DoJ Refutes Legal Briefs of Payment Processors

The U.S. Department of Justice (DoJ) filed a 51-page response refuting the claims of indicted payment processors of online poker sites who claim that online sites such as Full Tilt Poker and PokerStars are not gambling business and that processing transactions for those sites was not in violation of any U.S. laws.

John Campos, former vice-chairman and co-owner of the shuttered SunFirst Bank, and Chad Elie, who conducted a business processing poker player transactions, are standing up to U.S. Attorney Preet Bharara’s Black Friday crackdown on internet poker in the U.S., which named 11 individuals in its indictments. Due to Campos and Elie’s recent court filings, the government is forced into litigating its case against the entire industry of online poker.

In responding to motions to dismiss that were filed by Campos and Elie in October, prosecutors assert that “the conduct alleged in the Indictment – a scheme through which the charged defendants abused the U.S. financial system in order to fund their illegal operations – amounts to clear violations of the statutes charged.” The DoJ prosecutors also insist that Campos, Elie and the entire U.S. internet poker industry are faulty in their argument that poker is played as a game of skill and not merely chance, and for that reason, cannot be seen as illegal gambling.

However, DoJ lawyers apparently need a refresher course in country music. In claiming that society as a whole views poker as gambling, federal prosecutors mentioned the song “The Gambler” in their legal brief, opining that “Willie Nelson’s classic poker song, about knowing when to hold ‘em and when to fold ‘em,” proves that poker players are gamblers. A federal judge will ultimately decide whether or not poker can be construed as gambling, but “The Gambler” is sung by Kenny Rogers, not Willie Nelson.

Federal prosecutors’ latest legal filing unearths new facts, including an allegation that Isai Scheinberg, founder of PokerStars, one of the 11 charged in April, went after Elie for stealing about $4 million from a National Bank of California poker transaction processing account by transferring the money to himself. The legal brief says Elie did pay a portion of the $4 million back, causing Scheinberg to hire Elie to handle the processing of more poker transactions. The government also asserts that following its shut down of various payment methods used by the online poker companies, Full Tilt and PokerStars began pursuing other processing solutions that didn’t involve lying to banks. Elie found SunFirst, the Utah bank of Campos, which handled the processing of $200 million in payments for Full Tilt and PokerStars in exchange for an investment in the bank and other fees until the Federal Deposit Insurance Corporation (FDIC) managed to shut down that channel of processing transactions in November of 2010.

According to federal prosecutors, shutting down the transactions through SunFirst Bank put Full Tilt in a real bind, because the online poker site owed players roughly $150 million, but couldn’t come up with those funds because the owners and board of directors received hundreds of millions of dollars in dividends. Attempting to solve that problem, Elie located two Illinois banks under distress and offered investments to them, but the FDIC shut down that transaction pipeline, which caused Full Tilt to credit the accounts of poker players with deposits even though Full Tilt had no ability to process the transactions and take the money from player accounts.

The key issue is whether these facts were in violation of U.S. regulations, such as the Unlawful Internet Gambling Enforcement Act (UIGEA) and the Illegal Gambling Business Act (IGBA). The DoJ claims that Congress didn’t mean to exclude the game of poker from the UIGEA statute and if that was its intent, lawmakers surely would have done so in a much clearer fashion. Federal prosecutors are quick to note that the wording of the law was changed by lawmakers so that the bill would be applicable to games “subject to chance” instead of “predominantly subject to chance”  for this very reason.

The government’s filing also doesn’t agree with claims made by both Campos and Elie that nine activities listed under the IGBA are not really related to poker, such as the lottery or bookmaking games. DoJ lawyers insist that Campos and Elie tend to ignore the similarities between poker and other games.

Federal attorneys also address jurisdictional arguments of Campos and Elie, who claim that the conduct in New York, which is the jurisdiction of the indictment’s filing, was betting and the acceptance of bets, which isn’t sufficient enough to be construed as conduct in the state. “The defendants are nonetheless incorrect on the law,” the DoJ brief says. “Defendants do not point to a single case that supports their contention that ‘conducting’ business in a particular state requires more than allowing players in the state to place bets on a gambling website hosted elsewhere.”

Federal prosecutors claim that the poker sites “engaged Elie and Campos, among others, to perform an indispensable service: find ways, by hook or crook, to move money from United States residents, through the United States financial system, to the offshore accounts of the poker companies. They did so in violation of IGBA, the UIGEA and other federal statutes.”

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