United States v. Scheinberg, aka Black Friday

On April 15, 2011, online poker players around the world woke up to a big surprise. The FBI and the U.S. Department of Justice had seized the domain names of some of the largest poker sites in the world, including Poker Stars and Full Tilt Poker. They replaced the normal home page content on these poker sites with their own message, that they had taken down the sites for allegedly violating US law.

People from all around the world were treated to this message, and this was quite a coup, quite a departure from the fairly minor meddling that they had been able to pull off thus far in their war against online poker.

The federal government this time obtained an indictment from a grand jury and a signature from a local magistrate against the poker sites targeted and a number of their principals, and the official name of the filing derives from PokerStars founder Isai Scheinberg, although it involved a number of other individuals and companies.

Normally, such an indictment would be quite ridiculous, and this wouldn’t serve any real purpose other than to serve as an intimidation tactic, but this wasn’t a normal operation by any means, and the domain seizures were just the beginning.

A previous arrest of a former head of an Australian payment processing company, Daniel Tzvetkoff, while Tzvetkoff was visiting Las Vegas, allowed the government to threaten him with up to 75 years in prison if he didn’t spill the beans. Regardless of whether these charges would hold up in court or not, the move certainly worked, and Tzvetkoff sang, and revealed a lot of details about the means that offshore poker sites use to get money to their U.S. players.

Instead of just freezing $34 million as they did a couple of years earlier, thanks to all the inside information they had now, hundreds of millions worth of players’ money was now seized, and this served to be a big blow to the industry indeed, taking out both Full Tilt Poker and Cerus, who operated UB and Absolute Poker.

PokerStars survived, and ended up coming to an agreement with U.S. officials to finally exit the U.S. market to avoid further harassment. Later, they bought the remnants of Full Tilt, and eventually the money that the U.S. had seized from Full Tilt players was returned. Cerus did not survive though and players were left holding the bag.

The Legal Basis of Black Friday

While the Wire Act was thrown around in casual comments about the Black Friday operation, it actually didn’t factor into the legal proceedings, and this avoided authorities from having to dodge the fact that the courts had already decided that it didn’t apply to poker.

Instead, the criminality of the proceedings was deemed to be the poker sites violating New York State law which made it illegal to offer gambling there. The fact that New York law only really applies to those in New York was conveniently overlooked though, which and the mere appearance of legal justification is often seen as enough, even though it may look like a sham to outside observers.

Both the UIGEA and the Illegal Gambling Act of 1955 were also invoked, and while neither of these acts made gambling illegal, they did provide a façade at least for the seizure of the domains and funds.

The case was full of holes, aside from the law that forms the criminality of the case not applying to those outside the state of New York, let alone outside the U.S. The intermediaries could not be rightly convicted under the UIGEA, including Tzvetkoff, but this doesn’t prevent them from charging whomever they want, and the prosecution certainly is often under a bias, and this is why courts are necessary to resolve these disputes.

So the whole operation was a sham really, but it was one that had severe and far reaching effects, a big flexing of U.S. muscles so to speak. The domains they seized were plenty real, and the money they froze certainly was. The scare they put into U.S. poker players from this still reverberates today. Who really cares whether you have legal standing when you pull off an operation this successful?

Evading The Authorities and Evading The Law Isn’t Always the Same Thing

A big part of this case was the allegations that the actors did engage in money laundering, and they surely did act like they were looking to evade the authorities, but with good reason.

They were alleged to have known that their gambling operation was illegal based upon their evasive actions to disguise these payments, but in actual fact, in spite of being of the opinion that online poker was not illegal, they knew the authorities did not agree and will and have taken action to seize the funds involved at every opportunity.

This can therefore be easily seen as not money laundering, not fraud, but instead to look to protect themselves and their clients, the players involved, from heavy handed and unjustified government intervention. While we might say that the courts may ultimately vindicate the process, you can’t always rely on that due to bias, and at the very least the process would be very painful and expensive and one that even the largest poker sites may not survive.

So the government may not be able to effectively go after players, and they can’t go after non US parties either, who are not subject to their laws, but they sure can stir up a big mess on the financial side of things, as we saw with this operation.

At the time of Black Friday, a great many people predicted that this would be the death of US offshore online poker, but as is usually the case, there were those who were ready to step up and meet the greater challenges, and that’s exactly what happened.