduced. The new bill will make online poker legal within the state – as it is now in Nevada and New Jersey, among others – but with the stipulation that only existing card clubs and Native American tribes already offering gambling in the state would be eligible to receive licenses.
This amended legislation came Monday, August 19 from state Senator Lou Correa, Democrat of Santa Ana. Not stated in the bill is what the cost of these licenses would be or how much of a site’s poker revenue needs to be shared with the state. No sponsors have yet come out in support of the amended bill.
Another attempt at legalizing some form of online gambling in the state is still facing the California state congress but has received no hearings as of yet. That legislation is a re-introduction of a bill originally stalled in 2012.
Meanwhile, the various Indian gaming commissions in the state, such as The Pechango Band of Luiseno Indians by Temecula, or the California Tribal Business Alliance have all been trying to craft their own online poker proposal.
The current session of the California state congress ends on September 13, and the Senate President Pro Tem Darrell Steinberg announced that he does not believe any online gambling bills will advance to the floor before that date.
Full Tilt Poker isn’t the only online poker site facing trouble post-Black Friday 2011. PokerStars is also coming under fire, and from more sides than one.
Unlike Full Tilt Poker, Poker Stars has at least paid back its U.S. players the funds sitting in their seized accounts after the D.O.J. closed down U.S. operations. But that hasn’t gotten them completely out of the woods with all of its member base (or former member base, as the case may be.)
Now the plaintiff is the software maker Cardroom International who has filed a claim against both Full Tilt Poker and Poker Stars for, as best this writer can interpret the claim, failing to agree with written agreements regarding purchase of software for use on play money sites linked with TV networks like ESPN, Fox and NBC by interfering with the network’s ability to promote that software. How? By buying up the airtime itself to promote its own software. What’s more, the complaint alleges, Poker Stars used money that was obtained illegally from U.S. players to pay for this airtime.
Complex, no doubt. But the end result is time and money in legal wranglings and the public relations nightmare that follows such a spectacle.
Meanwhile, in other sinister Poker Stars news, two Team PokerStars members, Leonardo Fernandez and Veronica Dabul, have been named in a lawsuit filed by Wynn Las Vegas for allegedly cheating at craps to the tune of some $700K. Talk about a public relations nightmare. Veronica Dabul has since been removed from the Team PokerStars roster, although Leonardo Fernandez is still a member.
Two weeks ago we wrote about a story, that appeared on Subject: Poker (S:P), regarding a possible seizure by the US Department of Justice, Maryland Office on a merge network online poker processor. Since the story came out the Merge network has been hit with withdrawal requests and a 25% drop in online poker traffic. Holdem Poker Chat has been following this story along with the online poker community and we cannot confirm or deny the S:P story.
We’ve contacted all of our industry sources about this and keep getting different answers including: “It’s just fear mongering”, “NoahSD of S:P is just a shill for Full Tilt Poker lawyer A. Jeff Ifrah” and “NoahSD is just an attention whore”. Note: We have nothing against NoahSD or S:P, they’ve written some great news stories in the past.
Poker News Boy has also come out and questioned the motivation behind the S:P story and also posted a story about being contacted via Skype by the so-called S:P source (Robert) that said he had recorded phone conversations to prove everything. When asked by Poker News Boy editor Gerry Poltorak for copies of the said recordings or any documents, the so-called source said he couldn’t because the documents are “Sealed”. He also went on to say that by the information being leaked that the Merge Poker Network had the processor move 95% of the funds in question but that one international account was seized . He also says that for now the Merge network is save as far as the Maryland office is concerned but that he didn’t know what other DoJ offices are working on.
The simple fact is that any online poker site that operates in the US can eventually expect the US DoJ to possibly seize the funds of payment processors. The US DoJ is not in the habit of leaking any information or issuing warnings. We contacted some sources at Merge and all they would say is that they know about the story and are not worried.
We officially have no position on this but felt you should know what we’ve learned.
It is said that politics makes strange bedfellows.
That has always been true for opponents of expanded legal gambling.
