US Online Poker: DOJ and FBI crack down

To say that it’s been a tumultuous weekend for online poker in the US would be an understatement.

The industry was shaken to it’s foundations on Friday last week when the US Department of Justice (“DOJ”) issued indictments, seized web domains and froze bank accounts connected with the ‘big 3’ online poker rooms accepting US players…Full Tilt, PokerStars and Absolute Poker.

Visit fulltiltpoker.com, pokerstars.com or absolutepoker.com and you will now be greeted by a domain seizure notice from the FBI and DOJ rather than the operator’s respective home pages (see below).

The Indictments

In all 11 people have been charged with bank fraud, money laundering, illegal gambling offenses and violating the Unlawful Internet Gambling Enforcement Act (UIGEA).  They are:

• Isai Scheinberg (founder) and Paul Tate (payment processing department head) at PokerStars;
• Raymond Bitar (founder) and Nelson Burtnick (payment processing chief) at FullTilt Poker;
• Scott and Brent Beckley (co-founders) Absolute Poker;
• Ryan Lang, Ira Rubin, Bradley Franzen and Chad Elie who provided payment processing services; and
• John Campos, vice chairman of and part owner of SunFirst Bank.

Details of the Indictments were set out in a DOJ press release that was issued on Friday.  But simply put, authorities are contending that the payment processing systems put in place by the defendants to facilitate US player transactions were illegal.

Or as Janice Fedarcyk from the FBI put it (complete with tough-talking poker puns):

“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.”

Bitar has released a statement on behalf of FullTilt saying, “I am surprised and disappointed by the government’s decision to bring these charges. I look forward to Mr. Burtnick’s and my exoneration.”

PokerStars issued a notice to members via Twitter saying, “Please be assured player balances are safe. There is no cause for concern. For all customers outside the U.S. it is business as usual.”

Fallout

In simple terms these three poker rooms are now closed for US business, and will remain so indefinitely while the above charges are contested and this will play out in the courts for some time (or until a settlement is reached). PokerStars have also been unceremoniously dumped by Wynn Resorts from an online poker partnership announced only weeks ago.

The financial cost to Full Tilt, PokerStars and Absolute Poker will be immense…not just in lost business, but also in potential account seizures (estimated $7 billion in various bank accounts around world) as well as $3 billion in civil money laundering penalties being sought by the DOJ.

The Daniel Tzvetkoff factor

This particular piece of the puzzle is the stuff that Hollywood thrillers are made of.

Tzvetkoff is a young Australian net entrepreneur who founded an online payment processing business called Intabill which used to process a good portion of PokerStars et al’s transactions – over $540 million according to US authorities.

The business went bust a couple of years ago, owing PokerStars and FullTilt over $100 million and they began legal action in 2009 to recover their cash.  They were also none to happy to hear that Tzvetkoff was involved in a new online gambling payment processing venture and when they found out he was peddling new business in Las Vegas in April 2010, they are rumored to have tipped the FBI off as to Tzvetkoff’s whereabouts and activities.

The FBI then arrested Tzvetkoff and charged him with money laundering and bank fraud…pretty much the same charges now faced by the above 11.

Tzvetkoff was denied bail – an understandable flight risk given he held a non-US passport and was believed to have access to millions of dollars in offshore bank accounts.  He faced a prison term of up to 75 years if convicted of all charges and authorities were looking like they wanted to make an example of him.

Then all of a sudden in August of 2010 he is granted bail but disappears from public life.  It is now believed that he has turned Supergrass and is assisting US authorities in their efforts to prosecute operators in exchange for leniency on the charges he faces.

His knowledge of FullTilt and Pokerstars’ payment processing methods is intricate.  He knows all the little tricks that were used to circumvent bank transaction codes and he can apparently reverse-engineer transactions to determine their original source – making him invaluable to the DOJ/FBI investigations.

One news service is describing  Tzvetkoff as The Boy Genius Who Just Took Down The Online Poker Industry.

I daresay Daniel Tzvetkoff will be in hiding for some time to come.  The Brisbane Courier Mail rightly pointed out that if this were the old days, he’d be buried in the Las Vegas desert by now.