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Last March poker aficionados attending the annual “ATLARGE” gathering in Atlantic City, were energized like never before. The buzz in the Atlantic Club and Casino and Hotel (ACC) poker room that weekend was all good news. PokerStars, a staunch supporter of the online poker community had announced its intentions to purchase the Atlantic Club Casino and Hotel (ACC), the property at which they were meeting. New Jersey had recently legalized online poker. And the world’s largest and most popular online poker site was poised to obtain an Interim Casino Authorization (ICA). PokerStars had fast plans to take online poker forward in a big way on these American shores.

The ATLARGE revelers along with ACC personnel and associates of PokerStars celebrated together their expectations of a fast slam dunk deal. Steve Eisenstein, a member of the law firm Lum, Drasco, and Positan, LLC, and an avid poker enthusiast was one of the attendees at the ATLARGE festivities; he could not have imagined at that time what would come of the deal, all too soon. Two months later, the New Jersey law firm at which he practices was hired by PokerStars to sue the ACC in an effort to preserve its investment and protect its plans to purchase the ACC property. It was the Firm’s first engagement with Poker Stars according to Eisenstein, who was otherwise more circumspect than informative as to the possible next steps in this progressively messy situation. He is schooled in the ways of big companies. He offered up the PokerStars’ Director of Communications, Eric Hollreiser as the right man for media inquiries.

Poker Player/Lawyer in Local Law Firm is on the Case (LDP)

Although PokerStars selected law firms from among the better known and higher priced AMLAW 200 to defend the Company and its principals in the U.S. Department of Justice’s prosecution of their online poker activities in America, for this matter the Company relied upon a small local law firm with long roots in the Garden State dating back to 1870. PokerStars’ selection of LDP reflects its well known view of the online poker community as a reservoir of talent to do work on its behalf.

Although his primary specialty is in employment law and related litigation, name partner Wayne Positan was tapped as lead counsel for the PokerStars lawsuit against ACC. Positan knows his way around the New Jersey Courts and is highly regarded among practitioners in firms large and small who have come to know him. The matter has been a shared effort according to Eisenstein, a business lawyer with substantial experience in environmental law and real estate. He also includes litigation as a regular part of his portfolio. And, Eisenstein, a former organizer of ATLARGE gatherings brings to the table an understanding of the poker world to go with his legal skills.

Why Did ACC Jilt Poker Stars?

PokerStars’ path from its Isle of Man headquarters to the shoreline of New Jersey has been periodically disrupted over the years by a fair share of sticky wickets, but by all outward appearances, during the early spring, Stars was on track to purchase the struggling casino — subject to approval of New Jersey regulators – until the ACC saw a way out of the shockingly low price of 15 million dollars it had negotiated for itself as the sale price – before legalization of online poker in the State and prior to its improved earnings in the early months of 2013.

The Birth and Death of the Deal

It is no secret that PokerStars has had its eye firmly trained on becoming a pre-eminent force in the new world of licensed, regulated, and taxed online gambling in the United States following settlement of the civil charges brought against the company in 2011 by the U.S. Department of Justice.

As part of the settlement agreement reached, PokerStars bought the brand of its arch rival, Full Tilt and paid a massive fine to the U.S Government without admitting wrongdoing. (Neither did the DOJ withdraw its allegations of wrongdoing). The final lynchpin to the settlement was Isai Scheinberg’s obligation to give up his leadership role with PokerStars, at least until/unless a resolution of his personal case, at which time the matter could be reviewed. Scheinberg remains indicted and has yet to face the related criminal charges that were brought against him in the case U.S. v Scheinberg et-al.

PokerStars and the ACC reportedly opened discussions in October. Poker Stars insiders say the initiative was a strategic move by the Stars that reflected an abundance of “well placed confidence” in the prospects for legalization of online poker and for approval of a casino license to the Company.

The process of regulatory consideration, however, went into an unexpected full on tailspin. The American Gaming Association opposed licensure of PokerStars. Then PokerStars was delayed or dawdled in its final submission for the license application. And, the hearing to determine the Company’s suitability for a license was ultimately tied up by New Jersey regulators in a manner that made it impossible for PokerStars to meet the deadline as stipulated in the sale/purchase agreement.

The ACC was seemingly better advised than PokerStars in the development of the business terms of the agreement. The conditional deal allowed the ACC to terminate the negotiations if final agreement were not reached by a date certain — April 26, 2013. By that time, Stars had invested and stood to lose at least 11 million dollars it had put into the proposed venture.

On the designated termination date of April 26, as permitted in the terms of the contract, the ACC said farewell to the deal that had been inked. During the colder days of winter, online poker legislation had passed and had become law in New Jersey. In the early months of 2013 the ACC’s earnings improved. After giving notice of termination to PokerStars, ACC’s COO, Michael Frawley took to a public podium to announce the Company’s decision to walk away from the deal and to up the price for the sale of the property.

PokerStars Moves to Quash ACC Possible Efforts to Sell Fast to Others

PokerStars cried foul and asserted bad faith dealings on the part of the ACC. Stars turned to Attorney Wayne Positan to lead the way in a bid to obtain a Temporary Restraining Order that would prevent the ACC from making a fast sale to others while the Court considered the dispute. PokerStars was successful in obtaining a TRO but the victory was short-lived.

On May 7, Attorney Eisenstein wrote to his inquiring friends on BARGE, a popular internet poker forum site, “Since it’s now on record and no longer a secret I can report that we just had argument this afternoon on whether to dissolve the TRO I got yesterday for PokerStars and the Judge put a decision on the record to continue the restraints without modification and to hold a hearing next week on an injunction.” His last line was the understatement of the week. He said, “Busy times.”

Ten days later, the New Jersey Superior Court Judge who granted the TRO had a change of heart. Judge Raymond Batten lifted the TRO he had previously granted to PokerStars. Thus, Eisenstein’s law partner Positan was left to sing the blues in the jurist’s courtroom. According to lawyers generally familiar with the case and with  the usual limitations of a TRO, the outcome was not so surprising.

