Executives face fraud, other charges
NEW YORK – A thriving online poker industry catering to Americans but operating from abroad to evade U.S. gambling laws could be wiped out by criminal charges against top executives in the business.
Eleven people, including the founders of the three largest poker sites open to U.S. players, were charged by a federal grand jury with bank fraud, money laundering and violating gambling laws. Prosecutors said they will be seeking to recover $3 billion from the companies.
The FBI had shut down two of the sites, Full Tilt Poker and PokerStars, by Friday evening and were working to do the same with the third, Absolute Poker. Online visitors were greeted with a message saying, “This domain name has been seized by the FBI pursuant to an arrest warrant,” and an enumeration of federal anti-gambling statutes and penalties.
An estimated 8 million to 10 million Americans play poker online for money, thousands of whom earn their living on the sites, according to a player advocacy group.
Congress tried to shut down the industry by enacting an anti-gambling law in 2006, but most sites found ways to work around the vaguely worded measure.
In the community of players, news of the indictments unsealed Friday in Manhattan federal court hit like a bombshell.
“Everyone’s in panic,” said David Tuthill, a 22-year-old in Las Vegas who makes his living playing online and in casinos. “Everyone sort of knew in the back of their minds that a day like this was possible – and maybe even inevitable – but it’s really just shocking now that it’s here.”
Two of the 11 defendants were arrested Friday in Utah and Nevada. Federal agents were said to be working with Interpol to capture defendants located overseas.
None of the companies responded to requests for comment.
Prosecutors alleged that after the 2006 law was passed the sites disguised deposits from their customers by describing them as payments to fictional online merchants. After banks started to crack down on this practice, some of the companies used small, struggling American banks to handle the money.
“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,” Preety Bharara, the U.S. attorney in Manhattan, said.
The 2006 law did not directly outlaw online poker sites, but instead barred businesses from taking payments for “unlawful” online gambling, leaving the definition of what is unlawful to others.
After the law was passed the largest site used by American players, Party Poker, shut down its U.S. operations. But other companies thought they would be able to navigate the law by arguing, among other things, that poker is a game of skill and consequently not able to be categorized as gambling.
Anthony Cabot, a Las Vegas lawyer who works with online gambling sites, said that the companies are likely to aggressively fight the charges on many of the same grounds that they have been fighting in state courts.
“This is the opening shot – but I think they without exception have their legal arguments in hand,” said Cabot. “This is really just an opportunity to finally vet the question as to whether their operations have been compliant.”
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