The Death of Online Poker Gambling In The US?

[Formaldehyde]

Online poker investors lose big as rules change

Spoiler :

Absolute Poker's hot streak was about to come to an end.

The online poker site was the creation of four Sigma Alpha Epsilon fraternity brothers. One of them grew up in St. Petersburg and tapped his family's wealth and network of well-heeled friends for startup cash. The pitch back in the early 2000s: Get in on the ground floor and hit the jackpot.

The site, one of the first of its kind, grew like wildfire. Soon nearly 30,000 players were logging on at once, trying their luck at games like Texas Hold'em. In just four years, annual revenues rocketed past $200 million.

Congress put a serious crimp in online gambling in 2006, but Absolute Poker found ways to keep dealing virtual hands. Even two cheating scandals didn't stop the cash flow.

But not everyone shared in the bounty. Some shareholders suspected the founders, living offshore in luxury, were skimming. They hatched a plan to take control and sell the company, encouraged by news that a major Las Vegas casino mogul might partner with a rival online site. That deal would surely help online gambling become legit. Absolute Poker could sell for millions. Everyone would win.

The shareholders, including about three dozen in the Tampa Bay area, had no idea that federal authorities were about to bring down the house.

On Sept. 30, 2006, Congress passed a little-noticed law with far-reaching repercussions. Under the Unlawful Internet Gambling Enforcement Act, it became a crime for businesses to take payment for Internet gambling from U.S. players.

The government targeted the money flow, not players sweating over hands of Omaha Hi Lo on their laptop computers. But just as Prohibition failed to stop drinking, the new law didn't stop online gaming. The operators just got more inventive.

Robert Ronald Janusz, a Chicago-area resident brought onto the board by Tatum and his father, said the new law sparked panic.

"Everyone was running with their hair on fire," he said. "A number of entities were basically turning off the lights."

One of the sites, Party Poker, closed its tables to U.S. players and focused on markets elsewhere.

Absolute Poker took a riskier stance. In a press release, the site gave the green light to U.S. players, saying its payment transactions were done "within the framework of the international banking system, which the U.S. Congress has no control over."

Behind the bravado, however, Absolute Poker insiders and U.S. shareholders were scrambling. Lawyers advised U.S. citizens that they couldn't have any ties to the gaming business, so about 80 percent of the Americans working for Absolute Poker in Costa Rica came home.

"The handful who stayed behind were told they couldn't return to the U.S. because no one was sure how this new law would work," Janusz said. Among those remaining offshore and still active in the company were three of the four founders — Tatum, Tom and Gustafson.

"We built a firewall 13 feet thick," Janusz said.

But it turned out to be full of holes.

In 2007 and 2008, cheating scandals at Absolute Poker and its sister site, Ultimate Bet, raised the ire of Kahnawake regulators. Fearful the regulators would pull the license and shut the sites down, Janusz said Madeira Fjord secretly built duplicate software and a second server farm in Panama. It then simply moved the poker operation from Tokwiro to a company called Blanca Games in Antigua. Certain shareholders reached right through the firewall to make it all happen.

The gaming continued.

Federal prosecutors dropped the hammer on April 15.

They shut down Absolute Poker as well as its two biggest competitors, PokerStars and Full Tilt. The government seized the websites and more than 75 bank accounts and indicted 11 people on charges of illegal Internet gambling, bank fraud and money laundering.

Among those indicted were Absolute Poker's Scott Tom, and his half-brother, Brent Beckley. If convicted, they face years in prison.

Preet Bharara, U.S. attorney for the Southern District of New York, accused the defendants of "tricking some U.S. banks and effectively bribing others."

"Foreign firms that choose to operate in the United States are not free to flout the laws they don't like simply because they can't bear to be parted from their profits," he said.

Fallout was swift. Wynn immediately canceled his agreement with PokerStars. Borgner, who says he hasn't made a cent on Absolute Poker, said, "I hope the company survives. I'm not sure it can at this stage."