The Beat Goes On

Was PokerStars misled or did the Company lull itself into believing the contractually determined termination date was of no consequence. The consensus of lawyers queried for this article is that this question is likely to be debated in mutually bruising litigation.

Despite PokerStars open indignation over the conduct of the ACC in this matter, the related legal papers have prompted various lawyers across the country to shake their heads over the contract language that passed muster with PokerStars’ legal beagles. The consensus is that PokerStars, no matter how it proceeds from here, has put itself in quite a pickle.

Old News or Revelations: Isai Scheinberg is Still Involved With PokerStars

Even more curious are the pleadings that were put before Judge Batten concerning Isai Scheinberg’s participation in the deal. The ACC’s chief financial officer, Eric Matejevich references substantive discussions of the proposed sale between him and Scheinberg during a time frame and in a manner that suggests that PokerStars violated its settlement agreement with the U.S. Government. One lawyer says, “If PokerStars allowed Scheinberg to play a leadership role in this matter, the Company and its founder may have overplayed the hand.” Another summed up the prevalent view: “Isai believes in his innocence and in his company—completely.”

The surprise move in the gambits of gaming companies seeking to position themselves for future fortunes in the online and commercial gaming market came last week from an unlikely source, the Atlantic Club Casino and Hotel (ACC) in Atlantic City New Jersey. The casino insulted Rational Group  U.S. Holdings (PokerStars), dismissing its friendly bid and preliminary agreement to buy the property, suddenly, as too little too late.

PokerStars did not take the insult or the alleged injury to its plans lying down. On May 5, PokerStars responded with a lawsuit and yesterday the online poker behemoth followed up, marching into court to obtain a temporary restraining order against the casino company [Read the Court Filing]. It was granted a preliminary injunction that prevents a fast sale to any other suitor while PokerStars makes it case to complete the purchase if it can obtain an Interim Casino Authority from New Jersey regulators.

For the moment, PokerStars claims in scathing allegations of bad faith on the part of the ACC, its continued intentions to proceed toward completion of the purchase, noting the considerable investment it has already made in the property.

PokerStars’ plan to purchase the floundering casino/hotel and to sink some 40 million dollars into upgrading it, was upended in an announcement by the Atlantic Club’s Michael Frawley, chief operating officer of the company. The ACC is owned by Colony Capitol.

Last Wednesday, Frawley announced that PokerStars’ conditional purchase agreement for the property had expired. He further explained therefore the Company terminated the deal pursuant to the terms of the agreement. The termination notice had been served on PokerStars several days earlier.

Atlantic Club Pats Itself on the Back

It appeared that PokerStars was caught flat-footed by Frawley’s statement, which bluntly rejected PokerStars as a suitor. But it turns out that PokerStars was more cunning than mystified when it referred to a “purported notice” of termination received from the ACC.

Frawley exuded confidence in his words, saying, “The advent of New Jersey’s online gaming legislation has changed Atlantic City’s future for the better, and The Atlantic Club is absolutely going to be a part of that future.” Frawley gave further insight into his company’s mindset by noting, “The Atlantic Club’s 2013 revenue and net revenue trends are proof positive that customers are rediscovering us and our popularity is higher than ever.”

PokerStars responded by referencing a “confidentiality agreement” as making it “inappropriate to comment” on the matter. A probing media corps was not buying that idea as anything other than a refusal of transparency as to what occurred.

PokerStars Communications Director, Eric Hollreiser, soon changed course, effectively, pre-empting any accusation against his company of reverting to its old ways of stonewalling media—except when it suited the Company’s goals.

A day later, Hollreiser resurfaced with a more direct and notably candid public statement, saying, “It was the Rational Group’s expectation and understanding, based on the ongoing dealings between the parties, that the closing date would be extended to allow the transaction to be completed.”

The PokerStars statement matched up with the Company’s completion of the final steps of the license application required for purchase of the Atlantic Club—after learning the American Gaming Association had successfully filibustered consideration of the PokerStars license application to a date way outside the April 26 deadline. The Casino Control Commission would have until August 10 to reach a decision, and regulators had, earlier in the month, made that point clear. The further statement also offered an implicit warning to the ACC of troubled waters ahead.

Did ACC Raise Without the Goods?

The Atlantic Club has more than flexed its muscles; its owners appear to have analyzed their increased earnings and the passage of a law to legalize online gaming in New Jersey and concluded the math on the deal no longer added up. According to Poker Stars, in its legal papers today, the New Jersey Casino attempted to obtain an additional 6 million dollars from PokerStars as the bartering chip for a short extension period that would be of no use to PokerStars.

Gaming industry insiders and legislators in New Jersey who have been queried on the collapse of the deal claim that on both sides, big egos and increasingly hostile posturing has gone over the brink.   According to one source associated with New Jersey’s bifurcated regulators who have oversight responsibility for casinos, a mess of unparalleled proportions is emerging, making the fracas between PokerStars and the American Gaming Association over PokerStars suitability as a licensee a mere sideshow for the moment.

In retrospect, PokerStars’ comment late last week to media, has taken on new meaning: “The Rational Group remains entirely committed to resolving this situation and to our investment in New Jersey.” He did not further explain this grace note but the legal papers say it all.

Poker Stars Has a Big Picture Plan

While the breakdown in the planned deal could not have been anticipated by the public and may not have been foreseen by PokerStars either, Rational Group has been gearing up on multiple fronts to take the U.S. market by storm.

The Company has been building a vast array of relationships in New Jersey, sending out friendly flares to casinos across the country, and murmuring sweet nothings into the ears of potential casino partners and sponsors from one coast to the other. Word from across the pond and across the U.S is clear; PokerStars has big plans to rebuild its footprint in America.

The wheels of justice will move forward in the lawsuit that now exists between PokerStars and the ACC (a hearing is scheduled for May 17).

PokerStars May Still be Valued in New Jersey

While PokerStars cools its heels a bit and re-evaluates exactly how it will reach its goals in the States, the American Gaming Association is taking a victory lap. The AGA has effectively stalled PokerStars’ bid for instantaneous dominance in the re-emerging online gaming world on these shores.

