PokerStars Will Pay $547 Million To Settle US Government Charges-

Legal

PokerStars, the world’s biggest online poker company, has agreed to pay $547 million to settle the U.S. government’s civil charges that the company used fraudulent methods to process payments and evade U.S. restrictions on Internet gambling.

Under the agreement, PokerStars, based in the Isle of Man, will also purchase Full Tilt Poker, a formal rival which collapsed following the U.S. government’s move in April 2011 to shut down the U.S. operations of the major online poker operators. The deal calls for PokerStars to make $184 million available to reimburse U.S. customers of Full Tilt within 90 days that had money on deposit at the company.

The deal will end the saga of Full Tilt Poker, a company built by Ray Bitar with the help of poker champions like Chris “Jesus” Ferguson and Howard Lederer that Preet Bharara, the U.S. Attorney in Manhattan, has repeatedly said was a Ponzi scheme. But Bharara’s crackdown on the online poker industry continues, including against Isai Scheinberg, the founder of PokerStars, who has been indicted by Bharara for operating an illegal gambling business. Bitar, who recently returned to the U.S. from Ireland to face the criminal charges Bharara has filed against him, pleaded not guilty and is currently out on bail. Scheinberg is believed to be in the Isle of Man.

By making sure U.S. online poker players get their money back, Bharara is trying to tie up some loose ends from his crusade against online poker, which has been led by Assistant U.S. Attorney Arlo Devlin-Brown. For years federal agents successfully worked to cut off companies like Full Tilt from the financial system and by 2010 Full Tilt started to credit customer accounts even though the company could no longer withdraw money from their bank accounts. This game, however, came to a close when Bharara shut down Full Tilt’s U.S. operations last year, creating a large financial shortfall that Bharara claims was exacerbated by the large payments the company continued to make to its owners even after Full Tilt could no longer access the financial system.

While federal prosecutors in Manhattan have taken the position that Full Tilt was well on its way to financial disaster prior to the April 2011 crackdown on online poker, it was clearly important for Bharara to make sure there was no perception that U.S. citizens had been overwhelmingly left in the lurch because of his intervention in the online poker industry. But in order to pull off a sale of Full Tilt’s assets, Bharara needed to make a deal with PokerStars, a company whose founder is under indictment. Still, the balance sheet for Bharara looks pretty good given the large obstacles he faced when he first launched his online poker crackdown: the U.S. online poker industry has been decimated, six of the 11 individuals indicted have pleaded guilty; Full Tilt CEO Bitar is being monitored in California, and the U.S. Attorney’s office in Manhattan has secured lots of money.

But Scheinberg had some good reasons to ink this deal. While giving up $547 million will hurt, the company can now continue to dominate the international online poker market without the complexity of dealing with a massive civil forfeiture complaint filed against it by the U.S. government. PokerStars will not have to worry about competition from its longtime rival, Full Tilt, and its standing in the online poker community, which was already strong given that it paid all of its customers back and continued operating outside the U.S. after April 2011, will only be helped because it will be seen as coming to the financial rescue of the online poker community.

For PokerStars, the big question is how U.S. gambling regulators will end up viewing the settlement. Las Vegas casino companies like Caesars Entertainment have been working to get Congress to pass a federal law that will green-light online poker while other interests are championing state efforts in places like California. The biggest threat to PokerStars’ dominant market position around the world would be getting locked out of a robust U.S. market. In a statement, PokerStars says that under its agreement with the Department of Justice, the company will not admit to any wrongdoing. PokerStars also said “the agreement explicitly permits PokerStars to apply to relevant U.S. gaming authorities, under both PokerStars and Full Tilt Poker brands, to offer real money online poker when State or Federal governments introduce a framework to regulate such activity.

“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, who is Isai Scheinberg’s son and now chairman 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.”

http://www.forbes.com/sites/nathanvardi/2012/07/31/pokerstars-will-pay-547-million-to-settle-u-s-government-charges-and-buy-full-tilt-poker/