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RING-FENCE THOSE FUNDS

By Wendeen H. Eolis
Poker Player Newspaper

Fallout from the Government’s unsealed indictment in U.S. v. Isai Scheinberg et al.—including founders and associates of Poker Stars, Absolute Poker/Ultimate Bet and Full Tilt—and the related civil forfeiture actions against the companies—has reverberated throughout the poker world. For the moment, customers of Full Tilt Poker find themselves in the eye of the storm as they await word on an estimated $150,000,000 in deposits owed to them. Worse, perhaps, there is little understanding among online players of the ever-present risks of depositing funds into online sites without knowledge as to where they reside and whether or not they are protected.

Full Tilt Troubles

In recent weeks poker media has widely reported the impact of Black Friday on players, leaving on the back burner much discussion of the churning wheels of justice and our collective responsibilities to protect that process.

Barrister Mark Heslop, acting for Full Tilt, sallied forth to the Full Tilt license hearing, in London on July 26, with the full weight of those responsibilities on his shoulders as he sought to turn a scheduled public hearing into Full Tilt’s license into a private tête-a-tête with regulators.

Interim Report Card

Score three big points for Full Tilt’s eloquent counsel. Mr. Heslop prevailed on his pre-application to bar the media and the public from learning why he was seeking an adjournment of the hearing and then won his application to adjourn the proceedings. He also succeeded in holding back payment of Full Tilt’s overdue license fees until reasonably assured the regulators did not intend, summarily, to send Full Tilt packing upon receipt of the monies.
Score two big points for the Alderney Gambling Control Commission (AGCC) which successfully showcased its Channel Islands base of operations as among the most permissive venues for online gambling licenses while positioning itself at center stage in determining Full Tilt’s fate.
Score one small point for Full Tilt customers who were lost in the shuffle as Full Tilt and the AGCC jockeyed for position with each other, but who may benefit from the extension of time for Full Tilt to hunt down a mechanism by which to pay them back.
Score one big goose egg for attendees who found no redeeming reason for being there all day—engaged in “being and nothingness.”

Attendees Are the Show

In a hearing that barely got off the ground, it paid to make the best of it by observing and mingling with the eclectic crowd of attendees who quietly waited for Godot in the hotel’s lower lobby. Only a smattering of the early-birds lasted the whole day. The cast included mostly European-based poker media (a pretty sharp group of them),  a fair share of downtrodden unknown poker players (mostly presumed to be Full Tilt customers), and one longtime London-based pro who stole the show with cries of foul when the public hearing stalled. There were also cameos by two Party Poker Executives who just happened to be in town instead of Gibraltar.

Poker Stars Does Its Homework

More curious was a contingent of lawyers closely associated with Poker Stars. One flew in from Israel, dispatched by the Company’s longtime corporate counsel, Herzog, Fox and Neeman. Another arrived from the Poker Stars office in the Isle of Man. A third, Tom Goldstein, traveled from Washington, describing his presence as mere duty to an industry in which he is active. Mr. Goldstein didn’t stick around for long, but the other two did—to the very end.

The Proceedings

In a 20-minute presentation at the license hearing, Mr. Heslop, Full Tilt’s lead counsel, confirmed that talks are ongoing but referred only to “sensitive negotiations” with “potential investors.” He cited these discussions as well as the prospects for a better outcome for players and a deep concern for “untainted” justice in his bid to shoo the media and other viewers out of the room.

Ring-Fenced Funds

Grappling with the issues that surround Full Tilt’s predicament is a tall order. Learning if your online deposits are held in ring-fenced funds is easy. Look at your terms of service or ask the regulator of your favorite site. It could make all the difference to your next online poker deposit. “Only segregated and protected funds—they should be established as ring-fenced funds—can shield players’ monies effectively,” says one gaming law expert at an AmLaw100 firm. He adds, “Think of ring-fenced funds as monies in trust and earmarked as monies not belonging to the online company. “

Check That License!