Time to legalize, tax online gambling

Our gambling laws make about as much sense as the government banning gin, but not vodka, during Prohibition.

Some laws allow gambling, some encourage it, and some ban it. You can run an online business for people to bet on horse races, but not on a poker hand. So instead of collecting taxes on the $30 billion that is bet in this country every year on online poker sites run by offshore companies, our government is investing tax dollars in an attempt to close down the games. It's time to fix this absurd system.

While our nation's leaders fret over our debt, there are millions of American poker players willing to throw coins into tax coffers in order to test their skills. But the national love for Texas Hold 'Em brings in no taxes while our prosecutors pursue the dealers.

On April 15, a day the online poker world dubbed Black Friday, the Justice Department unsealed indictments against 11 players in the online poker world, including the founders of popular sites PokerStars, Full Tilt Poker and Absolute Poker. The government also, at least temporarily, seized and shut down the websites. Using the Unlawful Internet Gambling Enforcement Act, a law passed in 2006 but steeped in archaic concepts of virtue, the feds are looking to convict these defendants and reap forfeitures of some $3 billion.

We need not make this a no-limit game. The estimated 2.5 million Americans who play online poker know there is some skill to the game, unlike other sports that can be rigged. There can be online safeguards built in to stop underage players and to warn and screen for problem gamblers, just like casinos do on a regular basis.

We don't need more charges of bank fraud and money laundering against poker companies. Instead, we need to end this madness with a solid challenge to the constitutionality of the Unlawful Internet Gambling Enforcement Act, which is aimed at preventing financial services firms from processing funds for online gambling. It's worth noting that Congress hasn't targeted the online poker players in this country, where lawmakers know full well its popularity.

Forbes has reported that in 2009, online poker took in revenue of about $1.4 billion in the U.S. with PokerStars and Full Tilt, whose founders are now indicted, bringing in about 70 percent of the total. Let's stop taking a double hit here. Stop spending to prosecute under an inconsistent law and start taxing online poker sites under the proven model used by other countries.

The current poker prosecution echoes "the Noble Experiment" of Prohibition. It is an attempt to enforce a morality that average citizens don't find immoral. Just as the 18th Amendment to the U.S. Constitution begat the 21st Amendment to repeal it, if Congress won't legalize online poker, we should go all in and let the U.S. Supreme Court take a good look at this cockeyed prosecutorial tool.

Is online poker gambling the modern incarnation of the devil which should be banned by the government to protect everybody from this evil menace? Or is it yet another example that the US isn't actually the home of freedom and liberty as many claim?

Should the US allow online poker gambling as many countries already have, properly regulate it so that cheating cannot easily occur, and tax it to provide another source of revenue? Or should it continue to prosecute those who try to get around the current restrictions, while enacting laws which make it extremely difficult for US players to participate?

Can the possibility of cheating be even controlled? Or will there always be opportunities to do so by the operators of these sites?

 

[Cutlass]

I don't think it should be allowed for the following reasons: No way to determine the adult status of the gamblers. People who run up too much debt on credit cards can default on them and leave the card holders holding the bag. Too difficult to regulate that the games are fair and honest.

 

[GhostWriter16]

Cutlass makes a valid point, but I still think that means that the debt system needs to be fixed, and not the gambling.

As for Formaldehyde's question: Regulations to ensure no cheating is a good idea. "Sin Taxes" are not.

 

[MobBoss]

I don't think it should be allowed for the following reasons: No way to determine the adult status of the gamblers.

Do they give credit cards to minors these days?

If this is the issue, then we shouldnt be selling adult material of any kind over the internets, or rated R movie reviews that ask for your birth date prior to viewing them, not to mention the myriad free porn sites all over the place.

People who run up too much debt on credit cards can default on them and leave the card holders holding the bag.

Those creditors have a lot of practice handling this in our society. How is this any different than someone who does the same thing at a retail store then never pays their credit card bill?

Again, if this is your worry, then shouldnt we disallow the use of credit cards for any purchase not made in person? halt all online retailer sites?

