Feds Up Ante in War on Internet Gaming with Arrests, Indictments

NEW YORK—Friday's crack down of Big Internet Poker is déjà vu all over again, only worse. In June 2009, the DoJ froze bank accounts belonging to the online poker sites, Poker Stars and Full Tilt Poker, that held millions of dollars of users winnings. Yesterday, the DoJ seized those same sites, and Absolute Poker, along with issuing criminal indictments against 11 individuals they say either ran or processed funds for the businesses. The two cases also share a Barney Frank connection—In 2009, the Massachusetts Democratic congressman introduced a bill to repeal the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA) shortly before the feds froze the accounts, and just last month, he co-sponsored the Internet Gambling Regulation, Consumer Protection and Enforcement Act with California Republican Rep. John Campbell. If approved, the bill would allow U.S. citizens to gamble online as long as they use federally licensed operators. Whether their actions were connected to Frank's bill or not, U.S. law enforcement delivered a serious blow yesterday to a group they accuse of perpetrating "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." In addition to the inidividual charges of bank fraud, money laundering and illegal gambling, the feds seized five domains and issued restraining orders against 75 bank accounts in 14 countries allegedly used to process payments. The U.S. attorney also is seeking $3 billion in damages, and prison terms for the defendants of up to 30 years in prison plus million dollar fines. "These defendants, knowing full well that their business with U.S. customers and U.S. banks was illegal, tried to stack the deck," said FBI Assistant Director-in-Charge Janice K. Fedarcyk. "They lied to banks about the true nature of their business. Then, some of the defendants found banks willing to flout the law for a fee. The defendants bet the house that they could continue their scheme, and they lost." According to Australia's Courier-Mail, however, Friday's action may actually have been the result of an insider who talked rather than face a possible life sentence in prison. The paper reported that 29-year-old Ipswich native Daniel Tzvetkoff, a "boy wonder" whose brilliance setting up payment processing networks used by poker sites to process billions of dollars in transactions, and about whom AVN has previously reported, may be behind Friday's massacre. Tzvetkoff, "who had been facing 75 years jail in the U.S., has done a deal with prosecutors which has seen him freed on bail and living in a secret New York location," the paper reported. According to the Sydney Morning Herald, former FBI agent Harold Copus, after reviewing the details of the case, said, ''He's turned the corner, seen the light and is co-operating,'' He may have had more than one reason for doing so. It may be that in addition to saving his own skin Tzvetkoff was also returning a favor from a year ago, when he was the one being arrested by the feds, in Las Vegas, charged with money laundering, bank fraud and conspiracy for processing $543 million in illegal Internet gambling earnings through his payment processing firm, Intabill.  The Courier-Mail's Paul Toohey told Gambling911.com last week that "at least one of the company’s Tzvetkoff conducted business with may have 'tipped off authorities' regarding the Internet entrepreneur’s pending [2010] trip to the US. A handful of payment processors had already been apprehended by law enforcement during the months leading up to Tzvetkoff’s trip." At the time of Tzvetkoff's arrest that same allegation was reported by the Herald Sun. "He traveled to Las Vegas last week for a 10-day internet billing conference where it is believed he came to the attention of several large US online internet players to whom he owed money and they reported him to the authorities," the paper reported. The amount he allegedly owed was $100 million. Follwing his arrest, Tzvetkoff was granted and then denied bail, and wound up sitting in a Las Vegas jail until August, when, despite his status as a flight risk, he was allowed to post bond. That he decided to sing is not even in doubt. "U.S. authorities are using his inside knowledge of the gambling industry to go after gaming companies," wrote Toohey yesterday. Prior to starting Intabill, Tzvetkoff ran Merchant Solutions, which was in business as late as 2007 when it was nominated for an XBIZ award. Merchant Solutions is no longer in business. The Intabill website remains online and apparently in business. However the arrests came about, the potential damage to major players in online poker and the future of online gaming is real and significant. Two defendants were arrested yesterday, according to the U.S. Attorney, Chad Elie, one of the payment processors, and John Campos, the Vice Chairman of the Board and part-owner of SunFirst Bank, a small, private bank based in Saint George, Utah, who allegedly "agreed to process gambling transactions in return for a $10 million investment in SunFirst by Elie and an associate, which would give them a more than 30%ownership stake in the bank. Campos also requested and received a $20,000 'bonus' for his assistance." Arrest warrants were also issued yesterday for executives Isai Scheinberg and Paul Tate of Poker Stars, Raymond Bitar and Nelson Burtnick of Full Tilt Poker and Scott Tom and Brent Beckley of Absolute Poker, all of whom were reportedly out of the country when the indictments came down. Two other alleged processors, Ryan Lang and Ira Rubin, also were out of the country, and a final processor, Bradley Franzen, arranged with authorities to appear for his April 19 arraignment in New York. Full Tilt Poker issued a statement yesterday saying, "Unfortunately, as a result of this action, Full Tilt Poker has decided that it must suspend real money play in the United States until this case is resolved. However, Full Tilt Poker will continue to provide peer-to-peer online poker services outside of the United States.” The statement contained a link to the Full Tilt Poker website, now sporting a notice from the F.B.I., complete with official seals, saying, "This domain name has been seized by the F.B.I. pursuant to an Arrest Warrant in rem obtained by the United States Attorney's Office for the Southern District of New York and issued by the United States District Court for the Southern District of New York." In a statement issued Saturday, representatives from Global Betting and Gaming Consultants (GBGC) sounded resigned to the repercussions from today's action. "The arrests in the USA are a game changer—no question," wrote GBGC's Warwick Bartlett and Lorien Pilling. "We are moving toward a global high tax, lower profit, and high regulatory regime. Some countries will be slow to join but as markets close down competition in countries such as Italy, France, Germany operators will target those that remain giving rise to complaints from land based operators who will see market share fall. As government tax revenues decline those countries will act and join the high tax high regulation club. "The so called gray market where a lack of law prevents the closure of Internet gambling companies will eventually disappear," they continued. "The market will be black or white. It was not so long ago that e-gaming executives were sitting on CEO panels at conferences saying, 'We want to come on shore,'  and, 'Yes, please tax us and let us apply for licenses.' They could not have imagined in their wildest dreams (nightmares?) it would have been like this. "The irony," they added, "is that the U.S. federal government has been planning to introduce poker legislation and various states such as Nevada, California, New Jersey and Florida have been planning to jump the gun with intrastate legislation." Concerned players, they said, were tweeting furiously, scared their funds would be frozen, a legitimate worry considering the feds previous actions doing just that. Also unclear is what, if anything, this coordinated take down of Big Internet Poker and its alleged 'middle man' payment processors means for the porn industry, which is increasingly global in every way, and more, that online gaming is global. One big difference, of course, is that there is no UIGEA for online porn, which is precisely how the adult industry would like to keep it. At the moment, there also is no indication that Tzvetkoff's experience in the processing end of the adult online industry will come into play here, but with as many twists and turns as this story has already had that's a bet that few may be willing to make.