You've got to know when to hold 'em, and know when to fold 'em.
Prosecutors last week added an Internet-age twist to the old poker maxim, accusing 11 online entrepreneurs – including a reputed Canadian billionaire – of staying in business long enough to run afoul of new U.S. laws.
"They lied to banks about the true nature of their business," FBI assistant director Janice Fedarcyk said in a statement. "… The defendants bet the house they could continue their scheme and they lost."
The new U.S. case amounts to a high-stakes legal showdown between domestic laws and the borderless commerce that the Internet makes possible. Online poker is a multibillion-dollar business, one usually centred on offshore tax havens such as Gibraltar, the Isle of Man and various Caribbean nations.
To staunch the flow of gambling dollars overseas, the U.S. Congress passed the Unlawful Internet Gambling Enforcement Act in 2006. The law made it illegal for U.S. banks to process money related to Internet gambling.
As some rivals ceased doing business with U.S. customers, PokerStars and Full Tilt poker – the biggest names in the industry – stayed in the game. It's alleged they operated through layers upon layers of intermediaries, in order to trick U.S. banks and disguise their ongoing transactions with cherished American clients.
It's unclear how much the prosecution will curb Internet gambling.
Only three of the 11 accused are in U.S. custody – the eight other suspects are at large, mostly in countries where the U.S. law is not necessarily enforceable. Prosecutors have ordered seizures of an estimated $3-billion from more than 75 bank accounts around the world, but it is unclear whether they'll ever get their hands on the money.
Some dot-com names associated with poker sites have been taken over by the Federal Bureau of Investigation. Yet the actual online poker sites persist. In fact, Full Tilt poker used its Twitter account to tweet subscribers on Monday that it is "business as usual" for customers outside the United States.
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The target
Isai Scheinberg used to toil away anonymously at IBM Canada. Now the Israeli-Canadian, 64, is said to be worth a few billion dollars.
That's because a decade ago he founded PokerStars, a popular gambling site with global appeal, and one that rakes a small percentage from every pot involved in thousands of real-money hands played each second.
Five years ago, Mr. Scheinberg was said to be feeling out a $2-billion to $4-billion initial public offering for PokerStars, which he ultimately kept private. Meantime, he hired popular sports figures to be the public faces for his business, including Swedish NHLer Mats Sundin, German tennis champ Boris Becker and Canadian poker pro Daniel Negreanu.
Last week, U.S. prosecutors tried to reverse Mr. Scheinberg's fortunes, naming him as the lead defendant in a conspiracy to route U.S. money to and from Internet gambling sites – which was outlawed in 2006. Department of Justice prosecutors now consider him a fugitive; should he be convicted, he would face up to 30 years in prison.
Yet Mr. Scheinberg is reputed to live where his company of 1,300 staff is headquartered, in the Isle of Man tax haven. Forbes magazine last year reported that he "never enters the U.S., apparently spending much of his time in Canada."
On Monday, a secretary for a company in Richmond Hill, Ont., associated with Mr. Scheinberg said he could not be reached immediately. She advised sending an e-mail to the firm that "could work its way to the family eventually."
Mr. Scheinberg, who retains corporate control of PokerStars with close relatives, has also tried his hand at face-to-face poker. According to an Internet-gambling site, he won $3,337 at a World Series of Poker event in Las Vegas in 1997, and a $14,491 prize in Monte Carlo a decade later.
The U.S. indictment names 10 other co-accused, including Canadians Nelson Burtnick, 40, and Ryan Lang, 36.
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The law
Poker sites operate in a legal grey area, but that space got a little darker in 2006, when a new U.S. law made it illegal for banks to handle Internet-gambling money.
The gambling sites, invariably registered in offshore havens, had been raking it in. But they suddenly faced a Hobson's choice: Stop taking payments from the lucrative American market, or try their hands at potentially illegal workarounds.
It's alleged PokerStars and Full Tilt Poker leaned on intermediaries. "Phony online flower shops and pet supply stores" were established to take in poker money, according to a new U.S. indictment. Some of the alleged fronts used names like mygolflocations.com and bicyclebigshop.com.
Small, struggling banks were persuaded to facilitate gambling transactions for a cut of the action, U.S. prosecutors say. The Department of Justice alleges it has internal memos showing credit cards were billed deceptively.
"It's not unusual for PokerStars to have their transactions identified by 30-plus descriptors at any point in time … these descriptors are diverse, often vague and rarely reflect the nature of the transaction in any way," reads one PokerStars memo, according to the indictment.
Washington is now asking 14 other countries to arrest suspects and freeze bank accounts, but it's not clear how much of this is legally enforceable in other jurisdictions.
For example, while Canada broadly outlaws gambling, it has no equivalent of the 2006 U.S. anti-gambling law. This would make it difficult for Canadian police to arrest and hand over suspects to U.S. counterparts.
Colin Freeze