The vast majority of the U.S.-headquartered casino industry has mobilized via the AGA to express its collective complaint against admission of PokerStars into the American gaming fraternity, citing Stars alleged criminality pursuant to the prosecution of its online gambling operations by the U.S. Department of Justice.

Settlement of those claims was effectuated between the parties without agreement as to the innocence or culpability of PokerStars’ conduct established in the settlement papers.

Regardless of the currently swirling charges leveled by PokerStars against ACC, there is still no certainty that Stars will be found suitable for a license in New Jersey.

That said, PokerStars’ promise to bring jobs, civic commitment, and many millions of dollars to the Garden State cannot reasonably be dismissed out of hand by the Statehouse. And, friends of PokerStars say it is not likely that the determined Scheinberg family will recede into the background of a setting sun on the Shore anytime soon.

Additionally, PokerStars’ next move in New Jersey may be tied to other events. Reconsideration of the MGM’s bid for a permanent license is on the table. One former casino regulator who now represents a major casino property predicts, “If the MGM obtains its license, PokerStars’ arguments for a license would get only better (assuming it can arrange a purchase with one of the state’s going casinos). He objects, however, to licensing either company

Unfathomable Outcomes are Possible

In the business and politics of online poker, machinations, twists, turns, and outcomes unfathomable at one moment have been known to become stark reality the next.

In the world of unfathomable, there is always the possibility that Caesars and PokerStars will set aside their penetrating tiff of this past winter. Showboat, a Caesars property is on the block in Atlantic City. If the Atlantic Club deal ultimately falls through could PokerStars come calling on Caesars?
It wouldn’t be the first time arch-rivals in the poker world later acquire a taste for one another.

PokerStars’ purchase agreement for the Atlantic Club Casino and Hotel in Atlantic City has expired. In a public statement, this morning, Michael Frawley, COO of Atlantic Club Casino and Hotel has confirmed that the purchase agreement is terminated. Nevertheless, it is too early to jump to conclusions.

There is nothing said thus far to suggest that the two companies cannot re-cement an updated agreement. If necessary, PokerStars could update its completed application which has been submitted to the New Jersey Casino Control Commission.

When it comes to online poker, machinations, twists, turns, and outcomes unfathomable at one moment have been known to become stark reality the next.

PokerStars May Still be Valued in New Jersey

Governor Chris Christie, a proponent of a full court press to revive Atlantic City, faces massive pressure to find the means to recovery from Hurricane Sandy. PokerStars’ promise to bring jobs, civic commitment and 40 million dollars to the project cannot so easily be dismissed. The current re-consideration of the MGM’s bid for a permanent license remains on the table. The MGM’s partnership with the daughter of a reputed crime figure in Macau created a log jam last time around.

The Company is making a new bid, producing documentation that the daughter has a smaller stake in the partnership. She is also in litigation against her father. Ergo the case is apparently made that the relationship should be in the “no worries” category.

One former gaming regulator who wishes to remain anonymous insisted on hearing the news insisted, “If the MGM obtains its license, PokerStars arguments for a license would get only better, but neither should get it if the State wants to keep up its standards as online gaming re-emerges in this country.”

Last month PPN published an article detailing the position of supporters of the American Gaming Association’s opposition to PokerStars obtaining a casino license and another one outlining the position of supporters of PokerStars’ efforts to obtain a license in the Garden State. The participants were primarily lawyers. On his twitter account, Caesars’ Interactive’s spokesman Seth Palansky made favorable mention of the PPN article that detailed  the views supportive of the AGA position.

PokerStars’ Alternatives

Meanwhile there are mumblings coming in from the Isle of Man that PokerStars top brass are confident the company will obtain a license – in NJ or elsewhere in the U.S. long before the Fertitta Brothers or anyone else can outpace them.

And in the world of unfathomable, there is always the possibility that Caesars and PokerStars will set aside their penetrating tiff. It wouldn’t be the first time arch rivals in the poker world later acquire a taste for each other.

While most of the country was glued to the movements of Boston area law enforcement agents immediately after the Boston Marathon bombings, the U.S. Attorney’s Office for the Southern District of New York had it sights set elsewhere on a sting against organized crime that was tied into a few game runners and players in high stakes poker games in New York. April has been a tough month for poker in New York City, more than once.
NY Poker Highlighted in Bust of Russian–Based Organized Crime Ring

At the crack of dawn on April 16, 2013, federal agents were on the march to pick up their prey in Los Angeles, Philadelphia, Miami, and California, as well as New York. They moved in with plans to break the back of an internationally based gambling enterprise rooted inside the Russian Federation.

The accusations made by the Government marry illegal gambling activities to organized crime and put some of New York’s best known nosebleed poker games in the hands of old school “Russian Mafia” with locally based operatives intertwined in their operations.

Arguably, the April 16^th bust shone the brightest light over high stakes poker games in the underground world of New York poker — ever.

According to the US Attorney’s 84 page indictment, the cast of characters includes high-level Russian-surnamed mobsters from two organizations, a bank branch manager from JP Morgan Chase, an art dealer whose gallery resides in the tony Carlyle Hotel in Manhattan, and a bunch of sports bettors and high stakes poker players most of whom are better known to their poker game buddies as part of the New York gambling world’s population of “good family men.”

And then, there is Molly Bloom. She was the poker hostess with the mostess. She attracted to her high-stakes poker games well-marketed poker pros, captains of industry and finance, movie stars and sports stars. She arranged poker events in glamorous homes and hotels on one coast and then the other – supposedly with many if not all of the accoutrements of a high end gentleman’s club.

The indictment is short on details but there is nothing murky about the seriousness of the charges or the defendants. The charges include illegal gambling operations, wire fraud and far-flung money laundering. Worse for some of the defendants are claims of a conspiracy under the Racketeer Influenced and Corrupt Organizations Act (RICO). RICO charges provide for prosecution of conspirators behind a crime. The cast of characters listed in the indictment is spelled out with a recitation of both formal names and nicknames of the defendants.

Penalties range from 10 years to 90 years in prison. The poker game runners/promoters purportedly associated with the targeted gambling enterprise have become inextricably caught up in the fray — at least for now. Few New York poker game “entrepreneurs” have ever feared serious jail time for gambling offenses before.

