Southern District of New York Action Against Online Poker Players
Encyclopedia
The Southern District of New York (SDNY) Action Against Online Poker Players was a legal action taken by the Department of Justice
in an effort to crack down on online poker
. The action occurred around June 8, 2009, when the government ordered four banks to freeze over 34 million dollars in payments owed to about 27,000 poker players. According to the Poker Players Alliance
, a grass-roots organization for poker players, federal prosecutors ordered Citibank
, Wells Fargo
and Goldwater Bank and Alliance Bank of Arizona to freeze the accounts of Allied Systems and Account Services. Allied Systems and Account Services are two of the account-management companies that Full Tilt Poker
, Absolute Poker, Ultimate Bet and PokerStars
use for the disbursement of funds.
was passed in an effort to combat terrorism at United States' harbors. One of the provisions included in the act is known as the Unlawful Internet Gambling Enforcement Act of 2006
(UIGEA). This provision prohibits the transfer of funds from a financial institution
to an Internet gambling site, with the notable exceptions of fantasy sport
s, online lotteries, and horse/harness racing. The law makes exceptions for games of skill as opposed to games of luck; thus, opponents of the measure argue, it should not apply to poker.
The law, opponents argue, does not address transfer of money to individuals nor does it make online gambling illegal. The only state that has a law explicitly banning online poker is Washington. The federal government holds that playing online is a violation of the Act. Arlo Devlin-Brown, the assistant U.S. attorney for the SDNY, says that the U.S. government can seize the funds "because they constitute property involved in money laundering transactions and illegal gambling offenses." In seizing the money, the federal government did not cite the UIGEA but rather the 1961 law "The Wire Act and Illegal Gambling Business Act
." According to the Competitive Enterprise Institute, a think tank "dedicated to free enterprise and limited government", the Justice Department has taken the stance that online wagering is prohibited by the Act, "despite the fact that the courts have repeatedly smacked down any attempt to apply the federal Wire Act ... to non-sport related Internet gambling."
Nelson Rose, a law professor who specializes in gambling law at Whittier Law School
in Costa Mesa, California
, said that SDNY's action was "very aggressive, and I think it's a gamble on the part of the prosecutors." Professor Rose indicated that it was unclear as to what law would allow for the seizure of money from individuals as compared to the companies involved. Previous government actions focused on sports betting, not poker and that according to Rose, many courts and legal authorities believe poker is different from sports betting because poker involves a transfer of money between individuals, while sports betting is between an individual and online casino.
Account Services lawyer Jeff Ifrah said that the government “has never seized an account that belongs to players who are engaged in what [Ifrah] would contend is a lawful act of playing peer-to-peer poker online.”
Immediately after the seizure, the Poker Players Alliance issued a statement. In the statement, the PPA alleges that "in at least two cases" the seizure of funds was done without first obtaining the proper warrants. The statement states that the action was taken despite the fact that "no federal or state court has ever found a payment processor or a player accessing an Internet poker site to have violated the federal laws alleged by the Southern District in this case."
to legalize and regulate online poker "seems likely to pass." Rose mentioned other theories related to the timing. According to one theory, the National Football League
, an opponent of expanding internet gambling, pressured the Southern District to retaliate in light of Frank's proposal. Another theory states that the Southern District performed the raid to ensure that Frank's bill would pass. Rose explains that California law enforcement agencies raided a retirement home bingo game shortly before a vote to raise people's awareness of the issue. As the seizure occurred at a time where poker players might be seeking to participate in the World Series of Poker
, Ifrah hypothesized that the raid was timed to coincide with the 2009 World Series of Poker
. Finally, Rose speculates that the DOJ may have seized the accounts as a money grab on the belief that nobody would fight the seizure in court. "It’s a tremendous gamble," Rose said, "on the part of the U.S. Department of Justice to go after players and even more of a gamble to go after poker players."
