Online Poker: The Walls Come Tumbling Down

On April 15, 2011 — a date that would soon be known as “Black Friday” within the poker world — the U.S. Department of Justice initiated a grand sweep of the three major online gaming sites — PokerStars, Absolute Poker/UltimateBet (which had merged in 2008), and Full Tilt Poker — seizing their domain names and unveiling indictments against eleven stakeholders. Visitors to the online sites were greeted with nothing but images of the Department of Justice and FBI seals, along with a simple message stating that the site had been seized, along with assertions about the alleged activities and admonitions against illegal gambling. (The wording in the Quorum script is excerpted directly from this message.)

So what had changed? The wording of the law had not been altered to formally define poker as a form of gambling. But under New York state law, it was a misdemeanor — punishable by up to a year in prison — to operate any game of chance where bets are placed within the state. Under this rationale, even though none of the sites actually operated out of New York, because they accepted bets placed in New York, the U.S. Attorney for the Southern District of New York, Preet Bharara, was able to obtain felony UIGEA indictments.

The FBI was aided by the testimony of Daniel Tzvetkoff, who had run an Australian payment processor, Intabill. Tzvetkoff had been arrested in Las Vegas and charged with money laundering, bank fraud, and wire fraud. Moreover, the government had evidence that several of the executives behind the gaming sites had collectively used fraudulent means in an attempt to substantially invest in a bank in Utah, SunFirst, with the intent of using that bank to handle player deposits and payouts directly (while simultaneously disguising the transactions’ true nature).

The result was immediate — U.S. players lost all access to their deposited funds, and the sites were unable to conduct any business within U.S. territory. Though it would eventually be revived in a substantially limited form, the online poker business within the United States was effectively shuttered. The poker world was floored — as much by the lack of warning as by the action itself. A prominent player affinity group, the Poker Players Alliance, immediately went into action, urging members to contact their congressional representatives. And they had allies across the political spectrum, including former Republican Senator Al D’Amato and Democratic Congressman Barney Frank. Antigua and Barbuda weighed action with the World Trade Organization, arguing that the United States was taking action against foreign nations for engaging in activity that was perfectly legal under international law.

The domain names for Full Tilt Poker and PokerStars were allowed to reopen a few days later, but only to facilitate the withdrawal of U.S. players’ funds. And on April 26, PokerStars did indeed begin paying back players’ funds. Full Tilt’s actions, however, revealed a far more sinister reality.

The principals behind Full Tilt Poker — including prominent poker personalities Howard Lederer and Chris Ferguson, among others — had apparently been engaging in a Ponzi scheme whereby they had illegitimately paid themselves and other owners a staggering  $400 million of players’ money. Although they now had the mechanism to return players funds, Full Tilt did not have the actual money to do so. And with U.S. operation shut down, they could no longer continue to hide the shortfall (let alone work toward any kind of recovery). In September, the Department of Justice amended its filing to include charges of fraud against the Full Tilt executive team. Though the individuals accused argued that it was a question of mismanagement rather than actual fraud, the writing was on the wall: Full Tilt Poker was unquestionably finished, and not just in the American market. The scandal — coming as it did on the heels of the initial closures — rocked the poker world, dealing a dramatic blow to the previously favorable reputations of the players involved.

Fortunately for online players who had been left in the lurch, PokerStars eventually arranged to buy out Full Tilt, agreeing to reimburse players and exit the U.S. market, settling with the Department of Justice in the process (and paying fines on the order of six figures). On the other hand, Cereus Poker Network (the parent company behind Absolute Poker and UltimateBet) declared bankruptcy, shuttering while still owing players more than $50 million.

In the years that followed, some states began to develop strictly regulated online poker systems — systems that could only be accessed by people within the physical boundaries of those states (as verified by IP address tracking). Nevada and Delaware kicked off this trend in 2012, with New Jersey following suit in 2013, all three states effectively pooling their players. (Pennsylvania has recently opened the doors to both live casino and online poker, but the details are still being ironed out.) Still, the number of players is a tiny fraction of what it was in the heyday of online play.

Oddly enough, despite testing the waters in the pre-Black Friday days, the larger tourist-oriented casinos — perhaps keenly aware of the minuscule player pool still available — have largely stayed out of the online market (though some may be petitioning for access to the upcoming Pennsylvania market). The first post-2011 online site in the United States, Ultimate Poker, was set up by the Station Casinos group (which had always targeted local residents at its physical casinos, rather than tourists), but the site shuttered once revenues fell far short of projections. Real Gaming, run by the South Point Hotel and Casino, similarly faltered. WSOP.com, directly connected to the World Series of Poker, remains available (at least as of this writing) for online play in those states.

That’s not to say that traditional brick-and-mortar casinos didn’t benefit significantly from the events of Black Friday — even if they themselves aren’t rushing to fill the void left by the collapse of online poker, they are no longer competing for that business. Moreover, in January of 2019, the Trump administration reversed the Department of Justice’s 2011 determination that the Wire Act only applied to sports betting — an effort championed by casino mogul and GOP megadonor Sheldon Adelson, owner of the Las Vegas Sands corporation. The impact that this reversal will have on those states that have legalized online poker remains uncertain.

And after everything else, PokerStars is going strong, clearly dominating the online poker market, even without the benefit of American players — or at least most of them. Players in New Jersey can once again play on the site, and plans are underway to allow play in Pennsylvania in 2019.

Though Quorum is likely to be moving on from the world of online poker in future installments, the real-world roller coaster of events provided some truly fantastic fodder for our inaugural season. (For those interested in additional material — since we’ve really just scratched the surface here — I recommend the book Straight Flush, by Ben Mezrich, which covers the saga of Absolute Poker in compelling detail.) Thanks to all of our listeners for coming along for the ride.

~William R. Coughlan, writer/director of Quorum

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