Eleven Charged in Manhattan for Fraud in Online-Gambling Money Laundering

Founders of Internet gambling companies PokerStars, Full Tilt Poker and Absolute Poker were among 11 people charged by the U.S. in a case that seeks at least $3 billion in forfeitures and penalties.

A revised indictment issued yesterday includes charges of bank fraud, money laundering and illegal gambling. It is the latest in a series of criminal cases against Internet gambling companies brought by U.S. Attorney Preet Bharara in Manhattan.

PokerStars, based on the Isle of Mann, Ireland’s Full Tilt Poker and Absolute Poker of Costa Rica are the leading online poker sites doing business with U.S. customers, according to the indictment. The charging documents name two principals from each company and others who allegedly worked with them to illegally process payments.

“These defendants concocted 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,” Bharara said today in a statement. “To circumvent the gambling laws, the defendants also engaged in massive money laundering and bank fraud.”

Prosecutors allege that after the U.S. enacted a law in 2006 barring banks from processing payments to offshore gambling websites, PokerStars, Full Tilt and Absolute Poker worked around the ban to continue operating in the U.S.

$5.1 Billion Market

The Internet poker market was $5.1 billion last year, 7.1 percent higher than 2009, according to U.K.-based H2 Gambling Capital, which supplies data on the industry. The global online gambling market now is about $30 billion.

None of the poker company principals indicted are in the U.S. and they haven’t been arrested, Bharara’s office said. Those charged include Isai Scheinberg and Paul Tate of PokerStars; Raymond Bitar and Nelson Burtnick of Full Tilt Poker; and Scott Tom and Brent Beckley of Absolute Poker.

Michele Clayborne, a spokeswoman for Full Tilt, didn’t immediately return a voice-mail message left at her office seeking comment. An e-mail sent to Absolute Poker’s spokesman, David Clainer, was returned as “undeliverable” and a telephone number posted on the company’s website was inoperable.

Jennifer Roberts, a spokeswoman for PokerStars, didn’t immediately return a voice-mail left at her office after regular business hours.

Tricked Banks

The poker companies named in the indictment are accused of using fraudulent means to circumvent federal laws and “trick” banks into processing the payments on their behalf.

In one instance, after U.S. banks and financial institutions detected and shut down multiple fraudulent bank accounts used by the betting websites in late 2009, Scheinberg and Bitar developed a new processing strategy that didn’t involve lying to banks, prosecutors said.

They allegedly concealed the money they received from gamblers by disguising it as payments to hundreds of non- existent online merchants purporting to sell items online such as jewelry and golf balls.

Of the billions of dollars in payment transactions that the poker companies tricked the U.S. banks into processing, about one-third of the funds went directly to the poker companies as revenue for so-called “rake” charges to players on almost every poker hand played online, prosecutors said.

PokerStars, Full Tilt and their payment processors persuaded the principals of a few, small local banks facing financial difficulties to engage in such processing in return for multimillion dollar investments in the banks, the U.S. said.

Civil Complaint

The indictment and a related civil complaint filed by Bharara’s office seek at least $3 billion in money laundering penalties and forfeiture from the poker companies and the defendants.

A federal judge has seized about 76 bank accounts in 14 countries which the U.S. says contained the proceeds of the charged offenses. A judge has also ordered the seizure of five domain names used by the poker companies to operate their illegal online businesses in the U.S., Bharara’s office said.

In September, Sportingbet Plc (SBT) agreed to forfeit $33 million in proceeds that the company provided to U.S. customers. The U.K. Internet gambling company said it would maintain a permanent restriction on providing Internet gambling services to U.S. customers unless the law changes, according to the agreement reached with Bharara’s office to avoid prosecution.

The same month, a Canadian charged with laundering $350 million for foreign Internet gambling companies was sentenced to six months of house arrest after pleading guilty to processing offshore bets of U.S. citizens. Douglas Rennick, who faced as long as 12 months in prison, also was ordered by U.S. District Judge Sidney Stein in New York to forfeit $17 million.

The case is U.S. v. Scheinberg, 10-CR-336, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net; Bob Van Voris in New York at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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