In 1998, Don Siegelman was elected governor of Alabama, one of only two Democrats to beat incumbent Republican governors that year. The center piece of his campaign was a state lottery for education.
Yet, the voters of Alabama rejected the idea the next year, 54-46.
The campaign against creating a state lottery was one of the nastiest in memory. Where did the church groups get much of the million dollars they spent telling Alabama voters about the evils of legal gambling? From Mississippi casinos.
Existing gaming operators have always been willing to team up with opponents of all gambling to stomp out competitors.
But there seems to be a new trend: Now it is proponents of expansion who are finding the most unexpected allies.
It is not hard to see why Barney Frank (D.-MA) could work with Ron Paul (R.-TX) to try to legalize Internet poker in 2008. Frank is often as much a libertarian as a liberal. He believes government should stay out of people’s homes.
And Paul is not really a conservative, like every other member of the GOP in the House of Representatives. He, also, is a libertarian. At a presidential candidate debate, he came out in favor of legalizing heroin and prostitution. So allowing people to gamble is, for him, actually rather tame.
The few libertarians and pure fiscal conservatives left in the GOP, like darkhorse presidential candidate, former New Mexico Governor Gary Johnson, naturally believe adults should be able to decide for themselves whether they want to gamble. And former Republican office holders, like the Poker Players Alliance’s Alfonse D’Amato and FairPlayUSA’s Tom Ridge, who created the silly terrorist threat levels color codes, are always available if the price is right.
But, how do we explain social conservatives supporting legal gambling? The tea party and other Big Brother types want government in the wedding chapel, bedroom and doctor’s office, particularly if you are female. Yet, Joe Barton (R.-TX) introduced a bill this year to legalize internet poker. Barton is so far right that he actually publicly apologized to BP for President Barack Obama daring to investigate BP’s disastrous Gulf oil spill.
Barney Frank signed on as a co-sponsor; probably the only time he will be working with Barton this year, or any year.
Frank also reintroduced his own Internet gambling legalization bill. Since the GOP now controls the House, he needed a Republican co-author. He found one in John Campbell (R.-CA).
Meanwhile, the leaders of both parties in the Senate sent the U.S. Attorney General a letter that many see as an indication that they also might be considering legalization. The fact that the authors could agree on even a letter is itself amazing.
Harry Reid is the Majority Leader and a moderate Democrat. He represents Nevada, which makes him pro-gambling. Jon Kyl (R.-AZ) is a conservative Republican, a redundancy since all but two Republicans (from Maine) in the Senate are conservative. He is the GOP Whip, the second most powerful Republican. More significantly, he is so opposed to Internet gambling that his name has become synonymous with efforts to outlaw it, as in “the Kyl bill.”
But reading between the lines, the only thing Reid and Kyl agree on is that Internet poker should be operated only by their constituents: Landbased casino companies (Reid) or Indian casino tribes (Kyl).
Are conservative Republicans really becoming pro-gambling? There are a few Tea-Party-types who actually believed their own rhetoric, that everything is a state issue. Rick Perry (R.-TX) said it was OK with him if New York legalized gay marriage – at least, that was his position before he entered the race for president.
Maybe it is wrong to view legal gaming as a partisan issue. After all, the liberal Democrat Kathleen Kennedy Townsend — and you can’t get more Democratic than a Kennedy — ran and lost the governor’s race in 2002 in Maryland in part by opposing slot machines at racetracks.Ironically, the Republican candidate, Robert Ehrlich, who strongly backed racinos to solve the state’s budget crisis, never succeeded. For eight years, the Maryland State Legislature kept killing the proposal. But it wasn’t due to any anti-gambling ideology. The fights were always about who was going to get the money.
Money is, of course, what is driving the latest pushes for legalization. Gambling is seen as a voluntary tax. Every time there is an economic crisis, lawmakers and governors turn to authorizing more gambling as an easy way to raise revenue.