United States Department of Justice
The United States Department of Justice , is the United States federal executive department responsible for the enforcement of the law and administration of justice, equivalent to the justice or interior ministries of other countries.The Department is led by the Attorney General, who is nominated...
in an effort to crack down on online poker
Poker
Poker is a family of card games that share betting rules and usually hand rankings. Poker games differ in how the cards are dealt, how hands may be formed, whether the high or low hand wins the pot in a showdown , limits on bet sizes, and how many rounds of betting are allowed.In most modern poker...
. The action occurred around June 8, 2009, when the government ordered four banks to freeze over 34 million dollars in payments owed to about 27,000 poker players. According to the Poker Players Alliance
Poker Players Alliance
The Poker Players Alliance is an American nonprofit Interest group formed "to speak with one voice to promote poker, and to protect the players' rights." The PPA formed to serve as an advocacy group to Washington to establish rights and protections for U.S. poker players. Within the first year of...
, a grass-roots organization for poker players, federal prosecutors ordered Citibank
Citibank
Citibank, a major international bank, is the consumer banking arm of financial services giant Citigroup. Citibank was founded in 1812 as the City Bank of New York, later First National City Bank of New York...
, Wells Fargo
Wells Fargo
Wells Fargo & Company is an American multinational diversified financial services company with operations around the world. Wells Fargo is the fourth largest bank in the U.S. by assets and the largest bank by market capitalization. Wells Fargo is the second largest bank in deposits, home...
and Goldwater Bank and Alliance Bank of Arizona to freeze the accounts of Allied Systems and Account Services. Allied Systems and Account Services are two of the account-management companies that Full Tilt Poker
Full Tilt Poker
Full Tilt Poker is an online poker card room that opened in June 2004 with the involvement of poker professionals Howard Lederer, Phil Ivey, Andy Bloch, Mike Matusow, Jennifer Harman and Chris Ferguson...
, Absolute Poker, Ultimate Bet and PokerStars
PokerStars
PokerStars is the largest online poker cardroom in the world. PokerStars' satellite tournaments produced the 2003 World Series of Poker champion, Chris Moneymaker. 1983 champion Tom McEvoy, 2005 champion Joe Hachem, 2009 champion Joe Cada and 2010 champion Jonathan Duhamel and others also represent...
use for the disbursement of funds.
Legality of online poker
The legality of online poker in the United States is uncertain. In 2006, the Security and Accountability For Every Port ActSAFE Port Act
The Security and Accountability For Every Port Act of 2006 was an Act of Congress in the United States covering port security and to which an online gambling measure was added at the last moment...
was passed in an effort to combat terrorism at United States' harbors. One of the provisions included in the act is known as the Unlawful Internet Gambling Enforcement Act of 2006
Unlawful Internet Gambling Enforcement Act of 2006
The Unlawful Internet Gambling Enforcement Act of 2006 is United States legislation regulating online gambling. It was added as Title VIII to the SAFE Port Act which otherwise regulated port security...
(UIGEA). This provision prohibits the transfer of funds from a financial institution
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
to an Internet gambling site, with the notable exceptions of fantasy sport
Fantasy sport
A fantasy sport is a game where participants act as owners to build a team that competes against other fantasy owners based on the statistics generated by the real individual players or teams of a professional sport...
s, online lotteries, and horse/harness racing. The law makes exceptions for games of skill as opposed to games of luck; thus, opponents of the measure argue, it should not apply to poker.
The law, opponents argue, does not address transfer of money to individuals nor does it make online gambling illegal. The only state that has a law explicitly banning online poker is Washington. The federal government holds that playing online is a violation of the Act. Arlo Devlin-Brown, the assistant U.S. attorney for the SDNY, says that the U.S. government can seize the funds "because they constitute property involved in money laundering transactions and illegal gambling offenses." In seizing the money, the federal government did not cite the UIGEA but rather the 1961 law "The Wire Act and Illegal Gambling Business Act
Federal Wire Act
The Interstate Wire Act of 1961, often called the Federal Wire Act, is a United States federal law prohibiting the operation of certain types of betting businesses in the United States. It begins with the text:...
." According to the Competitive Enterprise Institute, a think tank "dedicated to free enterprise and limited government", the Justice Department has taken the stance that online wagering is prohibited by the Act, "despite the fact that the courts have repeatedly smacked down any attempt to apply the federal Wire Act ... to non-sport related Internet gambling."
