U.S. Attorney’s Office on Tilt

The Godfather does not tolerate ‘successful defiance.’ It is too dangerous. It must therefore be stamped out so that others understand that disobedience is not an option.

 ~Noam Chomsky 

United States v. Scheinberg, et. al.

It has long been axiomatic that criminal statutes should be written in such a manner that there remains no ambiguity regarding the prohibited conduct.[1] After all, a person has a right to know exactly what conduct he may engage in without running afoul of power hungry prosecutors. While it has never been quite enough, it is this maxim that has occasionally restrained Federal prosecutors from using the strong-arm tactics of a Mafia Don. But not today.

Relying primarily on the Unlawful Internet Gambling Enforcement Act (UIGEA) (31 U.S.C. §5361, et. al.) on April 15, 2011, the U.S. Attorney’s Office for the Southern District of Manhattan brazenly seized the websites of Full Tilt Poker, Poker Stars, and Absolute Poker and unsealed indictments against eleven individuals, including the founders of the poker sites and four bankers, charging them with bank fraud, money laundering, and illegal gambling. The U.S. Attorney’s Office is seeking at least $3 billion in “civil money laundering penalties and forfeiture” from the poker sites and the defendants. Before moving on the poker sites, the U.S. Attorney’s Office secured restraining orders against at least 75 bank accounts allegedly used by the poker sites to process their payments.

For those who operated the sites and for those who played poker at their online tables, April 15th was characterized as “Black Friday.”

A criminal indictment is no small matter. The power to indict is the power to destroy. Those targeted today by the Federal government are unable to access much of their funds, making it difficult if not impossible for them to meet their obligations. They stagger from the blows to their reputations, watch helplessly as their friends recoil from them, and awaken every morning to the crippling fear of incarceration. In our Federal courts the presumption of innocence is meaningless, for without a single conviction, these ruthless prosecutors have taken all these men have and threaten to confiscate whatever morsel they have so far missed. Even if exonerated, the damage done to these men is severe and very likely irreversible. Given this awesome power, one would hope that these prosecutors would not arbitrarily ruin the lives of their fellow citizens unless they were sure these individuals had violated a criminal statute. Not so.

Between the private life of the citizen and the public glare of criminal accusation stands the prosecutor. [The prosecutor has] the power to employ the full machinery of the State in scrutinizing any given individual.

~U.S. Supreme Court

The Unlawful Internet Gambling Enforcement Act Does Not Apply to Online Poker

The UIGEA does not declare online poker or even online gambling illegal. Instead, it prohibits financial institutions, such as credit card companies, banks, and other payment providers, from processing unlawful online gambling transactions. Its criminal prohibitions are set out in §5363, titled “Prohibition on Acceptance of Any Financial Instrument for Unlawful Internet Gambling.” It provides, in pertinent part:

No person engaged in the business of betting or wagering may knowingly accept, in connection with the participation of another person, in unlawful Internet gambling – [credit, EFTs, checks, drafts, or the proceeds of any other form of financial transaction as set forth in federal regulation].

Notably, the UIGEA does not define what constitutes “unlawful internet gambling.” It relies primarily on the gambling prohibitions of 28 U.S.C. §3702, while offering a vague definition of betting and wagering:

(1) Bet or wager: The term “bet or wager”—

(A) means the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome;

(B) includes the purchase of a chance or opportunity to win a lottery or other prize (which opportunity to win is predominantly subject to chance);

(C) includes any scheme of a type described in section 3702 of title 28;

(D) includes any instructions or information pertaining to the establishment or movement of funds by the bettor or customer in, to, or from an account with the business of betting or wagering . . .

Importantly, 28 U.S.C. §3702 outlaws only online sports betting.[2] Not even the Federal prosecutors claim 28 U.S.C. §3702 applies to online poker sites. Instead, the U.S. Attorney’s Office claims that the amorphous UIGEA betting and wagering definitions encompass online poker site activity and, therefore, prohibit financial institutions from processing transactions for online poker sites.

No where within the UIGEA is the term “poker” used. For that matter, neither are the words “cards,” “hosting,” or “tournament.” And hosting online poker games cannot reasonably be interpreted to fall within the parameters of the betting/wagering definition. After all, poker sites do not accept wagers – they host poker games at which players bet on hands. Players do not wager on “a contest of others,” but engage in a contest among themselves. Cyber poker can hardly be characterized as a “sporting event.” Finally, there is no “agreement or understanding” between the poker sites and the players that they will receive something of value “in the event of a certain outcome.” On the contrary, poker sites charge a hosting fee, widely derided as “the rake.” In cash games, where players bet on individual hands, the poker sites have no stake in the outcome and pay nothing of value to those playing the game or hand.

For players who enter poker tournaments, the poker sites accept an amount of money to be pooled for the “pot,” together with a fee for hosting the event. That “pot” is automatically distributed to those who outlast roughly 70-91% of the field of entrants, depending on the structure of the tournament. No poker site agrees to pay anything of value to an entrant; it only allocates the pot.