There is so much legal gambling that proposals that would have been considered outrageous just a few years ago don’t even raise eyebrows. Remember when there was no legal gambling in any major American city, other than Las Vegas? Then came the temporary casino in New Orleans in 1995 and the passage of Proposition E in 1996, allowing three casinos in Detroit.
The Michigan election was historic. Never before had the voters approved high-stakes casinos in the face of active opposition.
Now there are casinos in Philadelphia and Pittsburgh, put there by the state legislature. Most significantly, casinos are being built in the four largest cities in Ohio, approved by votes of the people.
There is so much legal gambling in the U.S. that it is easy for politicians to say, “We’ve already got casinos, racetracks and a state lottery. What’s the big deal about Internet poker?” Of course, there is so much legal gambling in the U.S. that those casino and racetrack owners, and even the state lottery, respond, “Internet poker is fine, as long as we get to run it.”
Today, the major opposition to expanding legal gambling comes from existing operators, and they don’t particularly care which political party is in power. That is not to say that ideology plays no role.
One-third of the electorate will always be against legal gambling. They are mostly from the religious right, and they always vote. So, special and off-year elections spell doom for proposals for new gaming.
As Kathleen Kennedy Townsend and Ralph Nader demonstrate, the far left also has a few gambling opponents. They are mostly paternalistic, believing poor people should not be gambling or drinking beer or buying hamburgers.
Although the country is growing ever more polarized, the good news for proponents is that gambling is becoming a non-issue. Those of us who are involved in it every day can lose sight of the fact that most politicians don’t know or care about the issue. And, apparently, even the religious right is losing interest.
On November 2, 2010, the voters in Iowa removed three sitting justices of the State Supreme Court, because they had ruled in favor of same sex marriage. How did this religious conservative landslide affect legal gaming? Votes in favor of casinos went up in all 14 counties in Iowa, from an average of 74% in 2002 to 78.8% in 2010.
Joe Barton has not been condemned for coming out in favor of Internet poker. Conservative groups like Focus on the Family used to instantly orchestrate mass letter-writing campaigns against any proposal for expansion of gambling. It was unthinkable that a conservative Republican would actually author such a bill.
Today, the states are desperate for money. And gambling is increasingly being seen as just another way to raise revenue, without raising taxes.
Leaders of the Democratic and Republican Parties in the Senate have sent the U.S. Attorney General a letter demanding that the Justice Department do something about Internet gambling. What, exactly, is up to the reader. This Rorschach inkblot test of a letter allows proponents and opponents to project their hopes and wishes on whether the federal government will ever do anything, other than make a few showy arrests, about online gaming.
The fact that the authors could agree on even a letter is itself amazing. Harry Reid is the Majority Leader and a moderate Democrat. He represents Nevada, which makes him pro-gambling. Jon Kyl (R.-AZ) is a conservative Republican, a redundancy since all but two Republicans (the senators from Maine) are conservative. He is the GOP Whip, the third most powerful Republican, and responsible for rounding up the votes of his party in the Senate. More significantly, he is so opposed to Internet gambling that his name has become synonymous with efforts to outlaw it, as in “the Kyl bill.”
So how did sworn enemies come together on this issue? And what exactly did they agree to?
Optimists see the letter as a breakthrough, that Kyl is getting ready to allow, at least, intra-state Internet poker. As additional evidence, they point to this language from Kyl’s website:
“Efforts to carve out an exception for games like poker, which many believe is a game of skill, may be considered later this year. Until I have the chance to review them, I cannot make a judgment about their merits; but I will consider them carefully as long as they leave in place the broader proscriptions against online betting.”
But, if anyone thinks Kyl has suddenly become reasonable, here is the preceding paragraph:
“I have opposed efforts to legalize Internet gambling in the past because evidence suggests that it fosters problems unlike any other forms of gambling. Online players can gamble 24 hours a day from home; children can play without sufficient age verification; and betting with a credit card can undercut a player’s perception of the value of cash — leading to possible addiction and, in turn, bankruptcy, crime, and even suicide.”
