Online poker domains seized and owners indicted for fraud, money laundering and illegal gambling offences
Sunday, April 17, 2011
Online poker domains seized and owners indicted for fraud, money laundering and illegal gambling offences
Online poker and the online gambling industry in general was dealt its most serious shellacking to date last Friday, 15th April, with the indictment by the US Department Of Justice of four of the biggest poker rooms on the internet, on multiple charges of criminal conduct, and the seizure of their ".com" domains. Below is a slightly trimmed copy of the indictment:
Manhattan U.S. attorney charges principals of three largest internet poker companies with bank fraud, illegal gambling offences and laundering billions in illegal gambling proceeds
Multi-Billion Dollar Civil Money Laundering And Forfeiture Action Also Filed
Internet Domain Names Used By The Poker Companies Seized
PREET BHARARA, the United States Attorney for the Southern District of New York, and JANICE FEDARCYK, the Assistant-Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation ("FBI"), announced the unsealing of an Indictment today charging eleven defendants, including the founders of the three largest Internet poker companies doing business in the United States - PokerStars, Full Tilt Poker, and Absolute Poker (the "Poker Companies") - with bank fraud, money laundering, and illegal gambling offenses.
The United States also filed a civil money laundering and in rem forfeiture complaint (the "Civil Complaint") against the Poker Companies, their assets, and the assets of several payment processors for the Poker Companies.
In addition, restraining orders were issued against more than 7 bank accounts utilized by the Poker Companies and their payment processors, and five Internet domain names used by the Poker Companies to host their illegal poker
games were seized.
Manhattan U.S. Attorney PREET BHARARA said:
"As charged, these defendants concocted an elaborate criminal fraud scheme, alternately tricking some U.S. banks and effectively bribing others to assure the continued flow of billions in illegal gambling profits. Moreover, as we allege, in their zeal to circumvent the gambling laws, the defendants also engaged in massive money laundering and bank fraud."
"Foreign firms that choose to operate in the United States are not free to flout the laws they don’t like simply because they can’t bear to be parted from their profits."
FBI Assistant Director-in-Charge JANICE K. FEDARCYK
said:
"These defendants, knowing full well that their business with U.S. customers and U.S. banks was illegal, tried to stack the deck. 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."
According to the Indictment and the Civil Complaint unsealed today:
On October 13, 2006, the United States enacted the Unlawful Internet Gambling Enforcement Act ("UIGEA"), making it a federal crime for gambling businesses to "knowingly accept" most forms of payment "in connection with the participation of another person in unlawful Internet gambling."
Despite the passage of UIGEA, the Poker Companies, located offshore, continued operating in the United States. In a press release dated October 16, 2006, Absolute Poker announced that the company would continue its U.S. operations because "the U.S. Congress has no control over" the company’s payment transactions.
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 these institutions into processing payments on their behalf.
For example, defendants ISAI SCHEINBERG and PAUL TATE of PokerStars, RAYMOND BITAR and NELSON BURTNICK of Full Tilt Poker, and SCOTT TOM and BRENT BECKLEY of Absolute Poker, 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.
Of the billions of dollars in payment transactions that the Poker Companies tricked U.S. banks into processing, approximately one-third or more of the funds went directly to the Poker Companies as revenue through the "rake" charged to players on almost every poker hand played online.
As alleged in the Indictment, to accomplish their fraud, the Poker Companies worked with an array of highly compensated "payment processors" – including defendants RYAN LANG, IRA RUBIN, BRADLEY FRANZEN, and CHAD ELIE – who obtained accounts at U. S. banks for the Poker Companies.
The payment processors lied to banks about the nature of the financial transactions they were processing, and covered up those lies, by, among other things, creating phony corporations and websites to disguise payments to the Poker Companies.
For example, a PokerStars document from May 2009 acknowledged that they received money from U.S. gamblers through company names that "strongly
imply the transaction has nothing to do with PokerStars," and that PokerStars used whatever company names "the processor can get approved by the bank."
By late 2009, after U.S. banks and financial institutions detected and shut down multiple fraudulent bank accounts used by the Poker Companies, SCHEINBERG and BITAR developed a new processing strategy that would not involve lying to banks. PokerStars, FullTilt Poker, and their payment processors persuaded the principals of a few small, local banks facing financial difficulties to engage in such processing in return for multi-million dollar investments in the banks.