Mayfair and Diamond Clubs Stung

In April of 2000, the town’s two largest and most popular poker clubs of that time — the Mayfair Club and the Diamond Club — were simultaneously raided by cops. The peace officers showed up with battering rams and cocked guns as if they expected to find the equivalent of an Appalachian National Convention of La Cosa Nostra in progress.

The Government failed to link the clubs to drug deals, loan sharking, or any other criminal activity often associated with organized crime. Nevertheless, the City closed down these clubs soon thereafter. The clubs’ operators, investors and employees lost their cherished lifestyle, but otherwise were left alone to go on their merry way.

While doing research for another writing project, one senior law enforcement agent involved in the sting, confirmed what the club operators knew when they got hit. The officer said, “The precipitating causes” for the scrutiny of the clubs “was twofold.” He went on to explain that an FBI agent stumbled upon the Mayfair in the course of investigating a sports betting operation, and a vice squad officer made a random visit to the Diamond Club where years earlier, he had slapped the club’s hands for newspaper ads that advertised for customers. Ultimately the top earning sports bettor under investigation went to prison.

After the clubs were closed, a high level New York City official who spoke on condition of anonymity said, “The clubs were closed mostly because their activities had become “too extensive for law enforcement to turn a blind eye.”

PokerStars, Full Tilt Poker & Absolute Poker / Ultimate Bet Stung

Some observers say online poker suffered similar scrutiny by the Government looking, mostly aimlessly, for links to organized crime as online poker surged from small businesses into a multi-billion dollar industry. One public acknowledgement of such efforts occurred in the course of the notorious prosecution of online poker by the U.S. Attorney’s Office of the Southern District of New York in US v. Scheinberg et al April 14, 2011.

The case targeted 11 key figures associated with the three largest and most popular online poker sites serving U.S. customers. Companion civil cases were brought against the companies – PokerStars, Full Tilt Poker, and Absolute Poker/Ultimate Bet.

There were blaring headlines of criminality and greed. And, at one point in the prosecution of the cases, the DOJ raised the specter of ties to organized crime. The DOJ quickly retreated from that notion, however, after being politely, but firmly challenged by counsel to PokerStars founder Isai Scheinberg who had been faintly implicated in a footnote of the Government’s legal papers. The Justice Department has never uttered a further peep on this subject. Counsel was none other than Mary Jo White, a former U.S. Attorney for the Southern District. She is presently Chairman of the Securities and Exchange Commission.

An Opening for Organized Crime Emerges

Since the New York poker sting of 2000, law enforcement authorities have become more intimately familiar with poker, and not just online poker which has yielded worldwide publicity. The Feds as well as local precincts periodically cast their eye on the world of underground New York poker. Over the next several years there were few raids unless a club was too noisy or brought too much foot traffic to suit the taste of the neighborhood.

For the most part, police appeared to return to a laissez-faire policy despite a spate of robberies at these clubs, which became known to them. Things changed fast, however, after the murder of a poker player during an armed heist at one of the City’s small new clubs that opened in 2006.

Suddenly poker clubs were seen as dangerous venues by police and poker players alike. The lack of a respectful relationship between clubs and local police created a big opening for expanded involvement of a criminal element—one that, according to the indictment, has played a real role in the operations and “protection” of some of the biggest poker games in town. It has yet to be seen if the Government will succeed this time in pairing poker games with organized crime. But meanwhile, New York poker players ask, “Isn’t  there  enough proof that licensing, regulating and taxing both live and online poker in New York is the safest bet?”

In a video-link proceeding, from a California courtrooom, Ray Bitar, a founder of Full Tilt Poker, was sentenced today by Chief Judge of the US District Court of New York, Loretta Preska, to time served and an estimated forfeiture of $40,000,000.

In keeping with the unexpectedly compassionate deal reached between Government Prosecutors and Bitar’s counsel, Jack Baughman of Paul Weiss et al, Ray Bitar is now positioned to seek the heart transplant required to save his life.

Bitar was previously represented by Attorney Jeff Ifrah. Ifrah is now the center of a malpractice lawsuit brought by Chad Elie, a payment processor for Full Tilt Poker who pled guilty in the Black Friday case against him. Elie is now serving a five month prison sentence.

The application by PokerStars for an Interim Casino Authority (ICA) license at the Atlantic Club Casino and Hotel in Atlantic City appears to be in limbo for the moment. The Casino Control Commission (CCC) has yet to announce the next steps in the process, but the Communications office of the CCC has confirmed that the licensing deliberations take place in meetings open to the public.

AGA and PokerStars Are Subject to a Unique Bureaucratic Process

Here is a quick review on recent events and a primer on the bureaucratic process that pits the American Gaming Association (AGA) against PokerStars in a bid to delay if not deny the online poker company’s entry into the American-based gaming market.

The AGA has opposed PokerStars’ application for a license and has asked the New Jersey Division of Gaming Enforcement (DGE) for permission to participate in its license application hearing. PokerStars has shot back an indignant response to the DGE objecting to the AGA request. It has also leveled pointed accusations in the direction of the AGA and Caesars Entertainment as pots calling the kettle black.

The CCC which has responsibility for casino licensing matters received the AGA papers from the DGE. The DGE is the body that accepts petitions; the CCC has no authority to do so. The bifurcated duties of these two regulatory bodies are clear to them but murky for most of the rest of us.

The DGE may make licensing recommendations but it is the CCC that is charged with issuance, suspensions, and termination of casino licenses. The DGE will be responsible for issuing online licenses to casinos qualified by the CCC. So now you’ve got the picture of the bureaucratic process.

In the matter of the PokerStars application for an ICA, the CCC has elected to take a step back after the warring parties rattled their sabers relentlessly at each other. The regulators are reportedly studying the situation before proceeding further on the application.

There Is More Than Two Sides to this Story

While we search for more clues as to the likely outcome and the timetable for resolution of the skirmish, Poker Player Newspaper (PPN) continues to explore the respective positions of the various protagonists. PPN has been advised by a broad spectrum of gaming lawyers and white collar litigators that credible cases can be made on all sides of this story.

