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This Week’s Report on Politics ‘n Poker: Clashing Cymbals and Snare Drums

By Wendeen H. Eolis

Since the passage of the Unlawful Internet Gambling Enforcement Act (UIGEA) in 2006, US facing online poker companies knew that the United States Department of Justice would not look kindly upon taking bets from American-based customers.

Online Poker Goes Down

In its crackdown on online poker earlier this year, the Manhattan US Attorney for the Southern District of NY pounced hard on founders, operators, and operations of the most popular online gambling companies. In an indictment unsealed April 15, 11 defendants were named and a civil forfeiture action for $3 billion was revealed and the domain names of the corporate defendants were seized—worldwide.

Contrary Policies are Unfolding

The DOJ is making its case in New York, a state that has wrestled with plans for expanded legalization of gaming for decades to little avail. In recent days, New York’s Governor Andrew Cuomo, a former prosecutor has put an aggressive economic plan at the top of his priorities. It is designed to bridge a $350 million deficit; key to his plan  is expanding gaming destinations in the State.  Meanwhile, in downtown Manhattan US Attorney Preet Bharara’s talented whippersnappers are dancing as fast as they can toward a trial of two defendants in the highly publicized federal prosecution of online gambling in the United States.

The Hearing That Could Launch a Trial

Arguments in a landmark hearing last week, involving the cases of Chad Elie and John Campos (two of the 11 defendants in the April 15 indictment United States v. Scheinberg, brought fair warning from the judge presiding over the criminal case. District Court Judge Lewis Kaplan told the parties to get ready for a March 2012 trial.

Judge Kaplan did not mince words in expressing doubts as to the solid footing of defendants’ counsel in the motion to extricate their clients from the indictment.  A review of prior gambling and money laundering cases assigned to Judge Kaplan—both of these offenses are issues in the indictment—indicate his tough-mindedness in these matters. 

In the Government’s papers in opposition to a motion to dismiss the cases against defendants Elie and Campos (one a payment processor, and the other a banker, each of whom supposedly facilitated verboten financial transactions for online poker companies), DOJ summarily dismisses the notion of poker as a game of skill, both  as a matter of law and of social acceptance. In their argument, DOJ asserted that poker is merely a gambling game.

The issue of skill vs. chance could become a critical issue throughout the proceedings. In an upcoming article the skill v. chance issue will come under the microscope but for the moment we’ll only touch on it as it relates to the Government’s charges of illegal gambling activities and the offenses related to them—from a business person’s perspective.   

UIGEA Breeds More Hubris than Caution

Even before the UIGEA legislation got into full throttle mode, major online companies saw the need to unify online poker enthusiasts in a “grass roots” organization that would be front and center in support of online poker—in Washington.

Following  passage of the federal UIGEA legislation,  public online gaming companies exited the US marketplace, leaving private companies like Poker Stars, Full Tilt and AbsolutePoker/UB to pick up huge chunks of business left behind. However, their access  to sudden windfalls and rapidly accelerating profits were  not without risk, given the newly enacted legislation.

It was not long before these companies and/or lawyers they brought in to advise them began to talk themselves into believing their businesses and the liberty of their founders and key employees were safe from unwieldy prosecution. The general consensus seemed to be that legal troubles would be manageable and would show themselves to be cost effective. 

Additionally, inside the Beltway and far beyond it many lawyers theorized that there were reasonable, if not necessarily winning arguments against the Government in the event it moved forward to prosecute online gaming as an illegal gambling activity.

It wasn’t only Executives of Poker Stars, Full Tilt, and Absolute Poker/UB that were caught unawares when the DOJ hammer came down.  Several high profile gaming executives, as well as lawyers for the online gambling sites, had previously expressed confidence that the Government would avoid bringing  cases reliant upon federal gambling statutes that  seemed not altogether clear in their mandates regarding poker. None interviewed for this article, however, anticipated an indictment that would include bank fraud and money laundering or a civil forfeiture action that would include asset and domain name seizures worldwide.

DOJ Brings Down the Hammer 

Only after the DOJ laid bare its wrath, did the many warning signs from the Federal Bureau of Investigation and DOJ resonate in the ears of the defendants and the rest of the world.  DOJ’s public statements have been clear; online poker companies disregarded explicit warnings of their plans to prosecute online poker as illegal gambling activity. “There were multiple signals of potentially serious consequences, during the past several years, but the companies continued to flaunt the DOJ’s admonition to get out town—until Doomsday,” says one former federal prosecutor.

The additional consequence for the poker world is a trial that will bring to a head the unified position of online poker businesses and other poker organizations that carry the banner for legal designation of poker as a game of skill—albeit for different reasons.