For example, in September 2009, ELIE and others approached defendant JOHN CAMPOS, the Vice Chairman of the Board and part-owner of SunFirst Bank, a small, private bank based in Saint George, Utah, about processing Internet poker transactions.
While expressing "trepidations," CAMPOS allegedly agreed to process gambling transactions in return for a $10 million investment in SunFirst by ELIE and an associate, which would give them a more than 30% ownership stake in the bank.
CAMPOS also requested and received a $20,000 "bonus" for his assistance. In an e-mail, one of ELIE’s associates boasted that they had "purchased" SunFirst and that they "were looking to purchase" "a grand total of 3 or 4 banks" to process payments.
The Indictment and Civil Complaint seek at least $3 billion in civil money laundering penalties and forfeiture from the Poker Companies and the defendants. The District Court issued an order restraining approximately 76 bank accounts in 14 countries containing the proceeds of the charged offenses.
Pursuant to a warrant for arrest in rem issued by the U.S. District Court, the United States also seized five Internet domain names used by the Poker Companies to operate their illegal online businesses in the United States.
Multi-Billion Dollar Civil Money Laundering And Forfeiture Action Also Filed
Internet Domain Names Used By The Poker Companies Seized
PREET BHARARA, the United States Attorney for the Southern District of New York, and JANICE FEDARCYK, the Assistant-Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation ("FBI"), announced the unsealing of an Indictment today charging eleven defendants, including the founders of the three largest Internet poker companies doing business in the United States - PokerStars, Full Tilt Poker, and Absolute Poker (the "Poker Companies") - with bank fraud, money laundering, and illegal gambling offenses.
The United States also filed a civil money laundering and in rem forfeiture complaint (the "Civil Complaint") against the Poker Companies, their assets, and the assets of several payment processors for the Poker Companies.
In addition, restraining orders were issued against more than 7 bank accounts utilized by the Poker Companies and their payment processors, and five Internet domain names used by the Poker Companies to host their illegal poker
games were seized.
Manhattan U.S. Attorney PREET BHARARA said:
"As charged, these defendants concocted an elaborate criminal fraud scheme, alternately tricking some U.S. banks and effectively bribing others to assure the continued flow of billions in illegal gambling profits. Moreover, as we allege, in their zeal to circumvent the gambling laws, the defendants also engaged in massive money laundering and bank fraud."
"Foreign firms that choose to operate in the United States are not free to flout the laws they don’t like simply because they can’t bear to be parted from their profits."
FBI Assistant Director-in-Charge JANICE K. FEDARCYK
said:
"These defendants, knowing full well that their business with U.S. customers and U.S. banks was illegal, tried to stack the deck. 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."
According to the Indictment and the Civil Complaint unsealed today:
On October 13, 2006, the United States enacted the Unlawful Internet Gambling Enforcement Act ("UIGEA"), making it a federal crime for gambling businesses to "knowingly accept" most forms of payment "in connection with the participation of another person in unlawful Internet gambling."
Despite the passage of UIGEA, the Poker Companies, located offshore, continued operating in the United States. In a press release dated October 16, 2006, Absolute Poker announced that the company would continue its U.S. operations because "the U.S. Congress has no control over" the company’s payment transactions.
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 these institutions into processing payments on their behalf.
For example, defendants ISAI SCHEINBERG and PAUL TATE of PokerStars, RAYMOND BITAR and NELSON BURTNICK of Full Tilt Poker, and SCOTT TOM and BRENT BECKLEY of Absolute Poker, 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.
Of the billions of dollars in payment transactions that the Poker Companies tricked U.S. banks into processing, approximately one-third or more of the funds went directly to the Poker Companies as revenue through the "rake" charged to players on almost every poker hand played online.
As alleged in the Indictment, to accomplish their fraud, the Poker Companies worked with an array of highly compensated "payment processors" – including defendants RYAN LANG, IRA RUBIN, BRADLEY FRANZEN, and CHAD ELIE – who obtained accounts at U. S. banks for the Poker Companies.
The payment processors lied to banks about the nature of the financial transactions they were processing, and covered up those lies, by, among other things, creating phony corporations and websites to disguise payments to the Poker Companies.