So, what is really going on? It is not cynical to remember we are dealing here with professional politicians. Notice, for example, Kyl’s careful language about Internet gambling being “unlike any other forms of gambling.” Kyl is a social conservative, one of those Big Brother types who want government in the wedding chapel, bedroom and doctor’s office, particularly if you are female. He is against gambling. But Arizona’s casino tribes are politically powerful and able to give, or withhold, millions of dollars in campaign donations.
Reid says he is personally opposed to Internet gambling. But he represents Nevada casinos. So, his position switched when the American Gaming Association’s switched. Reid went so far as to introduce his own online gaming bill, which would have benefited Harrah’s (now renamed Caesars).
Deconstructing the letter — a copy is attached — it is clear the real enemies are the state lotteries. The one thing Reid and Kyl can agree on is that Internet poker should be run by their constituents: Indian casinos for Kyl and commercial casinos for Reid. So, it is possible that Congress might legalize intra-state and ever interstate online poker, if they can figure out a way to prevent state lotteries from being the operators.
Of course, this requires Congress to actually do something. Reid has proven himself to be such a weak leader that Democrats could not accomplish their full agenda, even when they had the Presidency, control of the House, and a filibuster-proof 60 votes in the Senate. And the Republicans were rewarded in the 2010 election for being the “Party of No.” They are anti-government to begin with — except for trying to impose their religious views on everyone else — and believe they can win in 2012 if Obama accomplishes nothing more.
Some conservatives, like Rep. Joe Barton (R.-TX), best known for apologizing to BP for the White House daring to investigate its Gulf oil spill, have come out in favor of Internet poker. But all it will take is one letter from an anti-gambling religious group, like Focus on the Family, to get the right-wing riled up. The tea-party controls the GOP, and while Democrats still have the presidency and a majority in the Senate, the Republicans have veto power over everything.
If you’re sitting there scratching your head like we were about how the FBI could have built its case strongly enough to get the DOJ to issue those warrants that forced the shutdown of three of the biggest poker sites on the Internet, here’s how: an insider ratted them out. That is, an individual engaging in illegal online gambling entrepreneurial activity himself cut a deal with US authorities to save his own rear from the frying pan by helping to bring down bigger fish than he.
The “he” in question is one Daniel Tzvetkoff, and the more you find out about this guy, the less you like him. He and a partner created Instabill which, as you might now, is one of the payment processors that helps arrange financial transactions between the online gambling sites and its players, including U.S. players – a big no-no according to Uncle Sam.
Apparently (or “allegedly” as we’re supposed to say) Tzvetkoff laundered some $540 million through Instabill: money that was supposed to go to Full Tilt Poker, Poker Stars and Absolute Poker but ended up going into his pocket. Living high on the hog on his clients’ money, it only makes sense they went ahead and sued him.
Arrested in New York in 2008 while attending a conference, Tzvetkoff began worming his way out of his legal hole then by, it seems, turning the tables on those very sites, in essence biting the hand that had stopped feeding him once they realized he’d already bitten a chunk out of them before.
The upshot (call it payback, call it irony) is that Tzvetkoff still faces charges with a penalty of up to 75 years in prison in his own native Australia if they can just get our hands off him and theirs on him.
The US government is at it again. If you thought Black Friday on Friday, April 15, 2011 was the end of the Department of Justice’s indictments against online gambling sites operating illegally within the United States, you would be mistaken. Introducing the second and latest salvo in this brutal battle: Blue Monday, May 23, 2011, when the DOJ, with cooperation from the Department of Homeland Security and the IRS, charged three more people in connection with two online gambling companies covering a total of about 10 sites for violation of the 2006 UIGEA.
Just one day before the Poker Player’s Alliance descended on watching for the first National Poker Lobbying Day, the government gave them more to lobby about. Now in addition to Absolute Poker, Full Tilt Poker and Poker Stars, other online poker sites like Doyles Room Poker, online sportsbetting sites like Beted and online casinos like Golden Arch Casino will no longer be operating within US borders – that is, serving US customers. Instead, US customers browsing to those site will see what’s becoming increasingly familiar in the US online gambling scene: a message from the DOJ that the domain name for the site previously located there has heretofore has been seized.