For starters, attorneys are deeply divided concerning PokerStars’ decision to continue U.S. facing operations after the enactment of the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). For its part, the U.S. Department of Justice has consistently insisted that the intent of the Act was to end online betting in America, but it has not litigated this issue to conclusion.

The diverse group of lawyers queried, generally concur that the DOJ is involved in its own perception of proper enforcement. They note, however, that it is the job of a judge to interpret the law. One attorney quipped that practitioners straddle the fence with guesses on how judges might rule and how aggressively law enforcement agencies might pursue their view of a legal infraction. But it is clear that there is room for differences in perspective as to  the legal impact of the Unlawful Internet Gambling Enforcement Act which triggered the grand investigation of online poker businesses.

The Position that Favors Stars

Last week, the position of supporters of the American Gaming Association was fleshed out; this week lawyers lawyers who favor PokerStars’ application for approval of a casino license begin to expound upon their reasons. At the outset, they suggest that Stars had a reasonable legal basis on which to proceed with their U.S. facing operations post UIGEA. They say the Company was mistaken in its understanding of the risks it took. But the attorneys queried suggest that attempts by competitors to tag the Company as unsuitable for a license are mostly self-serving  efforts that disregard a legally complicated set of facts.

The commentary in response to various questions posed to the avid supporters of PokerStars is filled with smart legal nuggets. Their fuller comments and responses to PPN questions will be published in a separate piece – to assure sufficient consideration of the various eye-opening  perspectives.

Meanwhile, for the time being PokerStars, the AGA and the public have been left to cool their collective heels. The CCC has published the agenda for its April 10th meeting with nary a word on the PokerStars application. Stars has still copped plenty of attention in a flurry of activity surrounding the seaside gambling mecca this past week.

Linda Johnson Lobs Another April Fool’s Day Joke

Monday brought an April Fool’s Day joke from “First Lady of Poker” Linda Johnson. In an email blast, poker’s “hostess with the mostess,” informed a world of poker friends she was leaving Las Vegas for her dream job as a card room hostess at a new venue on the east coast. She allowed that the offer was too lucrative to refuse.

Then her good friend Jan Fisher, poker strategy teacher extraordinaire, chimed in with a follow up email. It cast Johnson as poised to take up residence at PokerStars’ “new card room” in New Jersey. Fisher then described the Garden State in terms the Governor might not relish, laying on thick that the big draw was big bucks.

Friends of the perennial April Fool’s Day pranksters found the imagined scenario hilarious, but a few folks at the Atlantic Club and Poker Stars as well as an aide at the New Jersey Statehouse who learned about the missives that morning were a bit less amused. By afternoon the story evaporated with Johnson proclaiming to her Wednesday Poker Discussion Group, “The joke worked.”

Showboat is on the Ropes

The next stunning rumor to surface in AC last week was circulated discretely among gaming industry insiders. The facts have yet to unfold, publicly, but according to a highly respected gaming lawyer with close ties to the powers that be at Caesars, the largest casino stakeholder in New Jersey has decided to close or sell its Atlantic City Showboat property.

Governor Chris Christie and casino regulators are now forced to consider the impact of a lot more jobs in peril — beyond the floundering Atlantic Club Casino and Hotel — which is depending on the anticipated PokerStars bailout option.

Does this put more pressure on regulators to embrace PokerStars and the boatload of cash it is reportedly ready to lay out in this economically ailing state? Political pundits and gaming industry insiders are beginning that analysis.

The CCC and DGE: Bifurcated Roles

At the end of the day, the New Jersey Casino Control Commission will determine if PokerStars is to be granted an Interim Casino Authorization (a temporary license) for the Atlantic Club Casino and Hotel. According to a source at the Casino Control Commission, the Division of Gaming Enforcement will rule on online gaming licenses, granting one to PokerStars only if it first passes muster for a casino license in the State.

Borgata Poker Room Changeover

While the warring protagonists and an array of bureaucrats wrestle with the conundrum of PokerStars as hero or imposter amid mounting fear of further woes for the New Jersey economy, let us applaud Atlantic City’s Borgata Hotel and Casino and Spa with a tip of the hat to Stan Strickland, the departing poker operations director and a welcome mat to Vincent Alonge who has been named interim live games poker manager.

White smoke is already billowing, with a decision on the permanent replacement for Strickland. I’ll have to eat my hat if someone other than Alonge has gotten the nod. Strickland, the Borgata poker room manager of the past ten years, has just migrated to the Sunshine State to head poker operations at the Isle Casino. He built and maintained, seamlessly, the most profitable poker room and the most loyal base of poker players in Atlantic City.

Alonge defected from the Taj Mahal Casino Poker Room a year ago to join Strickland’s operation as an executive poker host. In another era, the Taj featured the most profitable poker room in town. Alonge’s casino experience includes table games as well as a longtime position as a poker shift manager. And at a time the Borgata is putting stronger emphasis than ever on its perennial commitment to customer service, Alonge looks like  the quintessential candidate to invigorate that initiative. Alonge is believed to have been Strickland’s #1 pick as his replacement. The selection of Alonge as Stricklnd’s replacement “puts the Borgata poker room in extraordinary hands” according one longtime player who has his pulse on the thinking inside the card room.

This Too Shall Pass

Previously proven prognosticators are also predicting that PokerStars will receive approval in the U.S. for a casino license — sooner than later. For the time being, PokerStars seems intent on keeping its eye trained on the ball and not on the flak. Casino marketing executives and poker personnel from New Jersey to California say Stars is engaged in bold efforts to cultivate relationships with commercial casinos, tribal gaming properties, and specialized gambling venues, at the ready to enhance their brand across the country.

The battle for supremacy in the emerging online poker market stateside is in full swing with a series of gambits by the American Gaming Association (AGA). The AGA has effectively delayed PokerStars’ anticipated acquisition of the Atlantic Club Casino & Hotel in Atlantic City by its letter and legal brief in opposition.

PokerStars is perceived as a white knight among poker players but as a black sheep by members of the AGA.

