Just days after Washington DC announced it was legalizing online gaming including online poker, the US Government charged the operators of the largest online poker sites PokerStars, FullTiltPoker, AbsolutePoker (using UB.com) all offshore companies, on charges of, violating the Unlawful Internet Gambling Enforcement Act, operation of illegal gambling business, conspiracy to commit bank and wire fraud and money laundering conspiracy.
The Feds seized 5 domain names, and are seeking recovery of $3 billion from the companies.
A federal court issued an order restraining approximately 76 bank accounts in 14 countries containing the proceeds.
“These defendants, knowing full well that their business with U.S. customers and U.S. banks was illegal, tried to stack the deck,” FBI spokeswoman Janice Fedarcyk said. “They lied to banks about the true nature of their business. Then, some of the defendants found banks willing to flout the law for a fee. The defendants bet the house that they could continue their scheme, and they lost.”
The FBI says that because U.S. banks and credit card issuers were largely unwilling to process their payments, the poker companies allegedly used fraudulent methods to circumvent federal law and trick institutions into processing payments on their behalf.
“For example, defendants Isai Sheinberg and Paul Tate of PokerStars, Raymond Bitar and Nelson Burtnick of FullTiltPoker and Scott Tom and Brent Beckley of AbsolutePoker, arranged for the money received from U.S. gamblers to be disguised as payments to hundreds of non-existent online merchants purporting to sell merchandise such as jewelry and golf balls”
Some of those principals of the company that were indicted were in the United States and arrested.
According to one report, The man behind the online gambling busts was Daniel Tzvetkoff, an Australian entrepreneur who set up the schemes used by the biggest poker sites to shift money out of the U.S. and who was arrested in Las Vegas last year. The report says that Tzvetkoff shared his knowledge in exchange for his release.
We know that the government is getting quite comfortable in seizing domain names, a law enforcement practice that simply didn’t exist just a couple of years ago.
I think this practice can be traced directly back to the Governor of Kentucky who seemed to be the 1st to come up with the idea that domain names could and should be seized. (that case is STILL pending).
Since then, we have had the Feds seize domains for alleged violations of copyright laws and sales of counterfeit goods.
It seems that the US government is on an unstoppable march to seize domain names upon the allegation of an ever expanding list of offenses.
Not upon conviction but upon the filing of charges.
So here are some thoughts on the issue.
1. What happens to all of the money that players had in their accounts?
According to Compete UB.com has 220,000 monthly visitors. Pokerstars.com gets over 660,000 visitors according to Compete.
It would not be unreasonable to think that there are tens of thousands or maybe even hundreds of thousands of accounts held by US Citizens that have hundreds, thousands even tens of thousands or more in their account at one or more of these companies.
With the sites seized and the money in the back accounts seized as well it looks like there are a lot of money out of luck (pun intended).
Here is the rub.
It does not seem that it is illegal to play poker online.
The Unlawful Internet Gambling Enforcement Act (UIGEA) deals with financial institutions, banks, and illegal internet gambling sites.
So if its not illegal to play poker what happens to all of the money US citizens have in these companies accounts?
2. If you going to engage in a business that violates US law, its probably a good idea not to be within the boarders of the US.
It pretty incredible that so many of the principals of these companies were actually in the US. I would have thought that principals of any company engaged in online gambling would have learned this from the arrest of David Carruthers, back in 2006 who at the time was CEO of online gaming company Bet On Sports, who was arrested at the airport in Dallas as he made a stop over to change planes from his company’s offices in London on his way to Costa Rica.
3. Is poker really a game of chance of a game of skill and not gambling? At least one court in the US has ruled it was.
4. Are ccTLD’s a better choice than .Com’s for certain high risk sites? Wouldn’t gambling sites be better off using a ccTLD with no US ties to protect their sites from being seized? ( of course it wouldn’t stop the arrests or seizure of bank accounts)
5. Absent from law enforcement action were any of the gambling companies that are publicly traded on the London Stock exchange.
Why?
