GPWA Times Magazine - Issue 22 - October 2012

News analysis by Vin Narayanan P icture this. Company A and Company B are bitter rivals. The two companies get indicted by the U.S. Department of Justice (DOJ) for the same crimes. Company A has the financial resources to withstand the financial hit of the indictment. Company B does not. Company A profits immensely from the demise of Company B, and then buys Company B as part of its settlement with the DOJ. You were probably with me until Company A bought Company B as part of its DOJ settlement. And then came the “What you talkin’ bout Willis?” moment (if you’re unfamiliar, watch this: http://gpwa.org/296 ). A company, indicted by the DOJ, bought another company that failed because of a DOJ indictment, to settle its case with the DOJ. Like I said, “What you talkin’ bout Willis?” When you lay this scenario out without the company names attached, it seems bizarre and unimaginable. Try attaching names like Apple and Google to this fictional scenario. The DOJ indicts both companies. Google goes bankrupt. And the DOJ allows Apple to buy Google as part of the settlement. It’s absolutely bizarre. It would never happen, right? But this scenario is exactly what happened with PokerStars and Full Tilt Poker. Everyone seems to be happy about it. And in the world of online poker, it seems completely normal. The settlement PokerStars reached a settlement agree- ment on the “Black Friday” indictments in July with the DOJ that included the pur- chase of Full Tilt Poker. PokerStars will pay the DOJ $547 million to settle bank fraud, wire fraud and money laundering charges. Part of that money will be used to pay money owed to American players by Full Tilt Poker. Americans will have to apply to the DOJ’s Asset Forfeiture and Money Laundering Section for reimbursement. The charges were first filed on April 15, 2011 (Black Friday). The $547 million payment will be spread out over three years, according to PokerStars. Additionally, PokerStars will set aside $184 million to reimburse players outside the U.S. The money will be made available “withno restrictionsonwithdrawals,within 90 days of completing this transaction,” according to a statement by PokerStars. The settlement also includes the purchase of Full Tilt Poker. PokerStars admits “no wrongdoing” in the settlement agreement. PokerStars has not announced how it will repay Full Tilt affiliates. The settlement ends the DOJ action’s against Full Tilt Poker as a corporate entity. But Full Tilt’s principals are not out of trouble. The criminal proceedings against former CEO Ray Bitar and former processing chief Nelson Burtnick will continue, as will civil proceedings against Bitar, Howard Lederer, Rafael Furst and Chris Ferguson. PokerStars is prohibited from hiring all of them. PokerStars founder Isai Scheinberg will be required to exit the company as part of the settlement. Scheinberg still faces criminal charges of bank fraud, money laundering, illegal gambling offenses and violating the Unlawful Internet Gambling Enforcement Act (UIGEA). Scheinberg may be allowed to work for PokerStars after his criminal case is settled. “This . . . is subject to re-evaluation by the parties upon the resolution of the criminal case,” reads the DOJ statement on the settlement. “PokerStars is prohibited from offering online poker in the U.S. for real money unless and until it is legal to do so under U.S. law,” the DOJ statement adds. Full Tilt forfeited all of its assets to the DOJ to settle its case. Full Tilt did not admit to any guilt or wrongdoing as part of the settlement. But the forfeiture cleared the way for PokerStars to buy Full Tilt. The DOJ will also be “given continued access to the Full Tilt Group’s database for the purposes of extracting information necessary to effectuate a remission process . . . for the Full Tilt Group’s former U.S. players, the administration of which shall be the sole responsibility of the United States. “We are pleased to announce these settlements by Full Tilt Poker and PokerStars, which allow us to quickly get significant compensation into the victim players’ hands,” said U.S. Attorney Preet Bharara in a statement announcing the settlements. “Today’s settlements demonstrate that if you engage in conduct that violates the laws of the United States, as we alleged in this case, then even if you are doing so from across the ocean, you will have to answer for that conduct and turn over your ill-gotten gains.” The DOJ is currently looking for a third- party company to administer the process of repaying American players. PokerStars hopes the DOJ settlement will help it gain a foothold in a regulated American market. “We are delighted we have been able to put this matter behind us, and also secured our ability to operate in the United States of America whenever the regulations allow,” said Mark Scheinberg, chairman of the board of PokerStars. “This outcome demonstrates our continuing global leadership of the online poker industry, and our commitment to working with governments and regulators to ensure the highest standards of protection for players,” Mark Scheinberg added. Whether PokerStars will be deemed suitable to operate in the U.S. will ultimately be left up to the regulators. Different strokes Making sense of the PokerStars – Full Tilt Poker settlement 34 Different strokes