The most recent indictments were all handed down in the District of Maryland where the two companies in question have the U.S. bases of operations. As part of this round of indictments are 11 bank accounts for which the government is currently seeking forfeiture. These are no doubt where US player funds from those sites are sitting, stuck, unable to be accessed by the rightful owners. Hopefully these monies will go the way of the Poker Stars player funds previously held up, which now are safely back in players’ hands.
St. John’s, Antigua and Barbuda (May 10, 2011) — Absolute Poker, including the UB (formerly Ultimate Bet) brand, hereafter “Absolute Poker”, issued the following statement today in relation to civil and criminal matters filed in federal court in Manhattan and made public on April 15, 2011:
Absolute Poker has reached an agreement with the United States Attorney’s office for the Southern District of New York (“SDNY”). Under the agreement, the US Attorney’s Office has agreed to provide all necessary assurances that third parties may work with Absolute Poker to facilitate the return of funds, currently held by third party processors, to players located in the US. This provision is an important step to returning US player funds.
The Company has also notified the SDNY that it has closed its US-facing operations, and it has agreed to the cessation of real money poker play in the US. As such, Absolute Poker has not requested the return of its worldwide domain names, www.AbsolutePoker.com, www.UltimateBet.com and www.UB.com, and today’s agreement does not provide for their return. The agreement also provides for the appointment of Monitor, approved by the US Attorney’s Office, to assess the Company’s compliance with the terms of the agreement.
Absolute Poker’s top priority has always been, and remains, the refund of account balances to its U.S. players. Unfortunately, the Company still faces several legal issues which must be navigated before funds can be paid out to US players. The Company’s US attorneys, Blank Rome LLP, continue to work diligently to resolve these issues, which is a necessary further step to facilitate the return of funds to players. Player funds, therefore, will not become immediately available for withdrawal as a result of today’s agreement with the DOJ.
A Company spokesperson said: “Today’s signing of the agreement with the DOJ is an important step towards the safe and efficient return of funds to our US players. We can now move as expeditiously as possible to collect player monies from third party processors as a prelude to establishing proper mechanisms for the return of funds to our US players. As previously announced, we have already taken specific actions to exit the US market by closing our US-facing operations. Blank Rome LLP will continue to engage in discussions with the SDNY in order to complete the necessary agreements for the final transfer of frozen fund balances to our US players. This remains our highest priority. We will continue to update our players and the poker community, as we move forward to resolve outstanding issues.”
In a previous blog, I wrote that the timing was suspicious. Why did the federal Department of Justice (“DoJ”) make its big show on Friday, April 15, 2011, when the grand jury had been meeting for more than a year?
We might not know the reasons for the timing. But we can understand why the prosecutors structured their cases as they did.
I often act as a consultant and expert witness for governments and industry. But I am also a professor of law, teaching not only Gaming Law, but also Criminal Law. So, here’s my view of why the DoJ’s indictment reads the way it does.
The 52-page document contained nine counts: violation of the Unlawful Internet Gambling Enforcement Act (“UIGEA”), conspiracy, illegal gambling business (“IGB”), bank and wire fraud, and money laundering. The criminal charges were carefully structured for maximum legal and public relations impacts.
The UIGEA was used because it covers money transfers, and to reinforce the false message that it made Internet gambling illegal. The UIGEA is actually only an enforcement act. It requires there be a violation of some other federal or state anti-gambling law.
The UIGEA was rushed through Congress by then-Majority Leader Bill Frist (R.-TN) and is a mess, with typos and other problems. For example, the UIGEA is expressly limited to payments going from players to operators for illegal online gambling, not the other way around. Do all the bank accounts that were seized only contain money being sent by players in New York to the poker sites? Was none of it money won by players?