It seems that these publicly traded companies, including PartyPoker.com, Pacific Poker (888 Holdings), and PokerRoom.com (bwin), stopped accepting US players after the passage of the Unlawful Internet Gambling Enforcement Act, which they had to do because they were in fact publicly traded on the London Stock Exchange.
Like all stock exchanges the London Stock exchange has regulations that state that a public company can not operate in a jurisdiction in which they are breaking laws. If they continued to accept US players, they would have faced the possibility of being reprimanded or delisted from the London Stock Exchange.
6. Who will be next?
I would expect adult sites and domain names to be the next to get seized.
This week Senator Orrin Hatch of Utah in a letter sent to the US Attorney General, demanded more federal obscenity prosecutions. The letter was co-signed by more than 100 other senators and congressmen. Here’s an excerpt:
“Last June, an important briefing in the Capitol outlined how pornography has changed, becoming more harmful, addictive, and available, and linked to other crimes. Researchers, scholars, and other experts explained, for example, how today’s hardcore pornography is typified by extreme violence against women and how pornography consumption can contribute to sexual harassment and sexual violence. Another expert warned that Internet adult pornography normalizes sexual harm to children, while another addressed the growing connection between pornography and sex trafficking…
Simply put, we know more than ever how illegal adult obscenity contributes to violence against women, addiction, harm to children, and sex trafficking. This material harms individuals, families, and communities and the problems are only getting worse.”
What would have happened to Craigslist if they did not take down the “escort ads” that government officials objected to? Would they have had their domain seized?
Although there have been prosecutions for pornography in the past the government did not win all such cases, but in today’s day and age we know the first thing that will happen upon filing of charges is the seizure of the domain.
Anyway you look at its scary times in the US as the seize the domain first and defend yourself later mentality has overtaken the Feds
The issue appears to be the fact that they were more engaged in illegal money laundering activities than anything else. They also targeted, quite openly, the US market which is a big no-no in the online gaming world. The bank in Utah was also just plain stupid for thinking they could get away with something so egregious as taking on processing for online casinos. If these online casino companies were simply working the non-US markets with non-US banking there wouldn’t be a problem. However, greed is not always good and now they’re paying the price.
Everyone involved was playing with fire and eventually got burned.
What I find more interesting than anything is that the US govt was able to seize many of their domains. These domains were at a non-US registrar outside of US jurisdiction. It would be no different than seizing a house located in Isle of Man in the UK that’s owned by someone that is being charged with a crime in the US. This is the one part of the vast indictment that I find so scary. Of course, ICANN is located in the US but that shouldn’t mean that the US government should be able to so overtly assert its rights over something that’s LEGAL nearly every else in the world and especially that it’s legal in the country where the domains are domiciled.
This should be interesting to watch as it’s played out.
this is an excellent article Michael, and yes the can of worms has just opened I think
why the alleged guilty parties were swanning round the states is anyones guess
so, do you think pokerstars.com ub.com etc, will permannetly be offline? is it over?
if so, this is a perfect opportunity for someone to develop ‘ePokerStars.com’
be the next big thang. but this time block the U.S lol
I’m open to offers………………
btw, pokerstars.co.uk redirects to the .eu and that is still up and running
Juan
“”What I find more interesting than anything is that the US govt was able to seize many of their domains. These domains were at a non-US registrar outside of US jurisdiction. “”
That is because in this round of domain seizures like in the last couple of rounds by Homeland Security the Feds went directly to the registry, VeriSign to seize the domains rather than the registrars.
This is why ccTLD’s without US presence may gain more ground in risky activities
Hi,
Huge news…
I think some of the biggest (famous) poker players in the world may get caught up in all this…as I am not 100% positive…but I think some of them have some kind of ownership in some of these poker companies…especially @ Full Tilt Poker
Speculation on my part…but I am quite sure we will find out soon enough.