Nelson Rose, a law professor who specializes in gambling law at Whittier Law School
Whittier Law School
Whittier Law School is a law school in Costa Mesa, California. Founded in 1966, it is a fully accredited ABA law school in Orange County, California. A private university, it is part of Whittier College.-History:...
in Costa Mesa, California
Costa Mesa, California
Costa Mesa is a city in Orange County, California. The population was 109,960 at the 2010 census. Since its incorporation in 1953, the city has grown from a semi-rural farming community of 16,840 to a primarily suburban and "edge" city with an economy based on retail, commerce, and light...
, said that SDNY's action was "very aggressive, and I think it's a gamble on the part of the prosecutors." Professor Rose indicated that it was unclear as to what law would allow for the seizure of money from individuals as compared to the companies involved. Previous government actions focused on sports betting, not poker and that according to Rose, many courts and legal authorities believe poker is different from sports betting because poker involves a transfer of money between individuals, while sports betting is between an individual and online casino.
Account Services lawyer Jeff Ifrah said that the government “has never seized an account that belongs to players who are engaged in what [Ifrah] would contend is a lawful act of playing peer-to-peer poker online.”
Response
After the funds were seized all of the affected poker sites reimbursed the players the money that was seized. According to one PokerStars player, the site gave him an additional 10 percent credit. Professor Rose indicated that because the poker sites are reimbursing the players, that the legality of the actions of the Southern District may never be tested. Since the sites are making the player whole, they may not have standing to challenge the Southern District. "Payment processors won't want to show up in court in the U.S. and, even if you could find a player," Rose said, "would they be willing to testify under oath?"Immediately after the seizure, the Poker Players Alliance issued a statement. In the statement, the PPA alleges that "in at least two cases" the seizure of funds was done without first obtaining the proper warrants. The statement states that the action was taken despite the fact that "no federal or state court has ever found a payment processor or a player accessing an Internet poker site to have violated the federal laws alleged by the Southern District in this case."
Timing
The timing of the Southern District's actions has been the subject of considerable discussion. The CEI noted that the timing occurred at a time where, "regulators had finally begun to think about internet gambling as a legitimate activity that citizens have the right to engage in." They also noted that new legislation proposed by Barney FrankBarney Frank
Barney Frank is the U.S. Representative for . A member of the Democratic Party, he is the former chairman of the House Financial Services Committee and is considered the most prominent gay politician in the United States.Born and raised in New Jersey, Frank graduated from Harvard College and...
to legalize and regulate online poker "seems likely to pass." Rose mentioned other theories related to the timing. According to one theory, the National Football League
National Football League
The National Football League is the highest level of professional American football in the United States, and is considered the top professional American football league in the world. It was formed by eleven teams in 1920 as the American Professional Football Association, with the league changing...
, an opponent of expanding internet gambling, pressured the Southern District to retaliate in light of Frank's proposal. Another theory states that the Southern District performed the raid to ensure that Frank's bill would pass. Rose explains that California law enforcement agencies raided a retirement home bingo game shortly before a vote to raise people's awareness of the issue. As the seizure occurred at a time where poker players might be seeking to participate in the World Series of Poker
World Series of Poker
The World Series of Poker is a world-renowned series of poker tournaments held annually in Las Vegas and, since 2005, sponsored by Harrah's Entertainment...
, Ifrah hypothesized that the raid was timed to coincide with the 2009 World Series of Poker
2009 World Series of Poker
The 2009 World Series of Poker was the 40th annual World Series of Poker . It was held at the Rio All Suite Hotel and Casino in Las Vegas, Nevada, and ran from May 27 to July 15. There were 57 bracelet events, culminating in the $10,000 No-Limit Hold'em Main Event...
. Finally, Rose speculates that the DOJ may have seized the accounts as a money grab on the belief that nobody would fight the seizure in court. "It’s a tremendous gamble," Rose said, "on the part of the U.S. Department of Justice to go after players and even more of a gamble to go after poker players."