The various bones of contention are coming into sharper focus but some relevant matters of fact are becoming more murky. Lawyers supportive of the AGA stance and of AGA members most likely to be affected sooner than later have become increasingly vocal in response to this reporter’s request for help in dissecting the issues — in plain English.

Questions and Answers

More than a dozen lawyers representing both sides of the issues contributed questions and comments last week. This week the AGA supporters (on condition of personal anonymity) reviewed their position and various documentation in an effort to flesh out the general consensus among them. One of the participants stepped up to provide a voice on behalf of the prevailing views of AGA supporters interviewed. PokerStars supporters in the group are expected to provide enhanced responses with references to legal documents shortly. In the interim some of their initial comments are repeated to remind readers there are two sides — if not more — in this evolving story.

Note: For the avoidance of doubt, readers are advised that both PokerStars and the AGA declined to comment on the Q & A  for this article  through their respective communications offices and none of the responses reflect authorized comment by either organization.

1. Why did Poker Stars conclude affirmatively that their online poker fare was legal in America after enactment of UIGEA?

AGA: The UIGEA made it a crime to receive monies in connection with “unlawful internet gambling.” It defined “unlawful internet gambling” as a “bet or wager [that] 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.” Thus, the statute made clear that any wager must comply with the law of the jurisdiction in which the player is located (where the wager is “initiated”), as well as where the operator (or the operator’s gaming servers) are located. No State authorized PokerStars to offer internet gambling to its residents. Unauthorized gambling is unlawful. PokerStars’ contention that poker is not gambling finds no support anywhere. Every state treats poker as gambling or as an otherwise controlled game. PokerStars brazenly chose to ignore the law simply because it thought it could. And it made hundreds of millions of dollars as a result.

PokerStars: The Company consulted the most erudite lawyers in the most respected firms in America. They were persuaded that they were on the right side of the law and would ultimately win the legal battles.

2. If PokerStars concluded that their activities were legal post 2006, why did they treat poker player deposits as anything other than ACH deposits for online gambling?

AGA: No legitimate financial institution would process online gambling transactions in the wake of the UIGEA.  According to poker forum posts and poker blog entries, players identified and questioned repeatedly strange descriptors for their deposits. PokerStars desperately wanted to find banks that would allow it to process payments as gambling; hence, its efforts to acquire ownership interests in banks or otherwise to pressure smaller banks to allow it to process. No lawful business needs to disguise its payment transactions. The conclusion is inescapable: PokerStars knew its activities were unlawful. 

PokerStars: PokerStars makes clear it was unable to do business it had a right to do, and therefore was left no alternative but to circumvent the system in order to do business that should not have been prohibited.

3. Why does PokerStars refer to the DOJ as authorizing, permitting or otherwise blessing PokerStars’ efforts to obtain a casino gaming license anywhere in the United States?

AGA: Good question. PokerStars likes to tout the language in its settlement agreement stating that nothing in the agreement, “is intended to or shall limit the PokerStars Companies . . . from offering real money online poker [in the United States] if and when it becomes permissible to do so under relevant law.” That language merely reflects the fact that the Justice Department has neither authority over nor interest in questions of suitability for licensing. Gambling is reserved to state authority. Moreover, even in areas of federal regulation, DOJ does not address the consequences of a settlement or even a guilty plea in other regulatory settings.  

More telling is what PokerStars fails to mention. The settlement agreement expressly states that, “this Stipulation and Order of Settlement shall in no way constitute any reflection upon the merits of the claims and defenses asserted respectively by the United States and the PokerStars Companies.” In other words, DoJ continues to maintain that PokerStars violated the UIGEA and the Illegal Gambling Business Act, committed bank fraud and engaged in money laundering. 

PokerStars: PokerStars quotes Government statements that support the Company’s position; the DOJ has no issue with PokerStars’ efforts to obtain a license when, as, and if, online gaming is permissible under law. The Company also assails casinos as fearful of legitimate competition not criminal activity on the part of PokerStars.

4. Has Isai Sheinberg’s mandated departure from the management of Poker Stars actually occurred?

AGA: No way to know for sure; however, poker players have reported that Isai participated in a three-day PokerStars conference in October 2012 (3 months after the settlement) and that he seemed to have been treated as a key decision maker at the company. For example, Isai was part of the PokerStars team delegated to discuss the relaunch of Full Tilt Poker in 2012.

PokerStars: While making no specific references to this issue, PokerStars slams the AGA as making false and defamatory statements. PokerStars insiders defend Scheinberg’s sensitivity to accusations against his character, insisting that the man believes his own story and they do, too.

5. Do the ongoing criminal charges against Isai Scheinberg reflect on the suitability of the Company’s leadership which includes his son Mark Scheinberg?

AGA: The allegations against Isai – allegations that also were in the civil forfeiture complaint against the PokerStars companies – depict widespread and pervasive activity. Virtually every payment transaction involving PokerStars and its US players for several years involved fraud and related criminality. It is impossible that only Isai and one or two others were aware of and authorized that activity. 

Mark Scheinberg and Pinhas Schapira were and remain senior executives or directors who have been with the enterprise since its beginnings; Hazel is finance director, with ultimate responsibility for payments; and Telford is general counsel. It strains credulity to contend that they did not know what was happening. Moreover, it is undisputed that PokerStars openly offered internet poker to U.S. persons – that alone violated UIGEA and IGBA, as well as state and other laws. PokerStars’ entire U.S. business was unlawful. Removing one person – assuming he is removed – cannot cleanse that taint. (Of course, Isai – as far as anyone knows – remains a majority owner of the PokerStars companies, even if he has recused himself from management. That alone makes him relevant for purposes of suitability.)

PokerStars: The PokerStars response to the AGA brief highlights its satisfactory relationships with regulators around the globe who view PokerStars of appropriate character and moral turpitude, notwithstanding the Company’s prior legal troubles with the U.S. Department of Justice. And, lawyers supportive of PokerStars complain, “Enough is enough,” with a prosecution that never should have been brought.

Questions will continue

Not only the warring parties but also New Jersey’s legislators, and the New Jersey Statehouse have been swept into the fray. Pointed questions have been raised regarding their respective roles in the development of a conducive environment for PokerStars’ re-entry into the American market.