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*** Funny thing is…a couple days ago, they “legalized online poker” for: Washington DC***
http://www.tightpoker.com/news/washington-dc-legalizes-online-poker-2338/
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04/16/2011
Already “Un-foreseen Consensuses” as a result of these seizures:
“Domain Seizure Advocates Eat Their Own Medicine”
http://torrentfreak.com/domain-seizure-advocates-eat-their-own-medicine-110416/
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As far as “Porn” goes, Homeland Security & Ice already to down 84K websites and put up a “banner” saying that they were taken down because they violated “child porn laws”…
Problem is, all 84K…had nothing to do with “porn” at all… “Woops” (84K lawsuits…who do you think is going to pay for these?)
Video: Rep. Lofgren Challenges IP Czar On Legality Of Domain Seizures
http://www.youtube.com/watch?feature=player_embedded&v=XXK8hZYcc0Q#at=36
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So Let see:
Homeland Security and ICE have “Banners” made up for “Child Porn” & Copyright Infringements for “Music Download Sites”.
Now one, has to wonder if they currently have a ‘Banner’ made up for… Islamic Radical Jihaid Websites, that call for the destruction of the USA and Israel…and that encourage violence towards the people of the two countries?
My guess is they do not…
Guess the “American People” do not have a big enough “lobbyist group” in Washington…
Not like this ‘subject matter’ is more important or anything than ‘illegal music download sites’… or would/does not fall under jurisdiction of “Homeland Security & ICE”….something they should know a little more about.
Yet I have not seen one report of them seizing any site of this type.
How is legal or illegal music download or streaming sites have anything remotely connected to… Homeland security or ICE?
Peace To All,
Dan
The fact public companies were not charged has nothing to do with regulations of the London Stock Exchange, but it was simply because the companies you mentioned exited the US market following the UIGEA and then all cut deals with the US DoJ, in which they paid tens of millions of dollars in exchange of the guarantee that they will not be prosecuted for their past actions.
Pierluigi
I agree the key is that these companies
“exited the US market following the UIGEA”
And by the way, there were quite a few people in the industry, me included, that thought it was just a matter of time as these investigations are nothing new and they’ve been ongoing since 2006, even earlier for sports betting.
In a recent article telling of yet another investigation in which I was suggesting online bookmakers to worry if they had relations with a certain group of payment processors, I wrote “The US DoJ as well as the district courts in New York and Maryland have been doing a lot of legwork connecting cases and eventually sooner or later will have the full picture.”
This was 10 days ago. For poker the picture was already complete. I suspect sports books are next.
Pierluigi
Of course the betonsports.com arrest goes back to 2006
I was surprised to see their commercials on TV knowing it was illegal.
I’m actually talking of the investigation that lead to yesterday’s indictments. Court papers reveal it started in Nov 2006, following the enactment of the UIGEA. Over the years there have been at least 4-5 other cases that involved the same companies, but only the payment processors were arrested.
But from two of those cases, Rennick and Tzvetkoff, the US DoJ got all the information they needed to build the case against the foreign poker sites.
I own Excapsa stock hich is the company that sold UB to Blast Off media. So I am f*cked now. I worked on Ub.com back in 2000 and helped build it. I even turned over worldseriespoker.com, net and .org to them and then they let it expire.
It is a sad day for me.
What do you expect the Manhattan US Attorney’s office to do, now that they’ve cleaned up Wall Street?
Wait…
Anyone who thinks using alt TLD’s will stop the US govt from shutting down whatever they want to in the USA is delusional.
Most of the Root Nameservers are under US control, and it’s pretty trivial for the US to block or redirect IP’s – regardless of what TLD they happen to be attached to.
Pat
Blocking is one issue, seizure of the domain is a entirely different deal.
I’m sure all these companies had customers from outside the US
@MHB
Of course, but the end result is the same for the US players (and realistically, probably a lot of non-US players) — regardless of TLD.
So, yes, it won’t completely shut them down worldwide — just the US, a huge portion of the market share.
Pat
Also not necessarily the same result for US players as If the sites were not seized just blocked in the US there should be a good chance that the US players could get the money in their accounts held by these companies, now looks like all that money is gone
This was a ticking time bomb that was 100% foreseeable.