Next to enjoying ourselves, the next greatest pleasure consists in preventing others from enjoying themselves, or, more generally, in the acquisition of power.

~Bertrand Russell

In a recent decision the United States District Court of New York (United States v. Lawrence DiCristina, 11-CR-414, August 21, 2012) reversed a jury verdict of guilty, ruling that poker does not qualify as “a game subject to chance” under the UIGEA. In an exhaustive 120 page decision, Senior District Court Judge Jack B. Weinstein ruled that “poker is predominately a game of skill.” Judge Weinstein’s thoughtful decision does much to validate what poker players have long understoodthat for the very best rounders skill consistently trumps chance.

Had the U.S. Congress intended the UIGEA to apply to online poker sites, it needed only to include the word “poker” to clarify things. Given that online poker has exploded into a multi-billion dollar a year industry, it is preposterous for the U.S. Attorney’s Office to claim that Congress sought to outlaw online poker in so vaguely a worded statute. While Congress has enacted its fair share of incomprehensible statutes, it has never been known to “. . . hide elephants in mouseholes.”[3] Furthermore, it is highly unlikely that Congress intended to tackle the legality of online poker in a bill tacked onto the SAFE Port Act, especially when various bills have been under consideration for regulating and taxing it.

The Wire Act Does Not Apply

Although the Wire Act, found at 18 U.S.C. §1084, applies to online gambling, it does not provide legal grounds to prosecute the defendants. It provides in pertinent part as follows:

(a) Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient toreceive money or credit as a result of bets or wagers, or for informationassisting in the placing of bets or wagers, shall be fined under his title orimprisoned. . . .

For the Wire Act to apply, the Federal Courts have consistently ruled that, consistent with the plain language of the statute, the object of the gambling must be a sporting event or contest.[4] Since there is no allegation of any kind that these defendants engaged in online sports betting, the U.S. Attorney’s Office cannot even make a colorable claim that these defendants violated the Wire Act.

Indictments for Violating the Illegal Gambling Business Act

Instead, the U.S. Attorney’s Office indicted the defendants for operating an illegal gambling business in violation of 18 U.S.C. §1955 – the Illegal Gambling Business Act. It was enacted in 1970 as part of the Organized Crime Control Act. The statute targeted brick and mortar gambling establishments operated by the syndicate. Under §1955 it is unlawful to operate an “illegal gambling business.” According to the plain language of the statute, to fall within its parameters, online poker would both have to qualify as a “gambling” business and be prohibited by state law – not federal law. In pertinent part, §1955 reads:

(1) “illegal gambling business” means a gambling business which—

(i) is a violation of the law of a State or political subdivision in which it is conducted . . .;

(2) “gambling” includes but is not limited to pool-selling, bookmaking, maintaining slot machines, roulette wheels or dice tables, and conducting lotteries, policy, bolita or numbers games, or selling chances therein . . .

Because the laws allowing or prohibiting gambling of any kind vary greatly from state to state, it is difficult to determine whether and to what extent each state’s gambling laws can be construed to ban online poker. So far, few states have specifically addressed online poker statutorily. The State of Washington has banned online poker, giving the U.S. Attorney’s Office the pretext to pursue these indictments – at least within Washington state.

However, even if the U.S. Attorney’s Office could make a reasonable argument that online poker is gambling and prohibited by various state laws, the 1970 Illegal Gambling Business Act criminalized gambling establishments operating seedy premises where they maintained slot machines, roulette wheels, etc., within the particular state’s territory, not internet entrepreneurs running websites overseas. Furthermore, though the Illegal Gambling Business Act provides examples of unlawful “gambling” as “pool-selling, bookmaking, maintaining slot machines, roulette wheels or dice tables . . . ,” it does not include poker. It’s a bit of a reach to apply the antiquated Illegal Gambling Business Act to modern day internet activities.

Enriched “Victim” Not Defrauded

The U.S. Attorney’s Office has also charged with the defendants with multiple counts of wire fraud, in violation of 18 U.S.C. §1343, for deceiving “financial institutions . . . into processing and authorizing payments to and from the Poker Companies and the United States gamblers by disguising the transactions to create the false appearance that they were unrelated to gambling. . . .” During its investigation into Full Tilt, etc., the U.S. Attorney’s Office amassed evidence that, following the passage of the UIGEA, these poker sites disguised transactions between them and the players as internet purchases of watches, bicycles, golf clubs, etc., from phony internet merchants to dupe U.S. banks into processing their “gambling” transactions. Though camouflaging transactions may be a bit shady, it does not violate §1343.

To support a conviction for wire fraud, the government must prove beyond a reasonable doubt: (1) the defendant’s knowing and willing participation in a scheme to defraud the victim of money or property, and (2) the use of interstate wire communications in furtherance of the scheme. According to the Supreme Court in Cleveland v. United States, 531 U.S. 12 (2000), an actual monetary loss represents a threshold consideration in determining whether an individual or entity defrauded, or attempted to defraud, a victim. In short, the U.S. Attorney’s Office is obligated to demonstrate that the poker sites not only intended to dupe the financial institutions but deprive them of property – or more plainly, money.