For the moment, however, all eyes are on the New Jersey Casino Control Commission as it is this body that will consider the standing of the AGA to participate in the Commission’s deliberations on PokerStars’ licensing suitability.

The AGA and individual members reportedly have previously used their lobbying clout to disrupt PokerStars’ ambitions in the U.S. Last month, the Nevada State Legislature put in a “bad actor clause” into its new online legislation. The clause was designed to keep off-shore online poker companies that featured U.S. facing-operations, after the enactment of the Unlawful Internet Gambling Enforcement Act (2006), out of town for years, if not permanently.

The protagonists in New Jersey soldier on. The AGA seeks to level the playing field with a fallback position of slowing down a purported imposter if it cannot exclude him. Meanwhile, PokerStars is continuing to showcase its well-oiled machine and flexing its moneyed muscles in continuing announcements of plans to grow mixed gaming fare worldwide, and the Commission is called upon to do a balancing act that silently takes into account the fragile economic situation in post Sandy New Jersey.

Despite the AGA’s ongoing efforts to convince the Casino Control Commission to deny Poker Stars a license in New Jersey, reliable sources in corridors of power in the state as well as the smart money all around are betting that PokerStars will emerge as a stunning victor — in time.

Over the past two weeks the American Gaming Association and PokerStars have sparred over the future of the online gaming company’s activities in Atlantic City. There is no end in sight for a battle that has AGA pressing the New Jersey Division of Gaming Enforcement (DGE) on behalf of its members into a long methodical examination of the merits of PokerStars’ entry into the United States casino market.

While the plot thickens and the legal issues unfold, more than a dozen lawyers are responding to my call for help to dissect in plain English what is happening. Lawyer sources for this article have intimate knowledge of the online and live casino industry. Many have represented one or more of the following: PokerStars, MGM, Caesars, other brick and mortar casinos and online gaming companies, and/or the AGA. They weigh in today on a few of the questions they have brought to the table for discussion.

Author’s disclosures: The  writer is a legal consultant but not a lawyer and therefore does not offer legal advice and does not express any legal conclusions in the matters presented in this article. This acknowledges without specific reference that the writer and/or EOLIS companies have had business dealings at one time or another with most of the businesses mentioned in this article and necessarily, have retained confidences provided in the context of those relationships.

Please also note: For the avoidance of doubt, readers are advised that no spokesperson for either PokerStars or the AGA was solicited for comment with regard to this article and none of the responses reflect authorized comment by either organization.

 

The questions and the summarized answers provided as a result of consulting with a wide variety of gaming law experts and white collar crime specialists follow:

1. Why did Poker Stars conclude affirmatively that their online poker fare was legal in America after enactment of UIGEA?

AGA: They went lawyer shopping and adopted the stance they liked; a stance that suggests they deluded themselves or willfully ignored common sense.

PokerStars: They consulted the most erudite lawyers in the most respected firms in America and were thusly persuaded to their position that they were on the right side of the law and would ultimately win the legal battles.

2. If PokerStars concluded that their activities were legal post 2006, why did they treat poker player deposits as anything other than ACH deposits for online gambling?

AGA: PokerStars engaged in activities that resulted in misidentification of deposits of player funds to avoid detection of their true purpose, knowing that these fabricated descriptors were violations of law. PokerStars later obtained cooperation in processing deposits, as such, by the payment of “special fees” to processors and/or floundering banks that would accept the deposits knowing their true purpose.

PokerStars: To date PokerStars does little to explain what is wrong with the DOJ’s charges and evidence except for statements that makes clear the Company was unable to do business it had a right to do, and therefore was left no alternative but to circumvent the system in order to do business that should not have been prohibited.

3. Why does PokerStars refer to the DOJ as authorizing, permitting, or otherwise blessing its efforts to obtain a casino gaming license anywhere in the United States?

AGA says that PokerStars engages in convenient truth-telling by quoting words out of context so as to create the erroneous impression that the DOJ harbors no ill will or continuing suspicion toward the operations of the Company.

PokerStars quotes specific statements made by the Government that support the Company’s position that the DOJ has  made itself clear as to PokerStars’ right to apply for a license. The Company suggests that whining casinos fear losses as a result of proving themselves weak in economic warfare not as a result of becoming victimized by criminal activity in competition.

4. Has Isai Sheinberg’s mandated departure from the management of PokerStars actually occurred?

AGA: While falling short of an accusation that PokerStars has violated its settlement with the Government, the Association raises collective eyebrows on PokerStars’ compliance with the spirit of that agreement, noting specific meetings in which Isai Scheinberg participated after the date he was supposed to shed management functions.

PokerStars: While making no specific references to this issue, PokerStars slams the AGA as making false and defamatory statements. Many insiders at PokerStars defend Scheinberg’s known sensitivity to accusations against his character, insisting that the man believes his own story and they do, too.

Note: the lawyers queried for this article agree virtually unanimously; this is a burning question on both sides.

5. Do the ongoing criminal charges against Isai Scheinberg reflect on the current suitability of the Company – particularly on its leadership which includes his son Mark Scheinberg?

This is perhaps the ultimate question. It is discussed with more passion than any other question raised by lawyers with deeply opposing views that reflect their varying relationshikps and the level of their knowledge about the companies with skin in the game. Their comments in response to this question will be discussed separately later in the week.

The summarized positions here are backed up in the next piece that will appear online at this website with quotes from lawyers that have been in the trenches, as the effort to legalize online gaming has progressed and prosecution of online gaming has continued in America over the past two years.

Multiple Protagonists

Meanwhile the protagonists soldier on. The AGA, represents brick and mortar casinos (as well as casino equipment and services providers) who ostensibly seek to level the playing field. The goal seems obvious; slow down the imposter if you cannot exclude him. Why? “Because the would be competitor is determined to play by his own rule book rather than rules of law,” says one frustrated casino executive—referring to a broad range of criminal charges brought by the U.S. government in U.S. v Scheinberg and its companion civil case against PokerStars. The Company took online bets from players in America after the enactment of the Unlawful Internet Gambling Enforcement Act (2006), in defiance of Government warnings that it was prohibited from doing so.

