Eleven people, including the founders of three large poker websites, have been charged with bank fraud, money laundering and illegal gambling offenses in a New York court, the U.S. Department of Justice announced.
The charges, coming Friday in U.S. District Court for the Southern District of New York, targeted founders of the three largest Internet poker sites operating in the U.S., PokerStars, Full Tilt Poker and Absolute Poker, the DOJ said. The agency has also filed a civil money-laundering complaint, seeking the forfeiture of the assets of the poker companies and several payment processors, the agency said.
The indictment and civil complaint seek more than US$3 billion in civil money-laundering penalties and forfeiture from the poker companies and the defendants, the DOJ said.
The court has issued restraining orders against more than 75 bank accounts in 14 countries used by the poker companies and their payment processors. The DOJ has seized five domain names used by the poker companies.
PokerStars and Full Tilt Poker, which both feature endorsements from professional poker players on their sites, did not immediately respond to e-mail messages requesting comments on the charges. A message on AbsolutePoker.com Friday said the domain has been seized by the Federal Bureau of Investigation.
Online gambling is prohibited in most parts of the U.S. Congress passed a bill in 2006 making it illegal for financial institutions to process payments to online gambling sites. The Unlawful Internet Gambling Enforcement Act (UIGEA) made it a federal crime for gambling businesses to knowingly accept most forms of payment "in connection with the participation of another person in unlawful Internet gambling."
The three foreign poker companies continued to operate in the U.S., the DOJ said. After the law passed, Absolute Poker announced that the company would continue its U.S. operations because "the U.S. Congress has no control over" the company's transactions, the DOJ said.
"As charged, these defendants concocted an elaborate criminal fraud scheme, alternately tricking some U.S. banks and effectively bribing others to assure the continued flow of billions in illegal gambling profits," Preet Bharara, U.S. attorney for the Southern District of New York, said in a statement. "Moreover, as we allege, in their zeal to circumvent the gambling laws, the defendants also engaged in massive money laundering and bank fraud. Foreign firms that choose to operate in the United States are not free to flout the laws they don't like simply because they can't bear to be parted from their profits."
The DOJ accused the companies of using fraudulent methods to trick U.S. banks and credit card issuers into processing their payments. Executives Isai Scheinberg and Paul Tate of PokerStars, Raymond Bitar and Nelson Burtnick of Full Tilt Poker, and Scott Tom and Brent Beckley of Absolute Poker arranged for the money received from U.S. gamblers to be disguised as payments to hundreds of non-existent online merchants purporting to sell merchandise such as jewelry and golf balls, the DOJ said.
The companies took about a third of the payments as their cut for hosting the poker games, the DOJ said.
The poker companies also worked with several payment processors, including some of the defendants facing charges, who obtained accounts at U.S. banks. The payment processors lied to banks about the nature of the financial transactions they were processing, by creating phony corporations and websites to disguise payments to the poker companies, the DOJ alleged.
By late 2009, after many banks had detected and shut down accounts used by the poker companies, Scheinberg and Bitar persuaded some small banks facing financial difficulties to process the payments in exchange for multimillion-dollar investments in the banks, the DOJ alleged. PokerStars and Full Tilt Poker agreed to invest $10 million in SunFirst Bank, a small bank in Saint George, Utah, the DOJ alleged.
The two companies also paid a vice president there a $20,000 bonus for his assistance, the DOJ said.
Eight of the defendants are not currently in the U.S. and have not yet been arrested.
Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is firstname.lastname@example.org.