Under the rules of AGCC, which apply to Full Tilt, ring-fencing player accounts is generally permitted but not required. It appears that the Commission initially approved the company’s plans to co-mingle participant monies with corporate assets. The laissez-faire policy of the AGCC in the little known state of Alderney also permits licensees to locate their physical operations elsewhere. Full Tilt is headquartered in Dublin. The Kahnawake Gaming Commission in Canada, which licenses the operations of the Costa-Rican based Absolute and Ultimate Bet Poker sites, is similarly lax, allowing site operations to be set up thousands of miles from them and without obligation to separate player monies from their own.

Immediate Note to Self #1:

Full Tilt has obtained a secondary license from the Kahnawake Gambling Commission just in case the AGCC decides at some point to revoke its license. This state of affairs sounds like a good fall-back position for Full Tilt and a promising development for a pitch to a potential investor, but don’t count on segregated and protected player funds if the active license is with the Kahnawake authorities.

Banking On Full Tilt

From the beginning, Full Tilt Poker positioned itself to use player funds to increase its earning power for itself rather than as a custodian of others’ monies, taking advantage of the permissiveness of the AGCC. Generally, its licensees may select one of three options by which to hold participant monies; placing them either in co-mingled, segregated, or segregated and protected accounts. However, since the suspension of their license, the AGCC has imposed a requirement that “licensees comprising FTP arrange for the ring-fencing of identified players’ funds under their control.” This late-coming consideration to player protection has not disguised the Commission’s higher priorities. AGCC commissioners’ first order of business at the recent hearing was payment of Full Tilt’s overdue licensing fees for renewal. Promptly upon receiving it, the license was renewed though AGCC was quick to point out that the suspension of the license continues until adjudicated at an upcoming hearing that will take place not later than 15 September.

Stricter Rules in Isle of Man

Players who choose to ante up at Poker Stars make a far better bet on genuine player protection. Poker Stars operates under the rules of the IOM Gambling Act of 2001, as additionally updated in 2010. The tax haven home of the online poker giant offers no option to engage in flexible business principles and practices with players. According to the Commission’s public statements, licensees must set up segregated and protected accounts and retain sufficient reserves to insure payouts of customers. Ring-fenced player accounts are obligatory. This means if you choose to set up shop there, player deposits must be segregated from other corporate assets, available and held in the manner of trust monies, and out of the reach of creditors and the kind of seizure activity that was implemented Black Friday. The Isle of Man also requires licensees to maintain their headquarters locally. Poker Stars is one of the island’s largest employers. Compliance is monitored locally by Isle of Man authorities who have the power to enforce Isle of Man GSC regulations. The potential effect of different licensing rules on licensees cannot be overstated for players with monies in any online poker site— anywhere in the world.

Immediate Note to Self #2:

You should make certain that an online poker company’s license to operate includes a mandatory provision to put your deposits in ring-fenced accounts or equivalently protected trust funds. Even then, putting your funds into an online poker site is not as secure as a bank. The Isle of Man is the first to make this clear with a public warning that absolves itself of protecting monies that flow through third party payment providers engaged by license holders.

Immediate Note to Self # 3:

The integrity of an online site and its payment processor are as critical to the welfare of your deposits as the safeguarding of the accounts themselves. The ability to understand the applicable laws that affect the business of online poker, and the risks associated in interpreting them differently from the government, can be more critical—as is now evident to both operators and players who have been stung. Here is where the rubber meets the road in the DOJ’s case against the defendants in a country that is saddled with the Unlawful Gambling Enforcement Act of 2006 which triggered the events of Black Friday.

Editor’s Note: Ms. Eolis is CEO of EOLIS an internationally recognized legal/business/government affairs consultancy with 40 + years of experience in the worldwide gaming industry. In her spare time she has proved it doesn’t take a pro to beat a pro. She was the first woman to cash at the WSOP and counts 10 more cashes in major competitions.