In its preliminary statement in the Government’s Response to Defendant’s Pre-Trial Motions the DOJ has begun to shape its stance more concretely, scoffing at the notion of poker as a game of skill.  Assistant US Attorney Arlo Devlin-Brown opined in his opening, “Playing poker for money has, since the birth of the game in the 1800s, been treated both in American culture and law as a form of gambling.”

Gambling Matters are State’s Rights Issues  

DOJ claims that, “New York courts, for their part, have treated poker as illegal gambling in reported opinions dating back 100 years.” Gaming lawyers generally concur in the belief that things are not nearly as clear as the US Attorney’s Office suggests in their opposition papers submitted to Judge Kaplan.

More generally, however, several lawyers familiar with statutes around the country contend that litigants against state governments have had little success in efforts to prove poker as a game of skill—especially at the mid-appellate level. Presently, as DOJ acknowledges, there is a case under review  in the South Carolina Supreme Court in the Town of Mt. Pleasant v. Chimento, No. 2009-CP-10-001551 (S.C. Ct. App. Oct. 1, 2009) following the appellate division’s favorable ruling that upheld a lower court’s determination of poker as a game of skill.  The arguments heard before the Supreme Court in 2009 have not been addressed in an opinion. 

In the State of New York poker is addressed in the penal code, Section 225.00 and 225.05. During the early period of Governor George E. Pataki’s administration, I served as the Governor’s senior advisor. Gaming issues were in my portfolio. I was responsible for putting out feelers on the Governor’s inclination to support expanded commercial gaming operations but the mandate was short lived.  The Conservatives—an important part of the Governor’s political base—wanted no part of it and neither did the City’s real estate interests.

Tribal Gaming is a Whole Other Issue 

In 1993, the year before Governor Pataki took office, the Oneida Indian Nation set up shop at Turning Stone Casino near Syracuse, New York, relying on overriding approval by the federal government after failing to obtain poker in its compact with the state. Under the Indian Gaming Regulatory Act (IGRA) OIN won approval for a nonprofit poker club in an opinion by the National Indian Gaming Commission.

Historically, the relationships between Indian nations and the New York State Government have been volatile with tax disputes, trust land issues, and underlying fights over who is boss ever present. The poker world, however, would likely bond better with the Oneida Indian Nation than with the State’s traditional bureaucrats.

Sentimental Journey to the Mayfair Club

In pushing for a poker club as part of their operations, OIN Counsel provided an ironic twist in legal papers. He used news stories of the legendary underground New York City-based Mayfair Club’s never prosecuted, longstanding nightly poker fare, in pleading the part of their case that required them to prove that poker was not prohibited in the state.

According to their counsel Niels Holch, the OIN demonstrated that poker was actually authorized in New York by a legal analysis that included the citation of cases that stemmed back to the 1930s.

The Mayfair Club was never raided—during its reign next door to the Appellate Court—until 2000, when the City changed its mind about poker as an innocent American pastime after stumbling into games with five-figure pots and at least one high stakes player on the FBI’s “wanted list.”

Others have pointed to the history of prosecutorial discretion in dealing with poker games in New York, citing a notorious case of gun toting robbers who emptied the pockets of Mayfair customers and were then disrupted by a police swat team that learned of the hold up in progress. Post-trial, the victims were invited to come to the police precinct to collect their cash and jewels.

Modernizing the Philosophy of Gambling and the Law

Fast forward to this week! The United States Congress dawdles over serious deliberation of licensed, taxed, and regulated online poker. The Manhattan US Attorney sprints forward in prosecution of UIGEA. And New York Governor Cuomo is rarin’ to go with his new economic plan, which definitively includes expanded gaming business. The Governor  explains, “Through this plan we can promote job creation and recapture revenue that is currently being lost to other states.”

Now, are the Governor's goals  practical arguments for  the Congress to follow suit?  And for the millions of American–based online poker enthusiasts  is the civil liberties issue connected to the right to play poker online a more useful or better alternative debate in Congress  than the online companies'  promotion of poker as a game of skill --as a means by which to advance the defense of  their  business activities in America since 2006? 

Editor’s Note: Wendeen Eolis is CEO of Eolis International Group a legal consultancy with specialized experience in the gaming space. She has served as a senior advisor to Governor George E Pataki and Mayor Rudy Giuliani. Her public service initiatives include advisory roles to federal and international agencies.. Wendeen was the first woman to cash in the main event of the World Series of Poker and is a proponent of licensed, taxed and regulated commercial, tribal, and online gaming..


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