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Agreement between the DOJ, Stars and FTP that returns the domain names to the sites for use outside the US, and allows for the return for US player funds.

This agreement substantially shortens the time in which it is likely that Stars players will see a return of their money, but Stars customers can have a high degree of confidence that they will receive all of their money relatively quickly. Stars’ Press Release is very emphatic on this point.

Based on the language of the FTP Press release, FTP players still need to be a little nervous. FT seems to be saying that not all player funds were in segregated player accounts, and some were seized by the DOJ. I HOPE that FTP is just talking about player funds that were in transit and were seized while in processor accounts, but FT has not specified that this is the case.

Previously, because I was getting mainly spam comments, I have had comments disabled on this page. I’m going to enable comments on my substantive posts, and ask that you only post questions as comments. I’ll answer the questions in subsequent posts.

Interviewed by The Hill, Representative Barney Frank (D-Ma), had some amusing comments aimed at the Black Friday indictments. My favorite was that the Obama administration is wasting resources:

“protecting the public from the scourge of inside straights,”

when they should be spending more effort investigating the housing crisis in an attempt to

“Go after the people responsible for empty houses, not full houses.”

I’m all in favor of a little levity, but I hope that Rep. Frank is also taking serious action. As the ranking minority member of the Hose Financial services Committee, and a leading proponent of legalizing online gambling, Frank should be leading the response to the indictments–mainly by applying pressure to have player funds released.

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The only other news of the day relating to the indictments appears to be that one of the payment processor defendants, Bradley Franzen, was arraigned today in federal court in New York City and pled not guilty. Bloomberg’s coverage is the least bare bones report I saw in a quick Google News search.

FYI: An arraignment is a very pro forma legal proceeding in which the accused is brought to court to enter a plea of either guilty or not guilty. Sometimes, maybe even usually, the court also sets bail, as was done here. Franzen apparently posted a $200,000 bail with the help of family and was released.

I’m disappointed that he apparently used his parents’ home as collateral for his bail, as this reduces the probability that he will hightail it to some warm and sunny extradition-free haven.

I’ve been continuing my research. At this point that means that I read the entire 80 page civil complaint seeking forfeiture of the property of the poker defendants indicted on Friday.

For players, there is a bit of good news in the civil complaint: Earlier, I posted this:

So the big question is: have the sites consistently maintained player funds in bank accounts segregated from the sites’ own money, or have they commingled their funds with those of the players?

I don’t know the answer to this question, but it seems likely to me that, at least as an accounting matter, the sites have the ability to prove that player deposits are separately accounted for, and can be proved to be player funds.

I now know the answer to this question, at least as far as Poker Stars is concerned. The civil complaint quotes Poker Stars’ web site as saying that player funds are always kept segregated from operating expenses. If true (and I have no reason to doubt it, that’s just vestigial lawyerly weasling) that means that there is little (almost no) risk of player funds on Stars being accidentally swept up in a forfeiture of the defendants’ property.

I was pretty sure this was the case when I posted earlier, but it’s good to have confirmation, and it’s even better to see that the government is aware that this is how it works.

I’m continuing to look into the Full Tilt situation, and I will update as soon as I have additional information.

Given the indictments of black Friday, the foremost concern that everybody has is whether their online money is safe at Poker Stars and Full Tilt (I’ll exclude Absolute and Ultimate bet from this discussion because of their notorious past).

The short answer is: If you’re a non-American player, your funds are almost certainly safe. If you’re an American, your funds at Stars and Full tilt are probably safe.

The forfeiture allegations in the indictment specify that the government is seeking forfeiture of the property of the defendants. This property includes their ownership interest in the poker sites, and the funds on deposit in a lot of specified bank accounts. There is no paragraph in the indictment or the forfeiture allegations in it in which the government claims to have any right to seize player funds. If player funds are on deposit in the specified accounts, then they are being targeted for forfeiture. But to the extent the sites could prove that such funds belonged to players, they would be excluded from the property to be forfeited on that basis.