Conspiracy is often called the prosecutor’s friend. All you need to prove is an agreement and an act in furtherance of the conspiracy. You don’t need to show any other crime was actually committed or even attempted. Conspiracy also makes trials easier for prosecutors. For example, testimony by a cooperating witness, “He told me he was going to take poker bets from the U.S.,” would normally not be allowed in as evidence under the hearsay rule. But, “He asked me if I wanted to help him set up a site to take poker bets from the U.S., and I agreed” comes in, to prove there was an agreement.
Almost all of the DoJ’s legal claims depend on the underlying activity, online poker, being illegal. The problem for prosecutors is that the main federal anti-gambling statue, the Wire Act, has been held in a published federal Court of Appeals decision to be limited to bets on sports events and races. Since the Wire Act won’t work, prosecutors used the IGB. That statute makes it a federal felony if five or more people do more than $2,000 in business a day in violation of state gambling laws.
The only ones mentioned in the indictment are New York’s misdemeanor anti-gambling statutes. These clearly do not apply to players, which means the DoJ may not have had the right to seize players’ bank accounts. More importantly, the New York laws have never been tested, to see if they overcome the strong presumption that a state law does not reach beyond its borders. It also raises the issue of whether poker is a “contest of chance,” as required by Penal §225.00.
Note the repeated use of the word “fraud.” With Internet gambling, prosecutors have tried to find ways to include fraud whenever possible. For example, among the 22 counts in the criminal complaint filed against BetOnSports was a charge of mail fraud, for the weak claim of falsely advertising that sports betting was legal. (The website reached the whole world, including places where sports betting is, in fact, legal.) I believe, the DoJ’s emphasis on fraud is designed, in part, to create the impression among players that online sites cannot be trusted.
Most of the mail and bank fraud counts are actually weak. They involve defendants lying to banks to disguise the fact that online poker was involved. Phony companies were allegedly created and transactions labeled as sales of dog food and golf balls. There will be factual issues whether the banks actually knew what was going on – billions of dollars is a lot of dog food. And are we to believe no player ever mentioned online poker to his bank?
The bank fraud statute requires a scheme to either “defraud a financial institution” or to obtain any money owned or held by the bank. The second one won’t work. Lower courts have said the law was designed to protect the integrity of the banking system. But, the U.S. Supreme Court ruled that part of the statute means what it says: prosecutors have to show the victim lost money. Here, the banks were supposedly tricked into making millions of dollars. Talk about a victimless crime.
So, the DoJ is left with having to show that banks were “defrauded.” Again, there will be an issue of what exactly did the banks lose? Even after the UIGEA a bank cannot be charged with a crime for unknowingly facilitating online poker. As of June 1, 2010, there are regulations the banks have to follow. But, almost all the events took place prior to that; and, the final regulations do not provide for fines.
Bank fraud carries a maximum sentence of 30 years and a $1,000,000 fine. Money laundering also can lead to hefty penalties. It is another commonly used count in gambling prosecutions, because the prison sentence is based on the volume of money that was transferred, not on the gaming operations’ actual profit and loss. A defendant faced with 50 years in prison can be persuaded to plead guilty to illegal gambling charges that would otherwise be dismissed.
The indictment sets forth facts that would seem to call for a count of bribery, if true. Some of the defendants paid a small Utah bank $10 million to buy 30% of the bank, so the bank would transact online poker payments that the bank was reluctant to do. An officer and part-owner allegedly asked for, and received, $20,000. The indictment is careful to call this payoff a “bonus” rather than a bribe. The banker was charged with conspiracy and being part of the other activities constituting crimes. This avoids the question of who exactly was the victim, since it was the banker who solicited the payment. It also gets around the problem of whether a briber and bribee can also be charged with being coconspirators.
The DoJ has done what it could to make this indictment as frightening as possible. But we will probably never know just how strong the government’s case actually is. The payment processing defendants who are now in the U.S. will fight for a while, but will eventually have to agree to plea bargains.
