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PokerStars Battle in America: Truths, Consequences, and Options

By Wendeen H. Eolis

Last week the New Jersey Division of Gaming Enforcement finally announced that PokerStars' application for a gaming license has been suspended for two years—with one pointed equivocation. If the Company seeks relief from this suspension, based on appropriately “changed conditions” within the Company, the DGE says its license application may be reassessed sooner.

The DGE cites the unresolved indictment of PokerStars founder Isai Scheinberg as the "primary" cause for the decision. Insiders close to the regulator say there are  various other management concerns  in the mix, notably including questions as to Isai Scheinberg’s current involvement in Poker Stars. A settlement agreement between the Company and the U.S. Department of Justice, (arising from the Government’s prosecution, U.S. v Scheinberg et al April 15, 2011) presently prohibits Isai Scheinberg from assuming any leadership role in the Company.

Truths and Consequences

It is hard to imagine  separating the Scheinberg name from PokerStars; it stands for immense technical know-how in the world of online poker security, an uncanny understanding of the poker business, exceptional responsiveness to customers' wants and needs, and impeccable financial integrity with its patrons. These are the hallmarks of Isai Scheinberg’s PokerStars and they continue to be at the heart of the Company’s operating philosophy with its customers, under his son Mark Scheinberg, say their legions of fans. The younger Scheinberg now holds the reins as CEO,

The Company’s detractors, however, debate PokerStars' business principles beyond the glow of customer satisfaction. Reports of uneven relationships and questions of fairness on the part of the Company in their arrangements with various corporate business partners and a large force of independent contractors surface periodically.   So do  complaints of a corporate strategy that  promotes and endorses "uninformed accusations"  of character deficiencies of successful competitors and others not in favor with the Scheinbergs. The chief gripe noted by several competitors and former service providers is  "bad-mouthing  that emanates  from the top of the pyramid,”

Various lawyers who have done work for PokerStars, over the years, were queried for this article. They expressed the general view that the American Gaming Association had persuaded  regulators to consider their objections to Stars application for gaming license in New Jersey. AGA  lambasted Stars' for disregard of their obligations to comply with American laws,  disdain toward the United States Department of Justice’s warning of prosecution, questionable recital and spin of legal opinions to suit their purposes, and a culture of arrogance  toward competitors' legitimate efforts to  level the playing field. Lawyers also noted that PokerStars' legal challenges in America (directly and by funding of others' gambling related cases in courts and state and federal government agencies,  had most often  led to to ultimate failures rather than practical resolutions for both sides. Several lawyers believe the DGE, over the time of its expanded probe,  was moved to give more consideration to opponents' arguments against the Company's character and suitability for  licenses. One gaming lawyer found the DGE statement of last week "les than fully forthcoming," perhaps in an effort to to keep the public criticism of  Stars as bounded as possible. All of the lawyers queried were uncomfortable about the length of time it took after completion of PokerStars'  application  for DGE to reach the decision it rendered. 
 

PokerStars Ponders the Right Message

The DGE's explanation for the suspension may not have been fully forthcoming , but its disclosures could not have filled the executives of PokerStars with enthusiasm. Senior management is said to have huddled over how to spin the defeat after having touted the Company's  prospects for a license as virtually in the bag —for months. The DGE’s announcement created an utter embarrassment, as well as very costly financial consequences —even if only temporal and even if offset in future gaming products in overseas markets. Rumors are rampant of grand plans for Full Tilt to energize its profile and create new revenue streams in online casino games and maybe a sports book product as well

In the meantime, one could not fault PokerStars Communications Director Eric Hollreiser from staying on message as to licensing prospects in New Jersey, insisting that the Company would remain in open dialog with DGE. But, the words were dismally hollow given the many months of priming the pump for a big 2013 Thanksgiving splash in America.

The Evolution of PokerStars in New Jersey

It was approximately a year ago that PokerStars made its way into New Jersey as a prospective casino owner and online gaming operator. Industry observers postulate  that the Company knew that getting a license to operate in America was not going to be a walk in the park but probably anticipated an enhanced opportunity to convince New Jersey state officials immediately after Super Storm Sandy. In any event, the Company suddenly abandoned attention on its efforts in Nevada. It  cast  its eye away from Sin City to gaze at the greener Garden State. PokerStars had made plenty of political friends in New Jersey before Sandy ravished its coastline and caused a wholesale economic disaster in Atlantic City.

Stars made a beeline to the floundering Atlantic Club Casino and Hotel. Stars. It strutted its stuff appealingly,  achieving a bargain basement-priced conditional deal with the ACC   and a big acquisition with a hefty commitment to assisting the state’s economic recovery. It trumpeted plans to bring  a boatload of money to town and clearly it intended to  develop its brand, briskly on this side of the pond.

The anticipated deal provoked bitter opposition from the commercial gaming industry, the Atlantic Club Casino pulled the plug once it had doubt about the deal —the right intelligence or other reasons, the ACC succeeded in New Jersey courts to keep millions of dollars of PokerStars cash “down payment.”  Despite Stars’ arguments of mere seller’s remorse. Both parties got burned; Stars was up a creek without a paddle, and ACC swerved into bankruptcy.