So the big question is: have the sites consistently maintained player funds in bank accounts segregated from the sites’ own money, or have they commingled their funds with those of the players?

I don’t know the answer to this question, but it seems likely to me that, at least as an accounting matter, the sites have the ability to prove that player deposits are separately accounted for, and can be proved to be player funds. Thus, although there is some risk, it does not seem like the government is even trying to seize player funds, and that players would have a good defense to the forfeiture of their money (which could be asserted for them by the sites).

The only other risk to player funds would arise IF it were true that the sites were using player funds for operating expenses, drawing down player funds below the amount necessary to cash out all players, and then the sites went out of business with less cash on hand than would be required to fully cash out all players.

Although there has been a lot of scared talk about the sites not being able to survive, I think it is most likely that they can and will. US players represented maybe a third of the worldwide player pool on these sites. That’s a serious blow to their business, but the sites should be able to survive it. It is worth noting that because of the hoops they had to jump through to cash out Americans, and the extra transaction costs involved in deposits from and withdrawals by Americans, the sites just lost their least profitable players. Thus, although their player pools shrank dramatically, their profit margins should increase.

In short, I don’t think there is a serious risk that the sites will go out of business insolvent.

Because I believe the sites will survive, and the government does not appear at this moment to be going after player funds, it looks like players’ money will probably be safe and available to them at some point in  the future.

Which raises the next question: When can American players expect to see our money again?

There really is no good answer to this one. There are too many unknowns. Somebody on 2+2 asked me to score the likelihood that we would get our money back in a few months on a scale of 1-10 (10 being certainty). My response was:

• Within a few months: 3
• Within a year: 7
• Eventually: 9

Although these estimates are almost pure speculation on my part, the basis for the speculation is the length of time it normally takes a federal criminal case to be prosecuted. It is comparatively rare that a case would move from indictment to trial within a few months. It is also somewhat rare for them to drag on longer than a year. Thus, if the case goes to trial, players should start to see some resolution of their accounts somewhere around the one year mark. That assumes that no one involved, including the Poker Players Alliance, the government, the sites, or interested players make any special effort to bring the issue of player funds to a speedier resolution. It is certainly possible for such an effort to be made, but there is no pressing reason to believe at this point that anybody will undertake that effort.

The reason I estimate the chance of us getting our money back within a year as a 7 is simply because it is not clear at all that this prosecutor ever intends to bring the poker sites to trial. He unsealed the indictments at a time when he knew that most of the defendants were out of the country and not subject to arrest. he knows that extradition is difficult to achieve in general, and will likely prove especially difficult in this case. So why did he act now?

I can see two explanations:

1. He knows something I don’t know suggesting that extradition of these defendants is likely to succeed. This is certainly possible, as he is the guy doing the prosecuting and presumably discussing extradition with the countries at issue, while I’m just an ex-lawyer trying to pay attention to the issue in my spare time.

2. he doesn’t care whether they are extradited or they ever stand trial. This actually makes a lot of sense. Some seizures have already occurred, some easy to convict low level players have been arrested and can be served up as easy pickings, and the sites have abandoned the US. Why put the taxpayers to the expense of a long drawn-out trial when he has accomplished what he set out to achieve? He has killed online poker in the US just by unsealing the indictment. There is a good possibility he will be satisfied with that, claim the other defendants are “fugitives from justice,” and declare victory.

If scenario 2 plays out, then player funds could very well sit in limbo while the court system waits a long time for the prosecutor to seek extradition of people he has no intention of going after. Eventually, after a long enough delay, the court will entertain a motion on behalf of the players to have a mechanism set up to get them their money. There’s no guarantee this would work, and it’d take a long time, but, eventually, something would shake loose.

It could be a while, but I am pretty confident that we will eventually see our money again. Hang in there.

For those of you who don’t know, I practiced law in the U.S. for 12 years or so. I have no particular expertise in either federal criminal law generally or gambling law specifically, but I thought I’d offer some thoughts on the poker indictments that came down yesterday.

