Black Friday – United States v. Scheinberg

Full Tilt Poker

The U.S. federal criminal case against the principles of the three largest online gambling operations, PokerStars, Full Tilt Poker, and Cereus (Absolute Poker), is popularly called “Black Friday” by online gambling players. Officially, the case is titled “United States v. Scheinberg” and led to seizure of the company’s domain names and their funds by the U.S. Department of Justice. The case stated that the founders of the companies and a number of their associates violated the Unlawful Internet Gambling Enforcement Act (UIGEA). In addition, the defendants were accused of money laundering and bank fraud.


Seizure of Online Gambling Sites

After seizing the online addresses of the three gambling sites, the U.S. Department of Justice replaced them with takedown notices placed on the homepage of the sites. PokerStars and Full Tilt Poker were allowed to use the sites again after pledging to no longer accept U.S. accounts. An unspecified amount of player money and 76 bank accounts from 14 different countries were frozen.


Criminal Defendants in the Case

The 11 criminal defendants involved in the case included company executives, site founders, U.S. payment processors, and a Utah bank executive. Prosecutors maintain that the defendants were involved in a criminal fraud scheme that is in violation of the laws set forth by the UIGEA. The prosecutors are seeking $3 billion from the gambling operations and jail sentences for the company executives.

The eleven defendants that have been indicted are:

  • Isai Scheinberg, PokerStars founder
  • Paul Tate, PokerStars director of payments
  • Raymond Bitar, TiltWare CEO (TiltWare is the software company used by Full tilt Poker)
  • Nelson Burtwick, TiltWare director of payments
  • Brent Beckley, Absolute Poker director of payments and risk management
  • Scott Tom, Absolute Poker part owner
  • John Campos, SunFirst Bank part owner and vice chairman of the board
  • Bradley Franzen, payment processor
  • Ryan Lang, payment processor
  • Chad Elie, payment processor
  • Ira Rubin, payment processor
Isai Scheinberg Poker stars Founder

Isai Scheinberg Poker stars Founder

PokerStars, Absolute Poker, and Full Tilt Poker founders and associates are accused of attempting to evade UIGEA rules. “Payment processors” and other associates of the company founders are accused of assisting in money laundering and other illegal ventures. In other words, the companies are being accused of disguising online gambling payments for purchases such as jewelry, golf balls, and other goods that did not actually exist. Defendants are also accused of investing money in a small Utah bank in exchange for the processing of online gambling transactions through the bank.

While the verdict is still out, the following was stated during the case: “The maximum penalty for violation of the UIGEA and operating a gambling business is 5 years in prison and a fine of $250,000 or twice the gross gain or loss for each charge, for conspiracy to commit wire fraud is 30 years in prison and a fine of $1 million or twice the gross gain or loss, and for money laundering conspiracy is 20 years in prison and a fine of $500,000 or twice the amount laundered.”


Government Viewpoint

The government holds the position that the founders and associated defendants involved with the online gambling operations were fully aware that they were performing illegal tactics for producing revenue. As Janice K. Fedarcyk, FBI Assistant Director-in-Charge, said, “These defendants, knowing full well that their business with U.S. customers and U.S. banks was illegal, tried to stack the deck. They lied to banks about the true nature of their business. Then, some of the defendants found banks willing to flout the law for a fee. The defendants bet the house that they could continue their scheme, and they lost.”

Founders of the online gambling operation Full Tilt Poker were also accused of “ponzi scheme” tactics, not maintaining enough funds to reimburse players and for using player money to pay owners and board members over $440 million since 2007. A lawyer working for the defendants has stated the problems were not intended but, instead, the consequence of mismanagement. The matter was resolved on November 1, 2011 when the shareholders of Full Tilt Poker agreed to approve the company’s acquisition by Groupe Bernard Tapie (GBT). In exchange, GBT would pay all player debts, which totaled $300 million.


Black Friday Effect on Players

Players were mostly in a state of shock upon news of the events that took place on Black Friday. The multibillion-dollar online gambling companies did not seem to be in any danger just the day before and then, suddenly, news that total loss of access to these sites would begin immediately hit players hard. U.S players were not only left without gambling sites to play on following Black Friday, but there was also growing concern about how to recover funds from online gambling companies whose sites had been seized. Preet Bharara, U.S. Attorney in Manhattan who seized the online gambling site’s domain names, announced that “no individual player accounts were ever frozen or restrained, and each implicated poker company has at all times been free to reimburse any player’s deposited funds.” However, many players were left without a clue as to how to retrieve funds when they were unable to log on to their accounts after the sites were suddenly shut down.

Many players discovered that they were able to log on to the seized sites via foreign sites such as .uk and .eu sites. So, despite the fact that traffic on the sites did slow down considerably, many players found ways to circumnavigate the seized sites. Nevertheless, the initial reaction was, not surprisingly, a tremendous amount of fear since many players had significant funds tied into the online gambling accounts with some accounts holding millions of dollars.

PPA LOGOThe Poker Players Alliance, an American nonprofit interest group, suggested that players contact their congressional representatives about online gambling site shutdowns. Other reactions included that of former U.S. Senator Alfonse D’Amato who stated, “This is an attack on Internet poker and American poker players like me. Through these strong-arm tactics, prosecutors think they can ban Internet poker. Instead, they are making millions of Americans victims in an attempt to make online poker illegal without the support of legislators or the public.”


Black Friday Effects on Media Outlets

Poker advertisements and television shows were put to a sudden halt upon news of Black Friday. Advertisements had to be pulled since U.S. players would be unable to log onto popular U.S. gambling websites. ESPN was hit especially hard since it had to cancel poker shows already in the making.


Black Friday Effect on Other Online Gambling Companies

Following the United States v. Scheinberg decision and the shutdown of gambling play in the U.S., Cereus (Absolute Poker), Full Tilt Poker, and PokerStars experienced a decrease in traffic of 45%, 49%, and 24% respectively. At the same time, other companies that were not affected by the Black Friday ruling experiencing an increase in website hits and regular site traffic. So, while many worried that online gambling among U.S. players wouldn’t survive, unaffected online gambling companies in other countries like Carbon Poker and Bovada buoyed the global industry and allowed a place for U.S. citizens to continue playing.

While the online gambling industry has survived thus far, the days and weeks following Black Friday continued to shake the online gambling community and Internet gambling companies. For instance, “Gray Monday” brought about further seizures of both large and small gambling sites. Other industries associated with online gambling such as online sports books and even bingo sites were seized. It’s still a matter of time before the full repercussions of Black Friday will be realized. For now, players continue to find ways to place their bets and remain hopeful that the laws will change in favor of online gambling operations and its players.

Next, we will take a look at the economic impacts of Black Friday and how it affects us today.

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Posted by on Jan 13 2012. Filed under Poker Legal News. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

5 Comments for “Black Friday – United States v. Scheinberg”

  1. […] Black Friday – United States v. Scheinberg (ggpokernews.com) […]

  2. […] (UIGEA) was passed in 2006. Both the UIGEA and the outcome of Black Friday (officially known as the United States v. Scheinberg) caused major online gambling companies to leave the U.S. market. This has had a significant […]

  3. […] involved in a cat-and-mouse game with the U.S. Department of Justice (DoJ) ever since the events of Black Friday and Blue Monday took down or eliminated certain poker rooms from the lucrative U.S. […]

  4. […] Black Friday – United States v. Scheinberg (ggpokernews.com) […]

  5. […] Black Friday – United States v. Scheinberg (ggpokernews.com) […]

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