While the poker sites may have hoodwinked financial institutions into processing transactions they might have otherwise rejected, the U.S. Attorney’s Office has offered no evidence that they intended to defraud, or did defraud, these institutions of any money. On the contrary, these financial institutions collected millions of dollars in processing fees from the defendants. In its drive to maim and banish these three online poker sites, the U.S. Attorney’s Office is casting enriched bankers as the “victims.” If these indictments survive the criminal defense attorney’s motion to dismiss, what jury will swallow the U.S. Attorney’s Office’s half-baked theory that the defendants set out to monetarily cheat these financial institutions?

It’s Not Against the Law to Launder Clean Money

Undaunted by the lack of criminal statutes prohibiting online poker, the U.S. Attorney’s Office has indicted the defendants for money laundering in violation of 18 U.S.C. 1956. However, even these indictments are seriously flawed, for 18 U.S.C. 1956 applies only to proceeds of unlawful activity. The statute reads in pertinent part:

(1) Whoever, knowing that the property involved in a financialtransaction represents the proceeds of some form of unlawful activity,conducts or attempts to conduct such a financial transaction which infact involves the proceeds of specified unlawful activity—

(i) with the intent to promote the carrying on of specified unlawfulactivity; or

(ii) with intent to engage in conduct constituting a violation of section7201 or 7206 of the Internal Revenue Code of 1986; or

(B) knowing that the transaction is designed in whole or in part—

(i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity;or

(ii) to avoid a transaction reporting requirement under State or Federal law. . . .

Since there is no Federal statute prohibiting online poker, the U.S. Attorney’s pursuit of these defendants is, at best, misplaced and, again, unethical. After all, prosecutors cannot charge a person with laundering clean money.

When a Government lawyer, with enormous resources at his or her disposal, abuses power and ignores ethical standards, he or she not only undermines public trust, but inflicts damage beyond calculation to our system of justice.

~In re Doe, 801 F. Supp. 478 (1992)

The Penalty for Defiance

No government power can be abused long. Mankind will not bear it. There is a remedy in human nature against tyranny, that will keep us safe under every form of government.

~Samuel Johnson

What prompted these arrogant Federal prosecutors to take such drastic action against these poker sites? Perhaps the Department of Justice is embarrassed by its failure to prosecute the Wall Street crowd who gambled away our economy. Maybe they’re just muscle flexing. But, there is no denying that following the passage of the UIGEA the U.S. Attorney’s Office warned these poker sites that, in its opinion, the UIGEA prohibited them from operating in the United States. And, Full Tilt, Poker Stars and Absolute Poker, relying on the well-grounded opinions of their lawyers, refused to be intimidated. Few prosecutors will tolerate those not panic-stricken by their awesome power and misplaced bluster.

The U.S. Attorney’s Office is nothing more than a frustrated schoolyard bully throwing a temper tantrum because Full Tilt, Poker Stars, and Absolute Poker wouldn’t hand over their lunch money. These legal Godfathers, with their bland suits and finely framed juris doctorates adorning their walls, should be ashamed of themselves.

Kevin J. Mahoney is a Cambridge Criminal Defense Lawyer.


[1] Hoffman v. Connecticut Income Maint. Dep’t, 492 U.S. 96, 101 (1989) (“Congress must make its intention ‘unmistakably clear in the language of the statute,’” quoting Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 242 (1985)). Courts have, therefore, narrowly construed statutes in order to encompass only the expressly prohibited conduct. United States v. Scrimgeour, 636 F.2d 1019, 1022 (5th Cir. 1981) (citing, Dunn v. United States, 442 U.S. 100, 112 (1979); United States v. Dudley, 581 F.2d 1193, 1197 (5th Cir. 1978)).

[2] 28 U.S.C. §3702 provides in pertinent part:

It shall be unlawful for –

(1) a governmental entity to sponsor, operate, advertise, promote, license, or authorize by law or compact, or

(2) a person to sponsor, operate, advertise, or promote, pursuant to the law or compact of a governmental entity, a lottery, sweepstakes, or other betting, gambling, or wagering scheme based, directly or indirectly (through the use of geographical references or otherwise), on one or more competitive games in which amateur or professional athletes participate, or are intended to participate, or on one or more performances of such athletes in such games.

[3] Whitman v. American Trucking Ass’ns, Inc., 531 U.S. 457, 468 (2001).

[4] In Re: Mastercard International Inc. Internet Gambling Litigation, 313 F.3d 257 (2002) (citing, United States v. Kaczowski, 114 F.Supp.2d 143 (W.D.N.Y. 2000); United States v. Sellers, 483 F.2d 37 (5th Cir. 1973); and, United States v. Marder, 474 F.2d 1192 (5th Cir. 1973)).