Online Poker Faces Opposition and Scandal

With the rising success of online poker, the U.S. Government decided to act — though support for such action was split, with some politicians arguing that they should in fact move to decrease obstacles to the industry. Central to that argument was the contention that poker was not truly gambling but fundamentally a game of skill.

Even so, the government made initial forays into pursuing the online gaming sites. Early efforts included the assertion, made by way of thinly-veiled threats of prosecution, that online gaming violated (or at least might violate) 1961’s Wire Act — an assertion that would later be undermined by the Department of Justice’s own determination that the Wire Act’s restrictions only applied to sports betting… though more on that later. These threats were enough to keep the online sites on their toes (and sufficient to deter some smaller operators from venturing into the market, even in a support capacity), but not enough to undermine their activities entirely.

In early 2006, the online poker world was hit with its first major “multiaccounting” scandal (with which Quorum listeners may find a familiar parallel to Jimmy Harmon’s history). Online player Josh Field opened several different accounts on PartyPoker and entered the same tournament using two of those accounts — ultimately winning with one of them. Because this setup allowed Field to effectively “collude” with himself (for example, playing one account in a manner that would benefit the other), PartyPoker froze the winning account and ultimately confiscated more than $180,000. That same year, another online poker player, Justin Bonomo, used six different accounts to enter a tournament, and was similarly caught and fined.

In October of that year, President Bush signed the SAFE Port Act, ostensibly intended to improve port security; attached to that act was a seemingly unrelated rider called the Unlawful Internet Gambling Enforcement Act of 2006, or UIGEA. While this didn’t go directly after the online poker sites — which, again, were located outside U.S. jurisdiction — it made the knowing transfer of any funds related to online gambling in any state where such gambling would otherwise be illegal a crime in and of itself. While the law was technically directed against “gambling businesses,” the wording encompassed financial institutions as well. In effect, this prevented any American bank from handling any funds going to or coming from these sites.

This was a blow to the industry — several online sites (including PartyPoker and 888) quickly shut down U.S.-facing operations — but ultimately not a fatal one. In fact, the departure of these sites presented a huge opportunity for those that remained. Payment processing companies located outside U.S. jurisdiction (including processors originally set up to handle adult-website traffic) took over the task of handling transactions, despite the legal risk. Moreover, that risk was mitigated by the general interpretation that (DOJ assertions aside) the UIGEA explicitly did not apply to poker: no definition of “gambling” had been codified into law (other than sports betting), and it could reasonably be argued that poker was a game of skill and not gambling. Believing that the government would be biting off more than it could chew if it attempted to bring an actual case, business went on as usual.

Another blow came in 2007 and 2008 with the revelation of cheating at both UltimateBet and Absolute Poker (which had apparently been going on since 2005). In each case, cheating software or “superuser” accounts allowed insiders to see the normally hidden “hole cards” of all players at a table, and transmit that information to online collaborators. (Estimates of illicitly obtained funds were approximately $10 million in the Absolute Poker case; a preliminary figure of $6 million in the UltimateBet instance was later revised to more than $22 million.) Both sites ended up addressing the issues, paying fines, and making payments to affected players, but the critical trust that allowed the sites to retain players had been damaged. Even so, the damage proved temporary. In the case of UltimateBet, an investigation determined that the main perpetrator of the hack was former World Series of Poker Champion Russ Hamilton, who steadfastly refused to make any effort at restitution (and has effectively been blackballed from the game since).

In November of 2009, a mysterious online player known only as “Isildur1” (later identified as Viktor Blom) sent shockwaves through the industry after amassing net winnings of nearly $6 million, beating several prominent professional players in the process. But shortly thereafter, he set the record for the greatest single-day loss in online history, losing $3 million… and then turned around and broke it again just weeks later, losing more than $4 million. Later investigation discovered that three of his opponents had data-mined more than 30,000 of Isildur1’s past hands, giving them an illegitimate advantage. The players were fined and censured for their behavior, but the results of the games in question were left to stand.

Still, even after these setbacks, online poker, as an industry, seemed to be a permanent part of the poker world. Professional live players still leapt at the chance to garner sponsorships from various sites, wearing site logos prominently at public appearances, lending tournament play an almost NASCAR-like atmosphere. Online sites regularly sponsored live tournaments and continued to advertise on televised events — though to skirt advertising restrictions, they only promoted their free-to-play “.net” sites as opposed to their real-money “.com” counterparts, a distinction that fooled precisely nobody. Full Tilt Poker set up a whole league of professional players — “Team Full Tilt” — and regularly positioned those players on ostensibly “educational” television shows, shows that actually served as direct marketing for the site.

But these ups and downs were nothing compared with the absolute game-changer that was on the horizon…

~William R. Coughlan, writer/director of Quorum

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