The others, especially the big fish, also won’t stand trial. They would like to settle, even paying hundreds of millions of dollars and admitting they violated the law, but only if they won’t serve long prison sentences and risk losing their licenses in other countries. The operators have one major bargaining chip: If the DoJ won’t make a deal they can live with, they will simply stay away from countries where they might be extradited.
When people want something, businesses arise to fill the demand. How much more so when the activity, online poker, is not even clearly illegal?
If the commercial goods or services are not legal, then by definition, the organizations will be criminal. Prohibition created modern organized crime, by outlawing alcoholic beverages.
When Prohibition was repealed, organized crime turned to things people wanted but could not get legally: prostitution, drugs and gambling.
When legal gambling began to spread, with insufficient safeguards to keep out the bad guys, organized crime used its experience to infiltrate.
Over the years and around the world, governments realized they had few options. The only way to completely outlaw gambling would be to crack down on players almost as hard as operators. This is not politically possible in a democracy.
Since prohibition does not work, the next best choice is to legalize gambling and put in strict regulations.
The federal government of the United States has decided to ignore these lessons of history and take the worst aspects of the choices available.
Every action by the federal government makes it more difficult for it to go after the next operator. The UIGEA, rammed through by the failed politician Bill Frist (R.-TN), scared all of the publicly traded gaming companies out of the U.S. market. Then prosecutors went after payment processors, making it more difficult for players to find legitimate ways to send their money to betting sites.
Now the feds have seized .com domain names and charged operators with bank fraud. So, gaming sites are switching to .eu and .uk, and cutting off all physical contact with the U.S. Even the present American operators can’t be extradited, so what hope is there for the DoJ to bring future foreign operators here to stand trial?
The criminal indictment against PokerStars, Full Tilt, Absolute and their founders, was unsealed by the U.S. Attorney for New York on April 15. Why now?
Maybe this just happened to be when the cases came together, when investigators had verified all the information about bank accounts they got almost exactly a year before. Daniel Tzvetkoff was arrested in April 2010, apparently turned in by these very same websites for embezzling tens of millions of dollars while doing payment processing.
So, maybe it was merely a coincidence that recent developments had given Internet poker an air of respectability, a feeling that legalization was inevitable. Nevada regulators approved Caesars Entertainment’s partnership with 888, a company that used to take bets from the U.S. Steve Wynn upped the stakes by announcing a joint venture with PokerStars, which was still accepting American poker players. The Nevada Assembly Judiciary Committee approved a bill to regulate online poker. And the District of Columbia actually made it legal.
The DoJ has been waging a war of intimidation against Internet gambling for years, successfully scaring players, operators, payment processors and affiliates into abandoning the American market. Lacking the two essentials to any prosecution – a statute that clearly makes the activity illegal and a defendant physically present in the U.S. – the feds have announced showy legal action against easy targets about every other year.
Online poker is not an easy target, since a federal Court of Appeal ruled the Wire Act is limited to bets on sports events. And tricking financial institutions into processing poker payments seems a technicality, especially since the banks made millions without ever facing any criminal charges or even paying a penny in fines. Talk about a victimless crime!
But getting a Utah bank to agree to process gambling transactions in return for a $10 million investment is an easier case, if true. The bank was so small that the officer and part-owner who allegedly arranged the deal, asked for, and received, only $20,000 for his “bonus.”
Even if there was a bribe, the feds are still going to have to prove that the poker was illegal. Since the Wire Act won’t work, prosecutors used 18 U.S.C. 1955, which makes it a federal felony if five or more people do more than $2,000 in business a day in violation of state gambling laws. The indictment relies on “New York Penal Law 225 and 225.05 and the laws of other states.” There is an obvious problem with using a state misdemeanor to charge federal felonies against foreign corporations licensed by foreign countries.
The DoJ also included a “thank you” to the Washington State Gambling Commission, indicating that the DoJ is probably going to piggyback on that state’s 2006 law outlawing all Internet gambling, as well. At least Washington state makes Internet gambling a felony.
