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On April 15, 2011, the United States of America’s Department of Justice indicted eleven executives associated with the four largest online poker companies operating within the US and seized the sites’ domains. Thousands of online poker players were shocked to find an FBI seal and official warning on the homepages of PokerStars, Full Tilt Poker, Absolute Poker, and UB on Friday. In a dramatic turn of events, the most reputable US poker rooms were accused of bank fraud and money laundering. The DOJ issued a 52 page indictment describing in full the charges.

The offending online poker rooms, as mentioned, are PokerStars, Full Tilt Poker, UB and Absolute Poker. In the indictment, UB is grouped together with Absolute Poker. Together, these poker rooms make up the “Poker Companies.” Isai Scheinberg and Paul Tate of PokerStars, Raymond Bitar and Nelson Burtnick of Full Tilt Poker, and Scott Tom and Brent Beckely of Absolute Poker are named as the six defendants from the prosecuted Poker Companies. Five more defendants make up the group known as the “Poker Processors”: Ryan Lang, Ira Rubin, Bradley Franzen, Chad Elie, and John Campos. In addition, a total of 76 bank accounts have been restrained by the FBI.

The indictment includes several accusations, including violating the Unlawful Internet Gambling Enforcement Act of 2006, fraudulent credit card processing, fraudulent e-check processing, and bribing banks. The nine counts brought against the Poker Companies and Poker Processors are:

1. Unlawful Internet Gambling Enforcement Act Conspiracy
2. Unlawful Internet Gambling Enforcement Act: PokerStars
3. Unlawful Internet Gambling Enforcement Act: Full Tilt Poker
4. Unlawful Internet Gambling Enforcement Act: Absolute Poker
5. Operation of an Illegal Gambling Business: PokerStars
6. Operation of an Illegal Gambling Business: Full Tilt Poker
7. Operation of an Illegal Gambling Business: Absolute Poker
8. Conspiracy to Commit Bank and Wire Fraud
9. Money Laundering Conspiracy

The UIGEA of 2006 made it illegal for anyone to “knowingly accept, in connection with the participation of another person in unlawful Internet gambling — (1) credit, or the proceeds of credit, extended to or on behalf of such other person (including credit extended through the use of a credit card); (2) an electronic fund transfer, or funds transmitted by or through a money transmitting business, or the proceeds of an electronic fund transfer or money transmitting service, from or on behalf of such other person; (3) any check, draft, or similar instrument which is drawn by or on behalf of such other person and is drawn on or payable at or through any financial institution; or (4) the proceeds of any other form of financial transaction, as the Secretary may prescribe by regulation, which involves a financial institution as a payor or financial intermediary on behalf of or for the benefit of such other person.” However, the term “unlawful Internet gambling” is never clearly defined. “The term ‘unlawful Internet gambling’ means to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made.”

In order for credit cards and banks to track Internet gambling deposits and withdrawals, a certain transaction code was attached to each one. Even before the UIGEA passed, Visa and MasterCard began declining Internet gambling transactions as a matter of their policy beginning in 2001. After the passing, more and more transactions began to decline. Allegedly, the Poker Companies began to set up several ways to work around this. One way was using incorrect transaction codes suggesting their transactions were completely unrelated to gambling. This essentially tricked banks and credit card companies into approving transactions deemed illegal by the UIGEA.

According to the indictment, several fake companies were also created, such as www.petfoodstore.biz and www.bedding-superstore.tv, which disguised online poker transactions as purchases of jewelry, pet food, golf clubs, and other merchandise. Phony pre-paid cards were also created with the intent that they would serve as a way to make transactions.

Credit card fraud wasn’t the only way the Poker Companies managed to circumvent the UIGEA. The DOJ indictment also cites the use of echeck fraud.

In order to use echecks, a company must set up a bank account with an United States-based Originating Depository Financial Institution. However, the Poker Companies could not open a bank account in the USA because of existing laws. This is where the Poker Processors come fully into the picture. The Poker Processors, on behalf of the Poker Companies, opened bank accounts to process echecks under the name of fabricated companies. The Poker Processors were payed higher than average “fees” from the Poker Companies for processing these echecks. These transactions then showed up as non-gambling transactions, for example, as payments for merchandise such as bicycles and golf clubs, repayments of high-interest loans, and products from the “direct sales company” Green2YourGreen. When depositing players called to dispute the charges from these fake companies, they were greeted by representatives from the respective Poker Company.

In an effort to seek out “transparent processing” where the Poker Companies would not have to lie to the banks about the origin of their transactions, they sought out banks to do their processing. However, a bank openly and knowingly processing gambling funds would violate the UIGEA and put them at risk. To compensate, the Poker Companies paid large sums of money, millions of dollars, to financially struggling banks to process their transactions. One such bank was SunFirst Bank of Saint Geroge, Utah, which process over $200 million for PokerStars and Full Tilt Poker.

In light of all of this, the DOJ has charged that the Poker Companies and Poker Processors “with others known and unknown, unlawfully, willfully, and knowingly did combine, conspire, confederate, and agree together and with each other to commit offenses against the United States.” As cited in the indictment, the Poker Companies and Poker Processors violated Title 31 United States Code – Section 5363 and 5366, Title 18 United States Code – Sections 2, 371, 1343, 1344, 1349, 1955-1957, and New York Penal Law Sections 225.00 and 225.05 and other state laws.

Following Counts Five, Six, and Seven, the defendants must forfeit “all property, real and personal, that constitutes and is derived from proceeds traceable to the commission of these gambling offenses, and … all property, including money, used in committing these gambling offenses” to the United States. Combined, this comes to at least $3 billion.

What is to come now is not entirely known. So far, Bradley Franzen, Chad Elie, and John Campos have all been arrested and have either already appeared in court or are scheduled to soon. Franzen plead not guilty and was released on $200,000 bail on Monday. The remaining executives have yet to be arrested. Full Tilt Poker also retains an innocent stance. Raymond Bitar was quoted in Full Tilt’s statement, “I am surprised and disappointed by the government’s decision to bring these charges. I look forward to Mr. Burtnick’s and my exoneration.”

You can view the full indictment here.