By Wendeen H. Eolis
Poker Player Newspaper
March 27, 2013

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.