It was aboard a yacht docked in the Mediterranean that an American casino mogul first met an obscure Canadian to bat around the notion of joining forces. Together, they would push for more favourable U.S. gambling laws.
“Steve, in the American market we have so many customers,” said Isai Scheinberg, the 64-year-old founder of PokerStars.com. He said he wanted nothing more than to make online gambling legit. “It ought to be done right. And I don’t want to look over my shoulder at this point in my life.”
That, at least, is how Steve Wynn, founder of Las Vegas’ most extravagant casinos, recounted the 2009 conversation to Forbes.com. The Globe and Mail could not reach Mr. Scheinberg, who closely guards his privacy.
You may not have heard of the Scheinberg family, but they are a Canadian success story – something like an Internet Age equivalent of the Bronfmans, the Montreal clan who famously parlayed U.S. Prohibition laws into a billion-dollar booze business.
Except this tale is shaping up to have a different sort of ending. Poker players now know April 15, 2011, as Black Friday. Prosecutors in New York last week charged 11 men affiliated with Internet gambling sites – including Mr. Scheinberg – with violating laws intended to starve the online gambling industry of U.S. greenbacks.
The charges were announced even as PokerStars’ current leadership – including Mr. Scheinberg’s son Mark – were growing more outspoken in their calls to reform U.S. laws. The site has issued a statement denying wrongdoing. Neither father nor son has surfaced publicly since the charges were announced. The father could spend the rest of his life in prison if apprehended and convicted of the charges.
This isn’t the first time Washington has tried to rein in online gambling, but never before has it launched such an ambitious prosecution. The case against PokerStars and other sites is, essentially, a declaration of war – an intended kill shot against a global industry that often defies regulation.
Win or lose, PokerStars’ luck has already soured fast. Gone already are millions of paying American customers, a number of lucrative TV contracts and the nascent partnership with Wynn Resorts. Operations in other jurisdictions – including Europe, where it is partly licensed, and Canada, where it is not – should help PokerStars weather the U.S. shutdown, albeit in a diminished form.
“They were No. 1 by a long way,” said James Bennett, editor of the eGaming Review, an industry magazine. “Players were flabbergasted that it happened so quickly.” The Scheinberg family, he added, is “pretty mysterious,” even by the opaque standards of the industry.
Isai Scheinberg is variously described as Canadian or Israeli Canadian. Property records show that he bought a modest house in Richmond Hill, a Toronto suburb, in 1988 and holds onto that $660,000 property today. No one answered when The Globe stopped by twice this week. The Scheinbergs did not return messages left with their international businesses and Washington lobbyists.
In the 1990s, Mr. Scheinberg worked at IBM Canada, where he helped develop a standard known as Unicode. This tool allows computers in, say, Asia to recognize script from Europe and vice versa.
Mr. Scheinberg is remembered as a driven industry insider who pushed companies to agree to the common standard. “He probably had a huge international phone bill,” said Edwin Hart, a Maryland programmer involved in the project. “He was very much a political person. He knew who his allies were. He knew who the people were who disagreed with him.”
Such qualities probably served Mr. Scheinberg well as he calibrated the risks and rewards of turning his poker pastime into a global business. Records show he placed 25th at a Texas Hold’em tournament at the 1996 World Series of Poker in Las Vegas. This was just a few years before he brought the game to the Internet masses.
In 2000, he founded PYR, a software company still located in Richmond Hill. The next year he started Rational Entertainment Enterprises, the PokerStars parent now located in the Isle of Man tax haven.
A host of rivals have since launched, but none rake it in like PokerStars. By 2006, it was widely reported to be eyeing an initial public offering in the $2-billion range. The speculation cooled the same year, when the U.S. government passed the Unlawful Internet Gambling Enforcement Act – which made it illegal for U.S. financial institutions to process online gambling payments.
As competitors fled the U.S. market, PokerStars seemed to view the law as a bluff. It continued to take money from U.S. players, steering them away from conventional U.S. banks and toward third-party payment processors. Now the American government is raising criminal allegations of money laundering against the 11 accused, seeking to seize more than $3-billion in assets from more than 75 bank accounts around the world.
The Globe and Mail spoke to the Canadian owner of one such account, a man who asked not to be named as he said he had been fooled into processing online poker payments. “They didn’t disclose to me it was a gaming site. They told me, ‘It’s a marketing agency, and we’re giving refunds on [Internet] widgets,’ ” he said. He added that he stopped processing payments when poker players started inexplicably calling him to ask for their winnings.
It’s not clear how much PokerStars – which points out it is alleged to control only 3 of the 75 contentious bank accounts, and ones based in Europe – was involved in any of this. What’s beyond dispute is that its principals were growing impatient with the status quo.
Just last month, in fact, Mr. Wynn and Mark Scheinberg issued statements announcing the formation of “PokerStarsWynn.com” – an alliance designed to lobby for regulating, not outlawing, online poker. “We must recognize that this activity is occurring and that law enforcement does not have the tools to stop it,” Mr. Wynn said in the statement.
Two weeks later, after the U.S. Justice Department announced the charges, Wynn Resorts said it was “terminating” the PokerStars partnership.Report Typo/Error