Poker’s Brink: Any likely fall-guy?
“History repeats itself, first as a tragedy, second as a farce.” ~ Karl Marx The Brink of Catastrophe On Thursday
Poker’s Brink: Any Likely Fall-Guy?
“History repeats itself, first as a tragedy, second as a farce.” ~ Karl Marx
The Brink of Catastrophe
On Thursday April 14th 2011, the online poker world was on the brink of catastrophe. Online poker operators who had knowingly and wilfully flouted legislation by transacting with US customers were teetering on the precipice. For four and a half years, they had enjoyed a competitive edge over their rivals who had exited the US market but their hubris was about to be punished. Their waxy wings were about to melt.
In 2005, an estimated twenty million American gamblers placed bets via the internet, contributing to a six billion dollar industry, representing about half of the world’s online gambling revenues. This was despite the fact that both the Clinton and Bush administrations had staunchly opposed online gambling. In fact, legislators had spent the guts of a decade trying to bring about laws which would prohibit it.
In October 2006, with one foot out the door of the Oval Office, George W. Bush signed the Unlawful Internet Gambling Enforcement Act (UIGEA) into law, a piece of legislation which Senator Bill Frist had surreptitiously attached to a completely unrelated port-security bill just moments before it was voted on.
Read more about the UIGEA on our state laws page.
The constitutional legality and viability of the UIGEA was questioned in the media. Comparisons were made to Prohibition. Regardless, the stock prices of publicly traded e-casinos immediately plummeted and many of the largest e-casino operators exited the U.S. market entirely. Some, however, did not.
Over the next five years, online poker boomed with two clear front-runners emerging. Pokerstars and Full Tilt Poker were still operating in the US market and that decision had given them a considerable leg-up over companies like former industry leader PartyPoker who had pulled out. The game was growing worldwide but on Thursday April 14th 2011, American players still represented about 40% of the playing liquidity on these sites. The next morning, that number would suddenly be zero.
Friday April 15th 2011 was a devastating day for poker. For the players, it was a day of uncertainty and fear as bankrolls sat perilously on inaccessible player accounts. For the industry, it was a day of reckoning and inventory as the chips would literally be counted. For the specific characters involved, it was the denouement of a story with so many moving parts, so many twists and turns, so much conspiracy and intrigue.
Tzvetkoff
In August 2010, the 27-year old Australian internet entrepreneur Daniel Tzvetkoff was holed up in a New York jail. He faced a potential prison sentence of 75 years for facilitating the movement of $543 million on and off poker sites, in breach of the UIGEA. Seemingly bang to rights on charges of illegal gambling conspiracy, bank fraud conspiracy, money laundering conspiracy and money laundering, he had only one way to save himself. He turned informant on his former clients – the people behind the world’s largest online poker sites.
Tzvetkoff was heralded as something of an internet-Wunderkind, having started his first company at the age of 13. By the time he was an adult, he was well versed in the intricacies of e-commerce. His online payment processing system, the code for which he wrote as a teenager in his parent’s basement in Brisbane, was a potential goldmine. He enlisted the help of his friend and lawyer, Sam Sciacca, and together, they set up the payment processor Intabill. It was hugely successful and by 2008, Tzvetkoff’s net worth was estimated at around $80 million. The unclear regulatory environment and ambiguity around jurisdiction made it feel like the Wild West.
In terms of the UIGEA, Tzvetkoff thought that he had figured out the workarounds and blind spots when it came to the American authorities. In the period between February 2008 and March 2009, Intabill used Automated Clearing House transactions to move money from the checking accounts of online gamblers to several offshore shell companies. Tzvetkoff then moved those funds to online gambling accounts and used the same companies to move player winnings back into American bank accounts. Players of the time will remember the strange golf ball and jewellery companies from where they received their cheques.
At its peak, Tzvetkoff’s commission on this scheme was netting him $150,000 per day but that was not enough for the insatiable entrepreneur who likely recognised that he had the poker sites over a barrel. He started to withhold their money, reportedly in access of $100 million. A farcical set of circumstances then ensued in April 2010 as some disgruntled people from one of the poker companies tipped off the US authorities as to Tzvetkoff’s whereabouts when he was at a conference in Las Vegas. That led to his arrest, which eventually led him to becoming a supergrass in the much larger case against those poker companies and the people behind them.
Scheinberg
Isai Scheinberg was raised in Lithuania, earned a master’s degree in mathematics at Moscow State University, fought in the 1973 Yom Kippur War and eventually ended up in Toronto where he worked as a senior computer programmer for IBM. A recreational poker player, he had a preference for tournaments and in 2000, he found a way to merge his job and hobby by developing software for online poker companies. Unable to convince anyone in the nascent industry to license his software, he decided to start his own company.
On September 11th 2001, Scheinberg and his son Mark launched Pokerstars, initially operating out of Costa Rica. The site offered a variety of game formats but it was the tournaments that really caught on with customers. In 2003, Tennessee accountant Chris Moneymaker won the WSOP Main Event for a record $2.5 million, having qualified via an $86 satellite on Pokerstars. Moneymaker signed on as an ambassador for the site and he became synonymous with the poker boom that followed.