Defendants:

The defendants in the black Friday indictments break down into 3 categories: The owners of the poker sites Pokerstars, Full Tilt and Absolute/Ultimate bet, the employees of those sites who were in charge of payment processing, and third party payment processors who facilitated or handled the payment processing. This third category includes an executive of a bank in Utah that did third party processing for one or more of the sites.

Charges:

The indictment is the formal document charging the defendants with crimes. It is technically issued by the investigating grand jury, but it is actually written by the prosecutor and simply rubber-stamped by the grand jury foreperson.

This indictment alleges nine violations of federal law. Broadly speaking, the charges fall into a few categories:

1. Conspiracy to operate, and operation of, an illegal gambling site. The primary purpose of the conspiracy charges is to pile up charges against the third party processor defendants who otherwise could only be charged with the money laundering and bank fraud counts, since they did not actually operate the poker sites.
2. UIGEA Violations: UIGEA prohibits transactions between certain entities and illegal gambling operators. The defendants are charged with violating this law.
3. Operation of an illegal gambling business. These counts allege that that the sites operated illegal gambling businesses in New York and other states where gambling is illegal.
4. Conspiracy to commit bank and wire fraud: Basically, this charge alleges that the defendants violated federal law by concealing from banks the true nature of the transactions they were processing.
5. Money laundering conspiracy. The allegation is very similar to the fraud allegation. It basically claims that the sites concealed the true nature of their illegally obtained gambling profits and attempted to pass them off as legal income from online retail sales from fake retail sites.

All of these charges except the bank fraud charges, are predicated on the assumption that operating a poker site is offering “illegal gambling.” The bank fraud charges do not require that operating a poker site be illegal. The elements of that offense simply require that you engage in deception in order to obtain any money owned or in the custody of a bank.

Defenses

In general, the defendants all have excellent defenses to all of these charges except the bank fraud conspiracy charge. here is an overview of the defenses most of them have available to the 8 gambling-related counts of the indictment:

1. Fighting extradition: At least two of the defendants are Americans who have already been arrested. But most of the defendants are foreign nationals who the US will need to extradite. Extradition is complex and varies from treaty to treaty, but, in general, there is no guarantee that the defendants will be extradited. The Full Tilt defendants appear to have very good defenses to extradition if the owners are located in Ireland, where Full Tilt is based.
2. UIGEA is void for vagueness: A criminal statute has to put you on clear notice of what conduct violates the law. The defendants can argue that UIGEA does not give them that notice.
3. UIGEA is overbroad as applied: In addition, an otherwise clear statute can be declared as too broad to be enforced against these defendants for this conduct. Phrased differently, you argue “ok, the statute makes it clear that conduct X is illegal, but conduct Y, which we engaged in, is not clearly a violation of the statute, so we had no notice we were violating the law.
4. Poker is a skill game: If poker is a skill game, it is not “gambling” under federal law, and operating a poker site is not a crime. Absolute/Ultimate Bet still has the problem of blackjack, but this defense is available to the FT and Stars defendants against all charges except the bank fraud charge.
5. The sites did not operate in the places where poker is illegal. This argument basically says, “yeah, ok, operating a gambling business in New York or wherever is illegal, but we operated our gambling business in Ireland/Costa Rica/Isle of Mann.” We were not subject to New York law.

There are related defenses that i have not discussed, because they are highly technical and rely on lots of latin phrases and rules of statutory construction. Suffice to say that the list above does not represent all of the defenses available to the gambling-related counts.

The bank fraud count

I have not done any legal research on the subject, but the bank fraud count looks like a serious problem. The statute only requires that you deceive a bank to obtain money it has custody over, and everybody charged very plainly did that by mis-coding credit card transactions and by using shell retail companies to receive player deposits.

It does not seem to be a defense to say that everybody who had a legal claim to the money (the player and the site) WANTED the transaction to go through, and that the deception was in service of the express wishes of the person who owned the money. If this is the case and that is not a defense, this is the charge that is by far most likely to stick.

I just wanted to get up a quick overview for those of you who are following the situation–I may post more detail on this later.

Here is the indictment if anybody cares to wade through all 50 pages.