For example, a PokerStars document from May 2009 acknowledged that they received money from U.S. gamblers through company names that "strongly
imply the transaction has nothing to do with PokerStars," and that PokerStars used whatever company names "the processor can get approved by the bank."
By late 2009, after U.S. banks and financial institutions detected and shut down multiple fraudulent bank accounts used by the Poker Companies, SCHEINBERG and BITAR developed a new processing strategy that would not involve lying to banks. PokerStars, FullTilt Poker, and their payment processors persuaded the principals of a few small, local banks facing financial difficulties to engage in such processing in return for multi-million dollar investments in the banks.
For example, in September 2009, ELIE and others approached defendant JOHN CAMPOS, the Vice Chairman of the Board and part-owner of SunFirst Bank, a small, private bank based in Saint George, Utah, about processing Internet poker transactions.
While expressing "trepidations," CAMPOS allegedly agreed to process gambling transactions in return for a $10 million investment in SunFirst by ELIE and an associate, which would give them a more than 30% ownership stake in the bank.
CAMPOS also requested and received a $20,000 "bonus" for his assistance. In an e-mail, one of ELIE’s associates boasted that they had "purchased" SunFirst and that they "were looking to purchase" "a grand total of 3 or 4 banks" to process payments.
The Indictment and Civil Complaint seek at least $3 billion in civil money laundering penalties and forfeiture from the Poker Companies and the defendants. The District Court issued an order restraining approximately 76 bank accounts in 14 countries containing the proceeds of the charged offenses.
Pursuant to a warrant for arrest in rem issued by the U.S. District Court, the United States also seized five Internet domain names used by the Poker Companies to operate their illegal online businesses in the United States.
So in brief: after the passage of the UIGEA, these various offshore poker rooms teamed up with financial processing companies in order to disguise the gambling-orientated nature of their customers' transactions; when this route started to close down, they persuaded smaller blanks to turn a blind eye with cash injections that amounted to bribery.
The five charges:
• Conspiracy to violate Unlawful Internet Gambling Enforcement Act
• Violation of Unlawful Internet Gambling Enforcement Act
• Operation of illegal gambling business
• Conspiracy to commit bank fraud and wire fraud
• Money laundering conspiracy
And the domains seized by the FBI:
• Absolute Poker
• Poker Stars
• Full Tilt
• Ultimate bet
A big question mark hangs over the legitimacy of the "unlawful online gambling" charges. There is nothing in US federal legislation which says that online gambling is illegal except the Federal Wire Act, which covers only sports betting. The UIGEA references "unlawful online gambling", but the "unlawful" charge is not backed by any legislation stating that anything beyond sports betting is actually illegal.
On the other hand, state law in Washington and New York specifically rules against most kinds of gambling. From the New York State constitution:
Article 1, section 9
Except as hereinafter provided, no lottery or the sale of lottery tickets, pool-selling, book-making, or any other kind of gambling, except lotteries operated by the state and the sale of lottery tickets in connection therewith as may be authorized and prescribed by the legislature...and except pari-mutual betting on horse races as may be prescribed by the legislature and from which the state shall derive a reasonable revenue for the support of government, shall hereafter be authorized or allowed within this state.
Except as hereinafter provided, no lottery or the sale of lottery tickets, pool-selling, book-making, or any other kind of gambling, except lotteries operated by the state and the sale of lottery tickets in connection therewith as may be authorized and prescribed by the legislature...and except pari-mutual betting on horse races as may be prescribed by the legislature and from which the state shall derive a reasonable revenue for the support of government, shall hereafter be authorized or allowed within this state.
So does federal or state law apply? The New York Times has this to say:
U.S. cracks down on online gambling
Lawrence Walters, a lawyer who represents online gambling operations, though not those involved in these cases, said the indictment might raise an even more fundamental question: is online poker actually illegal? Federal law prohibits sports betting, but experts are divided over whether it clearly prohibits online games like poker and blackjack.
In the indictment, prosecutors seemed to skirt the issue. They based parts of their prosecution on state laws in New York and elsewhere that prohibited unlicensed gambling, including poker. Legal experts said the prosecutors needed to rely on such prohibitions as a foundation for going after the claims of money laundering and fraud.
But Mr. Walters said this strategy might face challenges. He said it was not clear that the state laws applied to foreign-based gambling operations, given that under federal law, international commerce was regulated at the federal level.