I have gaming domains and since 1996 I have REFUSED to do any business in which I share in the profits or the take in any way shape or form including getting bounty for a signup. It was only a matter of time.
What I don’t like under any circumstance is watching “Due Process” get thrown under the bus. First they destroy your life and your business and then maybe you get to defend yourself if you can find a great lawyer that will work with a very delayed billing.
” This was a ticking time bomb that was 100% foreseeable. ”
Were the principles involved blinded by the light of the Billion$ or were
they betting they can buy themselves out of any future situation ?
Speculate away…
this is one of the best things that could happen in favor of online gaming becoming legal in the U.S. I may be wrong, but the government is shutting down unregulated untaxed sites in anticipation of regulating and taxing it themselves. It’s inevitable.
Consumers have no protection from unregulated sites. This is also why (besides the much needed revenue) the government needs to (will) step in.
@Dean
I agree with you.
The only question is how painful will it be, and how long will it to get this legislative sausage made.
That Prohibition thing didn’t work out too well, but it cost a lot of blood and treasure to end it.
The Govt. smelled this a mile away and it was all a secret plan to make all the money.Better hide your cash.
@ Bruce Tedesci:
Did you actually help build the core gaming application?
If so, did you make (or were you aware of) the superuser accounts that were supposedly for ‘testing purposes’?
This is nothing more and nothing less than business as usual for our government. It’s plain as day, just wrap your head around it. The first thing we do is eliminate the competition and then set up our own shop.
@Anthony
The owners of PokerStars said in multiple occasions that they received legal advice that operating in the US was not against the law. I personally believe they thought they would get away with it and in the meantime they made hundreds of millions.
@Dean
Unregulated sites?
Are you aware there are countries in the world that have good igaming regulations?
At this time, Caesars Entertainment is authorized to promote its brand in the UK, but UK sites cannot operate on the US market.
The truth is that is all about money. The US casinos were late into the online market and the UIGEA and everything that followed was to kill foreign competition.
But you are right about one thing: this is the last move before US regulation.
I do not think for one second though that US regulators will be able to do better than foreign jurisdictions with established frameworks.
“…this is one of the best things that could happen in favor of online gaming becoming legal in the U.S. I may be wrong, but the government is shutting down unregulated untaxed sites in anticipation of regulating and taxing it themselves. It’s inevitable.”
Probably, its more palatable to make a fortune by controling & taxing them than it is to go after the big corps with all the power who squirrel their nuts in offshore bank accounts.
…and lets face it, they could do with the extra income.
Even China allows gambling and it is in the Chinese blood.
China looks good !!
Pierluigi Buccioli,
sorry, I meant sites regulated in the U.S. specifically.
Thanks Pierluigi 🙂
One thing to remember is that their domains were seized without being found guilty in the court of law. It’s extremely disturbing knowing that your business can be taken without you having the right to defend yourself. What unpopular business will be next?
@ LS Morgan… I am not aware of them. It has been 12-years and I don’t play poker. I know some very large shareholders that are probably ready to throw themselves off a bridge right now.
All is not lost …
The players may loose their money but they can still play for free 🙂
http://www.ub.net/
http://pokerstars.net
http://www.fulltiltpoker.net
http://www.absolutepoker.net
I’m curious as to whether this exacerbates the situation with the WTO which has in effect ordered the US to provide market access to certain offshore gaming sites (Aruba case specifically) and determined the damages of the non-compliant US position at $21 million annually for that nation alone. The relevant questions might be: “If the US sees no need to respect the rulings of the WTO why should anyone else?” “Should other countries abide by prior rulings in favor of the US since we are clearly not participating in good faith?”
Also worthy of note is the lack of action against Western Union which is the well-known most-used method to fund online poker accounts. Players are given names of wire recipients in countries like Nicaragua and Philippines to which the wires are made and the accounts are subsequently funded. I’m sure the Southern District NY is aware of this (my guess is they’re only *acting* like they operate as the enforcement mechanism of a dictatorial regime on another planet).