PokerStars Swears Allegiance to New Jersey 

After assessing its business plan with a New Jersey nexus, PokerStars stuck to its guns, insisting it would triumph in New Jersey, and so would its citizens—from their big bundles of cash. By early summer, a partnership between Resorts of Atlantic City and Poker Stars was announced; a native son of Atlantic City was leading the deal for Resorts. With obviously  favorable connections to state legislators and top state officials and confidence of success exuded by their active r highly paid lobbyists the plan began to look like a slam dunk. —

Faith, Fudging and Fussing

The opposing commercial casinos became increasingly angry and equally jittery. State Senator Ray Lesniak stepped up to the plate, openly confident in PokerStars’ prospects for the necessary license. He stated to PokerNews, October 15th, "The biggest and the bestest with the mostest is going to have a presence here in New Jersey," adding: "I've made it clear that I would like to see them in the game as long as the DGE says it's OK, and I think it's evolving in that way."

DGE made no public noises that hinted of potentially troubled waters until very late in October. By that time, Atlantic City Casinos, AGA and an increasingly agitated casino employee workforce was reaching out to the New Jersey regulators and the Statehouse in pursuit of answers.

In an interview given too little attention, a month before online gaming was scheduled to launch, poker journalist Marco Valerio elicited a startling comment from DGE’s Director, David Rebuck:

“As a regulator, I don’t like to be in a position of killing a company unless I can show that the leadership, the tentacles of leadership are such that they have unduly influenced the operation of the company so that no matter who you take out, you can’t correct the problems that you’ve identified.”

Did PokerStars not see a yellow light blinking, or did the Company expect the Governor, who was plagued by pressures to expedite economic recovery, to intervene on their behalf after the election? This reporter has no insight on the dynamics or the precise timing in which PokerStars’ licensing application was turned on its head, but it became crystal clear to this reporter the die was cast in the first days of November, (this writer revealed this state of affairs November 7th —before the DGE omitted PokerStars from its substantial list of approvals). And despite an extraordinary amount of public fudging as to a continued review of the Stars application over the next weeks, this writer was convinced and reconfirmed her understanding of the real state of affairs: DGE intended to remove PokerStars from consideration of a license for an extended period of time.

DGE’s Updated Position

The DGE ‘fessed up publicly to its decision late last week, albeit with a seemingly gratuitous equivocation of possible reversal of its position in less than two years if appropriate conditions are met.

DGE Implies a Dilemma

The latest DGE equivocation has raised more than faint hopes among PokerStars dreamers (including some young bucks in the media), of the Company rising anew in the not so distant future, like a phoenix from the ashes created by the US Department of Justice in its cases of April 15th, 2011.

Perhaps the dreamers fantasize of a momentary pause button to be followed by vindication from a travesty of justice for PokerStars and Isai Scheinberg. The smart money declines to make such a bet.  But needless to say, such hopes quietly continue to frustrate detractors of the online poker behemoth who prefer to celebrate the decision as a hard earned victory over the devil.

The DGE may have been tempted by the pot of gold Stars put on the table to help fuel an economic recovery in New Jersey and perhaps Governor Christie and the gaming regulators under his control may have believed that PokerStars had paid its penalty for alleged legal infractions (which the Company never acknowledged in its settlement agreement with the Government.) Maybe the powers that be in New Jersey believed in their hearts that PokerStars and New Jersey should be allowed to move on, seamlessly and together. But, for Americans who considered PokerStars stance a commitment to lawlessness—as accused by the Government and presumed by their major competitors in the U.S--it was a futilely hard sell

Gaming lawyers interviewed for this article say almost uniformly there was absolutely no logical reason to license PokerStars in New Jersey. They cite the current management structure and the continuation of any relationship between Isai Scheinberg and the Company as “flying in the face of license suitability standards that have prevailed since the inception of gaming in the Garden State. So, perhaps the real implication of the DGE announcement may be a warning that the Scheinberg family and closest associates could be a permanent impediment to a license for PokerStars.

That said, there are no tea leaves suggesting that the Company intends to send any member of the Scheinberg family or its longtime directors of the companies that control the PokerStars brand into exile.

Legal Arguments

The Scheinberg family and all PokerStars-related companies have maintained their innocence unflinchingly, but as of this time none of the defendants in the related cases has been exonerated; all of the associated criminal defendants that have faced their charges have entered guilty pleas.  Isai Scheinberg' and Paul Tate's cases remain unresolved. Both men are associated with Stars.

The other defendants’ lawyers have put forward numerous arguments suggesting indictments should have been dropped, there was no evidence that Congress intended to include poker in the UIGEA, poker is a game of skill and therefore exempt from gambling laws—etc., but none of these arguments gained much traction with the presiding judges in those cases.

Scheinbergs are PokerStars

Isai Scheinberg has told many friends in the past (and this reporter) that PokerStars was founded as a business interest for his son Mark. While there was never any effort to conceal Isai Scheinberg’s ultimate authority during his official reign—until the agreement between PokerStars and the U.S. government was reached July 31, 2012. which   required him to step out of leadership of the Company. His son Mark then assumed the role of Chairman and CEO.

Gaming law experts note that with a little bit of luck America is poised to grow the online gaming industry exponentially. Before I bade adieu in my teleconference with a group of lawyers on this subject,  one the legal professions  savviest  counselors quipped, "This the most propitious moment for PokerStars to get serious in entertaining potential buyers’ proposals."  From a player’s perspective, sale of PokerStars would be very bad news, indeed.

Editor’s Note: Wendeen H. Eolis is the CEO of EOLIS, a legal consultancy that has a specialty in the gaming space in selection of legal counsel for "bet the ranch" matters. Ms.  Eolis has served as both a public official in NY and as a federal government advisor on gaming and related regulatory matters. A poker player in her spare time, she was the first woman to cash in the main event of the WSOP. This article is the exclusive property of the author. Contact Ms. Eolis at: eolis@eolis.com; Twitter, Facebook and LinkedIn  or at the website: www.eolis.com

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