Online Poker Sites under Pressure

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. Since then other members of Congress have proposed bills to legalize Internet gambling, but they have failed to reach a floor of either chamber.

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 morning 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 company’s 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 in a statement.

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.

There was also a widespread belief that by moving operations outside the United States, they would escape the eye of American authorities.

Full Tilt Poker, which was founded in Los Angeles, moved to Ireland after the law was passed.

“They thought – and for five years they were right – that no one would go to the trouble of going overseas to try to bring them back to this country,” said Chuck Humphrey, a Colorado lawyer specializing in online gambling.

PokerStars, the largest of the three companies, is located in Britain’s Isle of Man. Humphrey, who has done legal work for PokerStars, estimated that the company makes $500 million a year from its American customers.

Absolute Poker, the smallest of the three, is based in Costa Rica.

In March, Wynn Resorts and Caesar’s Entertainment made moves into the online poker space, with Wynn pairing up with PokerStars to back federal legislation to regulate and tax online gambling.

Last month, Rep. Barney Frank, D-Mass., and Rep. John Campbell, R-Calif., introduced a new attempt at federal regulation of online gaming.

A number of states have also taken up the issue and earlier this year a ban on Internet poker in the state of Washington was upheld by courts.

I. Nelson Rose, a Whittier Law School professor and expert in gambling law, said that states have been struggling to reconcile the legal gambling that is available at casinos in many states, with the illegality of gambling online.

“Gambling has become a part of everyday life,” Rose said. “Nearly every state has commercial gambling, most have casinos and nearly all have lotteries. But the laws are trailing behind.”

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.”

For the millions of poker players, the most immediate concern has been what will happen with all the millions of dollars they have in their online accounts – and the time they spent playing online.

“Now, I’ll be playing more darts, I guess,” said Scott Harker, 43, a technical writer in Ohio who has been playing since the late 1990s.

“It’s really sad to see it go,” he said. “But I think it’ll come back eventually.”

Related Post