Both of these open/flagrant issues seem to leave open some downstream options for the damaged parties who were impacted financially without benefit of due process. This includes not only the companies shut down, but the millions of innocent customers who broke no laws but now have no access to their account funds (at least for the intended purpose). There is also the question of the US confiscating assets of legitimate companies based in other countries.
Understood that the goal may be to eliminate offshore competition to prep for licensing of US online poker sites (not exactly an appropriate use of US Attorney resources). Understood that the lack of regulation covering the operations shut down may have led to non-random programming and other offenses. Understood that some methods used may have violated banking/wire/other laws that probably should be prosecuted (perhaps prior to the delivery of punishment).
The lack of consistent application of the law and the disregard for the damage inflicted to bystanders is part of the long term deterioration of the system as a whole. However, this action may turn out to be shortsighted in the near term as well. For example, some of the customers of these sites are both very sharp and very angry. If they successfully organize, life may get interesting.
Since civilized approaches have been generally abandoned, look for negotiated, expedient resolutions that are quickly institutionalized in the form of orchestrated legislation – hopefully before more serious damage occurs.
Hi,
How much time do you think it will take, before… ” Full Tilt Hats” and other Memorabilia etc…. go on sale as “collectibles ” on ebay etc….?
Maybe yes or no…
Just a thought… as this going to be part of ‘Internet History’….for a long time.
‘D’
agree with anthony and john smith. strange to see ads on tv. and then days later read about this. what the heck is going on?
Poker is not gambling.If poker is gambling then so is online stock trading or trading in general.Why do the same people keep ending up at final tables,time and time again?What are they the luckiest people in the world?NO!In the game of poker you measure the equity involved in any given situation based on all of the available information you have at your disposal and act accordingly.Just as investments in the stock market do not always yield the returns expected or not at all in many cases, poker to has this trait.Now, you may say, what about the people who do not know how to play and are blowing their money gambling.Well to you I say, ANYONE who invest in anything in life without calculating the risk to reward ratio properly and accounting for all the variables at their disposal is GAMBLING.In that sense poker is gambling and so is everything else you do.What about children who dream of becoming pro football players?Should we tell them that they are not aloud to gamble with their physical well being or for that matter what about the cost of playing football that is spent and more times then not wasted because of an injury down the line or lack of discipline and fading interest.Adults should be able to measure risk by themselves and they do not need the help of the government.Now if you are talking about slot machines then yes I agree get rid of them as they are BUILT to make the player lose or how about state lotteries?Poker is a game of 100% skill.If you invest in the correct situation you WILL make money playing against weaker opponents.This is no different than any other sport!I did not see any of you stepping in to save Buster Douglas from Mike Tyson when the odds were 50 to 1.NO!You didn’t because you believed it was the mans right to wager his body against the will of another man.I hope this has opened the eyes of some.Thank you for taking the time to read this, regardless of what your opinion is.Remember it is your duty to protect the freedoms of others as one day your number may be called and will I be there to stand for you if you will not for me?
lol.
look, wall st is essentially a casino.
the book was called “liar’s poker” for a reason.
what’s really interesting is to see “high frequency trading” and “online gambling” rising simultaneously. enabling technology does not discriminate.
what’s the difference between the two?
one is legal, and the other is not. not an inconsequential difference.
the young australian just picked the wrong people to work for. no doubt there’s a place for him at a wall st firm if he’s interested.
same skills.
if there is a single gs trader who can’t hold his own at a table in vegas then pigs fly.
but on average humans are horrible at evaluating risk. so maybe the laws protect many people from themselves and their own self-deception, not to mention others who might seek to deceive them.
just another perspective. there are many ways to look it.
