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Online Poker Faces Assault From the Feds

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But because the feds were squeezing banks and credit card companies, finding payment processors to handle the gambling sites' money grew increasingly difficult.

"By early 2007, suddenly the payment options are becoming much more tricky for PokerStars and Full Tilt," says Melinda Sarafa, a New York lawyer who has represented gamblers. "That's where they're starting to look into alternative providers."

The feds' pressure was working. By 2009, an audit of Absolute Poker revealed that almost one-third of its revenue went to disguising the money trail.

Says Sarafa: "The allegation is that the companies tried to find banks that were essentially in distress, providing them with a very lucrative lifeline, and that the transactions were disguised as other types of transactions so it wouldn't raise regulatory eyebrows."

Some congressmen, realizing that playing a few hands of poker after work wasn't exactly the height of fiendishness, tried to fight back. Rep. Barney Frank (D-Mass.) introduced a bill to legalize online games.

But while that measure was winding through the House, the U.S. Attorney's Office of the Southern District of New York was pressing ahead. In 2009, it filed charges against Allied Systems and Account Services for processing poker money. The feds seized $34 million owed to 27,000 players.

The sites reimbursed their customers and rolled on. PokerStars and Full Tilt discovered that SunFirst, a struggling Utah bank, was willing to handle the payments in exchange for fees and an investment.

But the feds killed that deal a year later. They also quashed Full Tilt's attempts to make similar arrangements with two Illinois banks.

Full Tilt's problems were multiplying. Believing that their revenue stream would soar eternally, its owners had pulled $444 million in profit from the business over the previous four years. But when the government began seizing their payment processors' funds, the company had no war chest to cover the losses.

By last March, its customers held $390 million in their accounts. But Full Tilt had only $60 million in the bank to cover them. When the feds seized the company's assets a month later, American players alone were owed $150 million. The government accused the company of running a "global Ponzi scheme."

Four summers ago, Maxwell Fritz was making minimum wage serving cotton candy and curly fries at an amusement park. He had just finished his first year at Princeton, where he was studying to become a math teacher.

Fritz had played online casually with friends back in high school. He had turned a few hundred dollars profit, and that planted the seed for the next summer's job. It had to pay better than minimum wage.

He made $10,000 after school let out, so he continued gambling during the school year. Over 18 months, while still attending Prince­ton and working his teaching internship, Fritz took home $100,000. Over the next six months, he would grab $200,000 more.

Then Black Friday hit. Suddenly, Fritz had not only lost his income but also $65,000 that was seized from his Full Tilt account.

He was among the fortunate to recover quickly. A fellow player provided a reference that allowed him to move from one kind of gambling to another: Wall Street.

"I figured if gambling online is illegal, I might as well go to legalized gambling in the form of the stock market," Fritz laughs. A friend had gone to a Wall Street firm and "just blew the doors off, and he said what he learned in poker really helped him. They were like, 'Well, we need to hire more poker players.' "

For Michael LaTour, the game was a way out of unemployment. The Syracuse man landed a job out of college selling mortgages and personal loans for American General Finance. But a year later, spectacularly inept bets by American General's parent company, AIG, put him back on his ass.

"There weren't many jobs out there, and I'd been on unemployment for a while," LaTour says. "I saw some people being successful at poker, and I decided if I was ever going to seriously take a shot at it, now would be the time to do so."

He played for two years, earning $50,000 in 2010. He was doing much better last year, averaging $10,000 a month until the feds came calling. In an instant, the $35,000 in his PokerStars account was seized.

"The days after it was really a panic," he says. "Nobody knew what was going on. It's been draining emotionally."

If he and his girlfriend hadn't bought a house, LaTour might have gone to Canada. Instead, he has taken the Syracuse police officer exam, but the academy doesn't offer classes until April. Two years after pulling himself off unemployment by his wits, he's back to searching for a job.

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Chris Parker and Tim Elfrink

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