Lawrence Walters, a lawyer who represents online gambling operations, though not those involved in these cases, said the indictment might raise an even more fundamental question: is online poker actually illegal? Federal law prohibits sports betting, but experts are divided over whether it clearly prohibits online games like poker and blackjack.
In the indictment, prosecutors seemed to skirt the issue. They based parts of their prosecution on state laws in New York and elsewhere that prohibited unlicensed gambling, including poker. Legal experts said the prosecutors needed to rely on such prohibitions as a foundation for going after the claims of money laundering and fraud.
But Mr. Walters said this strategy might face challenges. He said it was not clear that the state laws applied to foreign-based gambling operations, given that under federal law, international commerce was regulated at the federal level.
Gambling legal expert Nelson Rose has this to say about the charges of illegal gambling and fraud / money laundering:
Federal Poker Indictments: Revisiting Prohibition
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 paying a penny in fines.
But getting a bank to agree to process gambling transactions in return for a $10 million investment is an easier case, if true...
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."
The Washington statute was upheld by the State Supreme Court. 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.
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 paying a penny in fines.
But getting a bank to agree to process gambling transactions in return for a $10 million investment is an easier case, if true...
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."
The Washington statute was upheld by the State Supreme Court. 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.
So it seems that even the fraud / bribery charge is hard to press without any actual illegal activity, but that "18 U.S.C. 1955" may give the DOJ what they need.
And the cause last week's seismic DOJ shakedown?
It couldn't be much more ironic. Daniel Tzvetkoff, a businessman who made billions operating those same financial processors whose work with the poker rooms formed the basis of these charges, has turned on his former business partners...after they had turned on him:
Meet The Boy Genius Who Just Took Down The Online Poker Industry
...He made Full Tilt Poker and Poker Stars millions of dollars — and made as much as $150,000 a day for himself — but then got even more greedy and started taking their (money). They sued him, accusing Tzvetkoff of taking more than $100 million of their money.
Then last April, Tzvetkoff was arrested in Las Vegas and charged with the same crimes those sites' founders were charged with today: money laundering, bank fraud, wire fraud. Then after a "secret" meeting with prosecutors last August, he was suddenly out on bail. And now his former colleagues are the ones facing serious prison time.
Daniel Tzvetkoff knows the operations of these poker sites inside and out. It was knowledge of the financial industry that allowed them to operate. He's the one man positioned to give the U.S. Attorneys everything they needed to take down their businesses.
And it looks like that's exactly what he did, cooperating with the authorities to avoid his own lengthy jail sentence.
And the biggest irony of all? It's been rumored that the only reason the FBI got their hands on him is because Full Tilt or Poker Stars (the companies he used to work for and stole from) tipped off the FBI that he was going to be traveling to the United States last year.
They ratted him out ... and he turned the tables. No honor among thieves.
...He made Full Tilt Poker and Poker Stars millions of dollars — and made as much as $150,000 a day for himself — but then got even more greedy and started taking their (money). They sued him, accusing Tzvetkoff of taking more than $100 million of their money.
Then last April, Tzvetkoff was arrested in Las Vegas and charged with the same crimes those sites' founders were charged with today: money laundering, bank fraud, wire fraud. Then after a "secret" meeting with prosecutors last August, he was suddenly out on bail. And now his former colleagues are the ones facing serious prison time.
Daniel Tzvetkoff knows the operations of these poker sites inside and out. It was knowledge of the financial industry that allowed them to operate. He's the one man positioned to give the U.S. Attorneys everything they needed to take down their businesses.
And it looks like that's exactly what he did, cooperating with the authorities to avoid his own lengthy jail sentence.
And the biggest irony of all? It's been rumored that the only reason the FBI got their hands on him is because Full Tilt or Poker Stars (the companies he used to work for and stole from) tipped off the FBI that he was going to be traveling to the United States last year.
They ratted him out ... and he turned the tables. No honor among thieves.
Not for the first time, the real losers are the players, who have had any and all money they had in Poker Stars, Absolute Poker, Ultimate Bet and Full Tilt Poker sequestered by the US administration, and currently have no idea when, and indeed if, they'll be reunited with their funds.
For ongoing, lengthy discussion of this and other related matters, see the 2+2 poker forum thread.
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this post is very usefull thx!
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