Still, there are problems. State laws are presumed not to reach beyond their borders. And even if Internet poker is illegal in that state, it is quite a leap to seize domain names for the entire country and threaten bank accounts in places like Panama.
The only state with a law better than Washington’s is Nevada, because it expressly says it reaches beyond the borders of the state. But basing this attack on Internet poker on Nevada law would look like it was motivated by the landbased casinos. After all, who are the big winners here?
The operators will never stand trial, unless they voluntarily return to the U.S. or make some other mistake. The only U.S. extradition treaty I have found that covers illegal gambling is with Hong Kong. Calling it bank fraud won’t work, since the defendants can show their local courts that it is based on gambling. And the activity must be illegal in both countries. No nation will extradite an individual to be tried for the very activity that that nation licenses.
But what is the federal government accomplishing with going after foreign licensed poker operators?
The DoJ is raking in lots of dough for itself. For example, it received $405 million from PartyGaming and one of its founders, without even filing any criminal charges. And Party Poker had pulled out of the U.S. years earlier.
Certainly the prosecutors are scaring a lot of people and making it difficult for average citizens to even get their money to a foreign site, let alone place and collect a bet. But when the public relations campaign turned against it, the DoJ quickly backed down.
The DoJ’s seizure of .com names around the world, even in countries where online poker is 100% legal, led to international outrage. It also creates a dangerous precedent. Can an Islamic country, which outlaws alcohol, seize the worldwide domain names of every retailer that advertises beer or wine?
And the DoJ made it nearly impossible for players to get their deposits back. Even in the U.S., there is no federal law against merely playing poker on the Internet.
Five days after Black Friday, the DoJ announced that an agreement had been reached with PokerStars and Full Tilt Poker. The companies will be permitted to operate money games outside of the U.S., which they always had the legal right to do anyway. American players will be able to go to the .com sites and get their deposits back.
The problem for the DoJ is that prohibition is not regulation. Getting rid of publicly traded operators created a vacuum that was quickly filled by companies whose owners were difficult to trace. Scaring away well-known poker names means that newcomers, some of whom will undoubtedly be sleazy, will take their places. If the multi-billion-dollar U.S. online poker market becomes too hot for licensed companies, operators without any licenses, who won’t even reveal what country they are in, will be glad to run the games.
Meanwhile, like a raid by Elliot Ness on bootleggers and speakeasies during Prohibition, there are now wonderful opportunities for individuals you would not want to meet in a dark alley.
Unless, of course, Americans are actually going to stop playing poker on the Internet.
Full Tilt Poker isn’t the only online poker site facing trouble post-Black Friday 2011. 
Two weeks ago we wrote about a 
It is said that politics makes strange bedfellows.
Leaders of the Democratic and Republican Parties in the Senate have sent the U.S. Attorney General a letter demanding that the Justice Department do something about Internet gambling. What, exactly, is up to the reader. This Rorschach inkblot test of a letter allows proponents and opponents to project their hopes and wishes on whether the federal government will ever do anything, other than make a few showy arrests, about online gaming.
The US government is at it again. If you thought Black Friday on Friday, April 15, 2011 was the end of the Department of Justice’s indictments against online gambling sites operating illegally within the United States, you would be mistaken. Introducing the second and latest salvo in this brutal battle: Blue Monday, May 23, 2011, when the DOJ, with cooperation from the Department of Homeland Security and the IRS, charged three more people in connection with two online gambling companies covering a total of about 10 sites for violation of the 2006 UIGEA.
St. John’s, Antigua and Barbuda (May 10, 2011) — Absolute Poker, including the UB (formerly Ultimate Bet) brand, hereafter “Absolute Poker”, issued the following statement today in relation to civil and criminal matters filed in federal court in Manhattan and made public on April 15, 2011:
In a previous blog, I wrote that the timing was suspicious. Why did the federal Department of Justice (“DoJ”) make its big show on Friday, April 15, 2011, when the grand jury had been meeting for more than a year?
When people want something, businesses arise to fill the demand. How much more so when the activity, online poker, is not even clearly illegal?