A Bit of Licensing History in New Jersey

Casino licenses are hardly the automatic end result of filing a license application  with the New Jersey authorities. Caesars was denied a permanent license in Atlantic City in the early 80’s until it divested itself of its chairman and vice-chairman, the brothers Clifford and Stuart Perlman. The Perlmans could not convince the regulators that they were not tainted by supposed connections to a well-known mobster who resided in Florida.

Note: Eolis International Group was retained by the Perlmans to select counsel for its bid to be heard before the U.S. Supreme Court after New Jersey refused to act favorably on their license application. As anticipated, certiori was denied.

Caesars’ licensing problems in New Jersey were resolved by the departure of the Perlmans. Caesars, which had been transformed from a private enterrpise into a public company by the Perlmans continued its broad scale casino and hotel operations  around the country, eventually being acquired by Harrahs  which took over the Caesars name. Caesars is widely regarded as the leader in the current AGA campaign to thwart PokerStars’ licensing efforts in New Jersey.

Also in the mix is MGM, another key brick and mortar casino and AGA member. MGM has had its own distasteful experience with New Jersey regulators in the past, but is hoping to mend fences in its current bid to hold on to its interest in the Borgata Hotel and Casino. Some three years ago, the MGM was forced to agree to sell its 50% interest in the Borgata Hotel and Casino after deciding not to abandon its plans for a joint venture with the daughter of a reputed Asian mobster in Macau.

As the March 24, 2013 deadline for MGM to sell its interest grew near, the Company decided to make a renewed bid for a permanent license. In February, the New Jersey Division of Gaming Enforcement began its consideration and has since granted the MGM the right to maintain its interest while the regulator entertains its latest request for a permanent license. The MGM is putting forward arguments that focus squarely on showing changes that demonstrate the Company’s much further distance from the Asian businessman that previously drew the ire of the New Jersey’s DGE.

PokerStars Enters Through Side Door

Now, along comes PokerStars, ready to purchase the floundering Atlantic Club in Atlantic City. Among the parties who seek licenses for PokerStars operations are Mark Sheinberg, son of Isai Sheinberg and CEO of PokerStars, and PokerStars General Counsel, Paul Telford, who has acted as chief consigliere to the Scheinbergs and PokerStars and companies behind their operations.

PokerStars is coming ever closer to setting down stakes on the Atlantic City boardwalk with a boatload of cash and promises to provide new jobs and preserve old ones at the Atlantic Club Casino. And, the Company reportedly has plenty more funds to underwrite a substantial initiative that will promote responsible gaming — as per the legislation amended by Governor Christie, before he signed up the Garden State for licensed and regulated online gaming operations.

Public Reaction to PokerStars Overtures to NJ Regulators

Nothing could be better, say civil libertarians, about the anticipated legal option for adults to play poker in pajamas at their computers, as well as a world of poker players jonesing for the chance to play one, two, or eight poker games at a time, online. By and large PokerStars’ operations are praised effusively at the online poker forums.

The Company has earned praise not only as the biggest and best cyberspace poker rooms in the industry, but also as the safest and most customer-minded gaming organization to serve the poker playing universe. The praise doesn’t stop there. PokerStars is revered for its integrity among players who point out that the Company has stepped up to the plate – every time – to prove unassailable integrity in timely payouts due to their customers.

Against the backdrop of a generally acknowledged, adoring customer base, and amid respect by its most demanding current regulators (PokerStars now operates real money games only outside of the United Staes), what could be more reasonable than for the Company to rebuild its proven brand in the United States? Nothing at all says PokerStars in  response to the recent AGA brief which pulls no punches in its accusations of pervasive criminal activities by the Company — over many years.

Morality Play

The U.S. Department of Justice and other law enforcement agency personnel in multiple states continue to insist that online poker companies have engaged in flagrantly unlawful activity in the U.S. since the UIGEA online anti gambling statute was put in place. Defendants that have come to terms with the Government in their criminal cases emanating from the April 15, 2011 indictment U.S. v Scheinberg have landed up in prison, and Full Tilt’s founder and most active manager, Ray Bitar is expected to do extensive time according to several lawyers who have read the tealeaves.

Two former prosecutors chide this reporter for pressing them to explain more fully the Government’s position, but they oblige: “the Government has nether reversed nor revised its position with regard to its claims of illegal activity on the part of PokerStars in its settlement agreement of civil charges against the Company.” Sure enough, they show me the legal papers that back them up!

Economic Warfare

Beyond the claims against PokerStars as made bythe DOJ in their cases, the commercial casino industry casino industry generally views the Company as having gained an unfair daunting edge over the past seven years while AGA members complied with the law. They complain that licensing PokerStars at this time would be tantamount to a reward for breaking the law.

The outrage over such a prospect is said to have come to a boil in recent weeks as AGA members became aware that PokerStars intended to apply for an Interim Casino Authorization in New Jersey. Such licensing they suggested would be at their expense.

Among casino operators queried, most were highly critical of PokerStars efforts to come into town through a side entry door of an ICA. And, few expressed an appetite to to accept their activities in America in recent years as under the threshold for a declaration of unsuitability to enter the marketplace.

The AGA Board voted unanimously or nearly unanimously (depending upon who you ask), to file the recent brief that strenuously objects to PokerStars joining the fraternity of commercial casinos that have been licensed in New Jersey. The AGA brief pounds the Company for a lack of good character, honesty, and integrity required to obtain such a license. The Association makes more pointed and damning claims, calling, describing the company as having been built on “chicanery, deceit” and pervasive criminal activity.

For its part, PokerStars exudes confidence in the DGE’s ability and obligation to decide the merits of a casino license for its Company (which it clearly believes it deserves). The Conmpany treats opposition to their becoming licensed in New jersey las outside shrill calls from would be competitors designed to exclude their most serious competition.

For the time being we are left to contemplate the future of PokerStars in the United States. Should the Company be left out in the cold or welcomed into the bosom of New Jersey’s heretofore super strict licensing authorities? Look for more analysis here in the coming days and in the next edition of Poker Player Newspaper.