I don’t know if there could be any problem with the colombian government, but with regards to #4, IMO some of the poker website owners that weren’t impacted by the FBI could consider moving to .CO
I obviously have a stake in this, so while I might be thinking this really isn’t that big of a deal, perhaps I’m trying to comfort myself. It shouldn’t be a surprise, and honestly, it shouldn’t give cause for excessive worry. I think the fed’s are trying to make a martyr out of these three poker rooms, not to mention that New York State needs money. Why is it always the NY Attorney’s Office making these busts?
Regarding the worry of players not getting paid:
I don’t think players are going to lose more than their original deposits. Some winnings might disappear (to cover what I assume will be a HUGE settlement with the US DOJ), but most players will likely see their money. It might take a while, but it will eventually happen. It’s what happened with Neteller…even though the domain wasn’t seized in that case. But then there was BetOnSports.com. As far as I know, every player got their money, but I could be wrong.
The thing is….Poker Stars, Full Tilt and Absolute are going to keep doing business. It may not be in the U.S. but they will go elsewhere. PokerStars.eu is open at this moment, and the DOJ certainly can’t take a .eu domain just like that.
I’m most interested to see how this effects Isle of Man Gambling Supervision. Do we really believe they didn’t know Poker Stars was doing business with U.S. customers? I’m betting other operators leave Isle of Man so as not to be associated with the jurisdiction if/when online gambling is ever regulated in America and EU companies can do business over there…even if it’s just on a B2B scale.
Think again about BetonSports.com. Liquidation is still ongoing, but players will receive between 4 and 5 per cent of their balances. So that is not exactly being paid.
I can tell you as someone who help develop the UB site, there will be some type of workaround. These guys have too much money involved to give in. As a shareholder, I am talking with other Excapsa shareholders about a class action lawsuit against Blast Off Media.
The amount of stock I have in the company is worthless and it is significant. The U.S. needs to overturn the ban of gambling online and tax it for revenue. Then both parties would be happy.
Bruce,
they will regulate igaming. But first they wanted to elimate competition so that LV casinos can have a central role. I’m sorry to tell you that if sold the domain to UB with the hope that the company was eventually going to be regulated in the US, then you’ve been given false information as all the tentatives of overturn the UIGEA included provisions to keep sites that continued to operate in the US post-UIGEA out of the market.
Even in California, where they are discussing two poker bills, local casinos and Indian tribes have given their support to the one that excludes foreign competition.
That”s true. This is a political move to clear path for the local gambling companies so that they can have the monopoly and drive out foreign companies out of US market.
If one wanted to take all possible precautions against a domain being seized where would you guys suggest such a domain be hosted and can anyone recommended any suitable hosting providers… ?
Gary Loveman, CEO of Caesars Entertainment (formerly Harrah’s), has made a new bold push and call for support support for the legalization of Internet poker by the US federal gov.
He used the company’s 1st Q earnings conference call as a platform to get the word out.
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http://www.lvrj.com/business/caears-…121558938.html
QUOTE:
“Caesars, which owns the World Series of Poker, believes the timing is right for online gaming to be legalized and regulated at the federal level.
“In an industry where breakthroughs and our ability to serve new customers come episodically, the movement of our brands online represents the next great phase of development for Caesars,” Loveman told analysts Tuesday.
The indictments ended Americans’ access to PokerStars, FullTilt Poker and Absolute Poker, but other offshore Internet poker operators stepped into the void. Loveman said American dollars and jobs, which could stay in the U.S. and Nevada where Caesars is based, are being lost to foreign operations.”
“Much like we observed in Prohibition, attempts to ban Americans from playing poker online have clearly failed,” Loveman said. “It’s time for Congress to legalize online poker.”
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Hooray !!! …I may just run over to his office and give him a joyful bear hug (I said bear and not bare, Drewbert & Dave)……..
…..I’m in Las Vegas this week and actually in Caesars’ convention center right now at the Las Vegas Money Show, an investments expo….
I’m also out here for InterOp over at Mandlay Bay….pretty big show…. I only saw 2 exhibitors yesterday that have a significant domain focus, Verisign and SafeNames, a UK-based registrar who was an exhibitor at TRAFFIC Las Vegas in 2007
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