Over the next couple of years, PokerStars signed more big name ambassadors and advertised aggressively on television. When customers flocked to the site, setting up accounts and making deposits with their credit cards could not have been easier. It was not long before PokerStars, with Scheinberg at the helm, emerged as the industry’s second-biggest player, behind PartyPoker, a subsidiary of the Gibraltar-based PartyGaming. In 2005, he moved the Pokerstars headquarters to the Isle of Man where he served as the company’s chief technology officer.
It was around that time that the US Justice Department made it clear that their position was that these foreign online poker companies were in violation of the Wire Act of 1961. The Wire Act applied to “wagers on any sporting event or contest” so the poker companies took the view that it did not apply to their offering. Another federal law on the books was the Illegal Gambling Business Act but since poker is a game of skill, its relevance was also questionable. These were both very reasonable defences and Scheinberg obtained legal opinions from leading American law firms who backed those positions.
When the UIGEA was passed in 2006, PartyGaming took its online casino offering out of the US market. Its stock plunged and, in 2009, it struck a nonprosecution deal with federal prosecutors, admitting that it broke US law and paying $105 million. Scheinberg decided that Pokerstars, who offered only poker, would remain in the US market and, as a result, it quickly became the biggest online poker company in the world. By 2010, Pokerstars was making profits of $500 million per year, a fact that was not lost on the US Justice Department and a particularly ambitious assistant US attorney named Arlo Devlin-Brown who was working under the newly appointed US Attorney Preet Bharara.
Bharara
Dubbed “one of the most consequential prosecutors in American history” by The New Yorker, Preetinder Singh Bharara served as US Attorney from 2009 to 2017, one of the longest-serving appointments in the history of the Southern District Of New York (SDNY). Over those nine years, he earned himself a reputation as something of a maverick, leading several of the most significant criminal and civil litigations ever brought in the SDNY on behalf of the United States.
Bharara was born in Firozpur, Punjab, India in 1968. He moved to New Jersey as a two year old and became a U.S. citizen at age of twelve. He graduated from high school as valedictorian, earned a Bachelor of Arts degree magna cum laude from Harvard College and received a Juris Doctorate from Columbia Law School. Stints at two different law firms followed, after which he became an assistant US Attorney in Manhattan. There, he made a name for himself, bringing cases against several mafia entities in New York. In May 2009, President Obama nominated him to become the US Attorney for the SDNY with the Senate unanimously confirming him three months later.
For the next eight years, Bharara oversaw more than 200 Assistant US Attorneys, who handled cases involving civil rights violations, domestic and international terrorism, gang violence, narcotics and arms trafficking, organized crime, public corruption, cybercrime and financial fraud. One of those cases pursued and eventually apprehended the leading figures associated with the poker sites who were in breach of the UIGEA and the people who facilitated the illegal workarounds used to process player transactions.
On April 15th 2011, Bharara and the Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (FBI) Janice Fedarcyk announced the unsealing of a civil complaint and a 52-page indictment against the top executives at PokerStars, Full Tilt Poker and Absolute Poker/Ultimate Bet. The civil complaint sought $3 billion in assets from the sites while the eleven individuals named faced prison time, charged with bank fraud, money laundering and illegal gambling offences. They included the Absolute poker owner Scott Tom, the Pokerstars founder Isai Scheinberg and the CEO of the Full Tilt software company Tiltware Ray Bitar.
Bitar
Born in California in 1972, Ray Bitar was raised by his mother who fostered in him an independent and entrepreneurial streak. From a young age, he displayed an aptitude for mathematics and at just 16 years of age, he began trading equities on the Pacific Stock Exchange. By his late 20s, he had his own trading company and one of his clients was the 2000 WSOP Main Event champion Chris Ferguson.
In 2004, Bitar and Ferguson founded Tiltware, a software company which became the parent company of Full Tilt Poker. Bitar was installed as the company’s CEO and to his credit, he oversaw the design of some absolutely top notch poker software. Full Tilt Poker had a clean design and an excellent user-interface. He was also behind a successful early advertising campaign which revolved around the slogan ‘Play With The Pros’.
Full Tilt Poker made their stable of ‘red pros’ very accessible, allowing customers to pit their wits against poker luminaries such as Howard Lederer, Phil Ivey, John Juanda, Erick Lindgren and Jennifer Harman. For new players, it was the poker dream. Full Tilt Poker quickly gained popularity, television advertising campaigns followed and, by 2008, it was the second biggest poker site behind Pokerstars. It was at that exact time, however, that processing the player deposits and withdrawals became especially problematic as banks and credit card companies were no longer willing to do business with the sites.
Enter Tzvetkoff, who offered Bitar a magic bullet in the form of his Intabill payment processor. Full Tilt Poker enlisted his help, as did Pokerstars, and so began the creation of an intentionally circuitous system whereby hundreds of millions of dollars worth of transactions were initially routed through the corrupted SunFirst Bank in Utah and then later to a web of companies in the British Virgin Islands on their way to and from the poker sites. It was a system which would be later unravelled by US authorities with the help of Tzvetkoff himself.
