Fulltilt’s U.S. Players Face Complex Claims Process

by Sanford Millar
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The following is reprinted with the consent of Gambling Compliance.

[author: James Kilsby]

PokerStars will pay a total of $731m to settle a civil case with the U.S. Department of Justice and rescue former rival Full Tilt Poker from oblivion, with fugitive founder Isai Scheinberg required to step aside under the deal.

The long-anticipated agreement, announced Tuesday, will see the Isle of Man-based poker giant pay $547m to U.S. authorities to resolve civil money-laundering charges brought last April and to assume most of the assets of Full Tilt, which was targeted in the same federal crackdown.

PokerStars has also agreed to within 90 days pay back approximately $184m to international players left in limbo by Full Tilt since June 2011, when the world’s then-second largest online poker operator collapsed.

Under the terms of the deals, neither PokerStars nor Full Tilt admits any guilt to the Justice Department’s civil allegations, which had included violations of the U.S. Illegal Gambling Business Act of 1970 as well as bank fraud and anti-money laundering statutes.

But Manhattan U.S. Attorney Preet Bharara said: “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 agreement is believed to mark the largest Internet gambling legal settlement since U.S. authorities began turning their attention to the activity around a decade ago and effectively draws a line under one half of the “Black Friday” poker saga.

Related criminal cases remain ongoing.

Last April 15, federal prosecutors in Manhattan indicted 11 online poker executives and associates that included Isai Scheinberg, founder of PokerStars, and Ray Bitar, CEO of Full Tilt.

To date, six have pleaded guilty to charges. But at least three — including Scheinberg — remain at large.

Under the terms of yesterday’s agreement with the DoJ, Scheinberg will now be required to step down as a PokerStars director within 45 days.

The PokerStars founder will also be barred from assuming any managerial role at the web poker giant.

Prosecutors said that stipulation could be reviewed pending any future resolution of Scheinberg’s criminal case and court documents make no mention of requiring him to divest any equity interest he has in the company.

The newly-combined entity will also be barred from employing Bitar and other former Full Tilt directors that are under investigation, the DoJ said.

Full Tilt’s Bitar voluntarily surrendered to U.S. authorities earlier this month and is thought to be currently residing in California on a $2.5m bail.

Court documents show the Full Tilt founder returned to Manhattan to sign legal documents forfeiting certain company assets to the U.S. government last Thursday, July 26.

Sources said the deal with PokerStars was completed in the nick of time.

Full Tilt’s operational staff in Dublin had been paid only until the end of July, sources said. After that point, staff would have been free to walk, complicating the effort to resurrect the once-dominant poker operator from the abyss.

Full Tilt has been defunct since last June, when it was stripped of its Alderney gambling license over a series of alleged financial irregularities that led to the company being labeled a “Ponzi scheme” by federal prosecutors.

Assets to be assumed by PokerStars include the Full Tilt brand and related domain names, the company’s Pocket Kings software arm, customer databases, and the Rush Poker platform and trademark.

The company will also assume control of Full Tilt’s data centres in Guernsey, France and Kahnawake (Canada), as well as office furniture, “home cinema systems” and television equipment at its headquarters in Dublin.

Meanwhile, PokerStars will regain full ownership of the PokerStars.com domain and certain company bank accounts targeted by federal prosecutors will no longer be subject to restraining order.

In a statement, PokerStars said it plans to re-launch Full Tilt as a separate brand by October in a number of international markets, operating via its Dublin headquarters but under the licensing authority of gambling regulators in the Isle of Man.

It said it would also work to enable “inter-site transfers” so that players could use the same accounts to play on either the PokerStars or Full Tilt platform.

The Full Tilt site is not likely to be deployed in Italy, Spain, France, Denmark, Estonia or Belgium — where PokerStars holds separate gambling licenses, the company said.

While PokerStars will directly reimburse Full Tilt’s rest-of-the-world players, former customers in the U.S. will need to go through the Department of Justice’s Asset Forfeiture and Money Laundering Section to claim their share, according to the terms of the settlement agreement.

Funds available to U.S. players will come from the $547m PokerStars forfeiture and from money seized in other enforcement actions.

Precedent in other areas suggests the DoJ will likely establish a formal claims process with another government department or independent body acting as administrator, said Sanford I. Millar, a Los Angeles-based gaming and tax law specialist.

Millar warned Full Tilt’s U.S. players — owed a collective $150m — may be expected to demonstrate the source of their original poker deposits and account for any withdrawals.

U.S. authorities are to retain access to Full Tilt player databases even after their transfer to PokerStars.

High-rolling players may possibly face higher compliance requirements than casual customers owed just a few hundred dollars, Millar cautioned, and all could be required to make tax filings as part of their claims.

“A lot of people will pass on this and say it’s not worth the heartburn,” Millar predicted.

Negotiations over a joint PokerStars-Full Tilt settlement are known to have been ongoing since at least late April and a deal had been widely expected to be announced on Monday.

The transfer of Full Tilt’s assets to its larger rival will be completed within the next week, when an initial forfeiture payment of $225m is due to U.S. authorities.

A second installment of $125m is due before August 2013, with a further $100m owed by 2014 and the remainder one year after that.

The total settlement amount dwarfs other agreements struck by the U.S. Justice Department over alleged online gambling offenses.

In late 2008, PartyGaming co-founder Anurag Dikshit agreed to forfeit $300m as part of a plea agreement with authorities over the company’s U.S.-facing activities prior to 2006.

PartyGaming — now part of London-listed Bwin.Party — several months later paid $105m when inking a non-prosecution agreement with the U.S. Attorney’s office in Manhattan. Sportingbet paid $33m as part of a similar legal deal in September 2010.

Payment processor Neteller forfeited $136m when it struck a 2007 deferred-prosecution agreement with the Southern District of New York.

All three were inked to avoid any criminal charges being brought by the Justice Department and saw the companies agree to accompanying statements of facts that alleged violations of certain U.S. laws.

Civil settlements — such as the one announced yesterday — less typically include any acknowledgement of liability, legal experts said.

Separately yesterday, the Justice Department announced it has reached an agreement to assume the assets of Absolute Poker — the third major operator targeted on Black Friday.

The agreement, which has yet to be approved by a judge, would see Absolute Poker forfeit its assets, including the AbsolutePoker.com and UltimateBet.com domains, to the U.S. government.

The United States Marshalls Service would seize company property and conduct a sale process, with some proceeds set aside for other claimants to Absolute Poker assets that include state authorities in Kentucky.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sanford Millar, Law Offices of Sanford I. Millar | Attorney Advertising

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