Manhattan U.S. Attorney Announces $731 Million Settlement Of Money Laundering And Forfeiture Complaint With Pokerstars And Full Tilt Poker

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Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has entered into settlement agreements with PokerStars and Full Tilt Poker – two of three online poker companies sued by the U.S. in a money laundering and forfeiture complaint that was originally filed in April 2011 – that were approved today by U.S. District Judge Leonard B. Sand.  Under the terms of the settlement with Full Tilt Poker (“Full Tilt”), the company agreed to forfeit virtually all of its assets (the “Forfeited Full Tilt Assets”) to the U.S. to fully resolve the charges in the complaint. Under the terms of the settlement with PokerStars, the company agreed to forfeit $547 Million to the U.S. and to reimburse the approximately $184 million owed by Full Tilt to foreign players, in order to fully resolve the allegations in the complaint.  The settlement further provides that PokerStars will acquire the Forfeited Full Tilt Assets from the Government.  Full Tilt’s U.S. fraud victims will be able to seek compensation for their losses from the Department of Justice from the $547 million forfeited by PokerStars.

The Allegation:

On October 13, 2006, the United States enacted the Unlawful Internet Gambling Enforcement Act (“UIGEA”), making it a federal crime for gambling businesses to “knowingly accept” most forms of payment “in connection with the participation of another person in unlawful Internet gambling.”  Despite the passage of the UIGEA, Full Tilt Poker, PokerStars, and Absolute Poker/Ultimate Bet (“the Poker Companies”), each located offshore, continued operating in the United States.  Because U.S. banks and credit card issuers were largely unwilling to process their payments, the Poker Companies allegedly used fraudulent methods to circumvent federal law and deceive these financial institutions into processing payments on their behalf.  For example, the Poker Companies arranged for the money received from U.S. gamblers to be disguised as payments to hundreds of non-existent online merchants purporting to sell merchandise such as jewelry and golf balls.  Of the billions of dollars in payment transactions that the Poker Companies deceived U.S. banks into processing, approximately one-third or more of the funds went directly to the Poker Companies as revenue through the “rake” charged to players on almost every poker hand played online.

To accomplish their fraud, the Poker Companies worked with an array of highly compensated “payment processors” who obtained accounts at U. S. banks for the Poker Companies.  The payment processors lied to banks about the nature of the financial transactions they were processing, and covered up those lies, by, among other things, creating phony corporations and websites to disguise payments to the Poker Companies.  For example, a PokerStars document from May 2009 acknowledged that they received money from U.S. gamblers through company names that “strongly imply the transaction has nothing to do with PokerStars,” and that PokerStars used whatever company names “the processor can get approved by the bank.”

Full Tilt Poker further defrauded players by misrepresenting that player funds on deposit in online gambling accounts were safe, secure, and available for withdrawal at any time. In reality, the company did not maintain funds sufficient to repay all players, and instead, utilized players’ funds to distribute more than $400 million to Full Tilt’s owners.  By March 31, 2011, two weeks before the initial complaint in this action was unsealed, Full Tilt Poker owed approximately $390 million to players around the world, including approximately $160 million to players in the United States.  At that time, Full Tilt Poker had only approximately $60 million on deposit in its bank accounts.  Full Tilt Poker’s scheme continued even after the civil forfeiture action commenced and the related criminal Indictment was unsealed in April 2011.  Full Tilt Poker continued accepting foreign player funds despite the fact that it had liabilities to players around the world for over $300 million, yet held only a small fraction of that amount in its bank accounts.

DOJ press release link: click here