After his secret meeting with prosecutors in August 2020, Tzvetkoff was suddenly out on bail, his cooperation in the case against Full Tilt Poker and Pokerstars pledged to his appointed ‘handler’, the Manhattan Assistant US Attorney Devlin-Brown. Tzvetkoff’s testimony was the linchpin of the case as he knew how to reverse-engineer all the dubious poker transactions to determine their original source. In the Friday April 15th 2011 indictment, it was called “an elaborate criminal fraud scheme, alternately tricking some US banks and effectively bribing others to assure the continued flow of billions in illegal gambling profits.”
The Aftermath
The aftermath of poker’s Black Friday was messy. The dot com internet addresses and all the URLs associated with Pokerstars, Full Tilt, Absolute Poker and Ultimate Bet were seized, preventing the players from logging on. Over 70 bank accounts in 14 countries were frozen, preventing players from accessing their balances. Statements were made by the sites, assuring players that their balances were safe and on April 20th, the use of two of the domain names were returned to PokerStars and Full Tilt Poker by the US Attorney’s office only to facilitate the withdrawal of US players’ funds. Absolute Poker/Ultimate Bet also reached an agreement by which funds could be returned to US players.
There was a huge problem, however, as it was discovered that Full Tilt Poker had not segregated player funds from company funds and there was a staggering $330 million shortfall. On June 29th, the Aldernay Gambling Control suspended Full Tilt Poker’s license and the site suddenly shut down worldwide. On September 20th, the Department of Justice amended the civil complaint to include allegations that Full Tilt Poker and its board members had defrauded players, claiming that the site was a Ponzi scheme.
For his part, Scheinberg had kept PokerStars players’ funds operationally separate and quickly repaid all $150 million owed to US players. After initial signs that French investment firm Groupe Bernard Tapie would purchase Full Tilt Poker once it forfeited its remaining assets to the US government, the site was ultimately purchased by Pokerstars. In a deal struck with the US government, Pokerstars forfeited $547 million to the US government and paid back the Full Tilt Poker players in full. To his credit, Scheinberg had made the players whole.
Most of those indicted by the DOJ were rounded up, charged and convicted within a year of ‘Black Friday’. On December 20th 2011, Absolute Poker co-founder Brent Buckley pleaded guilty to misleading banks, receiving a 14 month sentence. Ray Bitar surrendered to authorities on July 2nd 2012 and eventually took a plea bargain in 2013, pleading guilty to conspiracy to commit bank and wire fraud in violation of the UIGEA, agreeing to forfeit his properties and $40 million which he had syphoned from 18 bank accounts across 5 countries.
On July 31st 2012, the US government dismissed with prejudice all of the civil complaints against PokerStars and Full Tilt Poker with both companies admitting no wrongdoing as part of the settlement. Scheinberg agreed to step away from his role with PokerStars within 45 days but the criminal indictments for him remained in place. With Mark Scheinberg as its official CEO, PokerStars went on with its business from the Isle of Man, limiting play to non-US gamblers. On January 17th 2020, Isai Scheinberg surrendered to authorities in New York, the last of the 11 original defendants to face charges in the US. In September 2020, he was sentenced to pay a fine of $30,000 with no jail time.
Once Again on the Brink
Fourteen years on and the memory of Black Friday still looms large in the minds of many poker players and industry professionals. For others, however, it feels like the memory has been repressed. Lessons should have learned about the long arm of the law and the enormous power of the United States DOJ and the FBI. Instead, it feels like we have allowed ourselves to sleep-walk into a virtually identical set of circumstances.
Today, approximately 70% of the poker industry is black or grey market apps, crypto sites and major operators who are in breach of UIGEA. The biggest poker room in the world is running roughshod over a myriad of regulations. Money-laundering is rife. Tzvetkoff and Intabill have been replaced by super-agents and the agent system. Offshore bank accounts have been replaced by cryptocurrency. Preet Bharara served as US attorney at the SDNY until 2017 but currently in that role is Matthew Podolsky who is no stranger to big ‘follow the money’ cases involving fraud and money-laundering.
Big name professional poker players have been moonlighting as agents. Brick and mortar poker rooms are agents. Every second DM or auto-reply on Twitter is an agent touting a private game or a dodgy app. This system, designed to circumvent the law, is now so brazenly out in the open, is it really plausible that it has somehow not caught the attention of the DOJ? Have these middle-men paid taxes on their agency fees? If they have not, then they have committed a crime and if they get busted for that crime, will they eat their punishment or are they more likely to flip? Have the secret meetings already taken place? Which agent is the likely fall guy? If havoc is once again wreaked on the poker world, are the people at the top more like Isai Scheinberg or Ray Bitar?
In many ways, the game has never recovered from the reputational damage that Black Friday caused. The harm that another seismic event of that nature will do could be cataclysmic, even fatal, for our industry. It is April 14th 2025 and it feels like history is about to repeat itself. It feels like poker is once again on the brink.
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