Too difficult to regulate that the games are fair and honest.

What about pay to play video games that charge a monthly fee for the pleasure of participating? Or the ones with online 'stores' that sell various advantages for those with the cash? But I fail to see how these could be any more difficult to regulate that the gazillions of electronic slots the nation over. In fact, I would posit that it probably takes about the same effort or so.

 

[Patroklos]

The cheating thing isn't going to be helped by government regulation unless you want the government actually writing the software.

There is no reason for any regulation of this at all. Taxes are already collected from this industry from the normal buisness taxes the site owners pay and the income tax the players pay on winnings that qualify. Both of these activities are already covered by existing entities.

 

[ParadigmShifter]

LOL you tax gambling winnings in the US

 

[Formaldehyde]

For those who are silly enough to actually report them. If you are a big winner at the track, they make you fill out a form so they can report the winnings to the IRS. But you just have to claim as much loss, which is usually the case anyway.

 

[MobBoss]

The cheating thing isn't going to be helped by government regulation unless you want the government actually writing the software.

Does the government write the software for slots?

LOL you tax gambling winnings in the US

Its income. Why shouldnt we tax it?

 

[LucyDuke]

Banning it is stupid.

 

[Patroklos]

For those who are silly enough to actually report them. If you are a big winner at the track, they make you fill out a form so they can report the winnings to the IRS. But you just have to claim as much loss, which is usually the case anyway.

That might work for winnings small enough that its not worth the IRSs time to investigate, but I highly recommend you do not do this if you have any substantial winnings.

I have had a few windfalls at casinos over the years, nothing crazy but a lot of money from my perspective. The IRS is always highly interested in them, I have never had an accountant that has not recommended full disclosure.

 

[Thedrin]

For those who are silly enough to actually report them. If you are a big winner at the track, they make you fill out a form so they can report the winnings to the IRS. But you just have to claim as much loss, which is usually the case anyway.

Interest generated on declared earnings is significantly greater than interest generated by keeping winnings in a matress. Regardless of whether or not a person thinks his gambling profits should be taxed, if that person is good enough to have a steady income from gambling then the silly thing would be to not declare the profits. If someone isn't good enough to make a steady income from gambling, then the taxable profits aren't going to be significant.

 

[MobBoss]

For those who are silly enough to actually report them. If you are a big winner at the track, they make you fill out a form so they can report the winnings to the IRS. But you just have to claim as much loss, which is usually the case anyway.

Well, these days casinos can track your winnings and spending to the penny via their players cards, which make sense to use if your planning on losing that much cash at the casino to at least get something comp'd out of the deal. That, plus they report your winnings to the IRS kinda gives you an incentive to claim it honestly (or at least somewhat honestly).

 

[Bestbank Tiger]

Is online poker gambling the modern incarnation of the devil which should be banned by the government to protect everybody from this evil menace?

No. Gambling is a victimless crime.

Should the US allow online poker gambling as many countries already have, properly regulate it so that cheating cannot easily occur, and tax it to provide another source of revenue?

That would be common sense, but apparently we have to protect people from themselves because they aren't smart enough to decide anything for themselves.

Can the possibility of cheating be even controlled?

With a website, probably not. A smart cheater would rig the odds marginally so there are enough big winners to keep people from avoiding the site. That's just the risk you take if you play online poker.

Banning it is stupid.

Well stated--brief and to the point.

 

[GinandTonic]

The US has dropped the ball badly on internet gambling. Like porn it's a basic driver. The harder the US tries to push against it the more it achieves no more than excluding it's own companies from participation.

Free trade will out, and this is the coal face.

 

[MobBoss]

No. Gambling is a victimless crime.

Illegal gambling isnt a victimless crime, and gambling addiction certainly has victims other than the person doing the gambling. Speak to any spouse or children of someone addicted to gambling...i'll think you'll change your mind by the stories of those victims of gambling addiction.

With a website, probably not. A smart cheater would rig the odds marginally so there are enough big winners to keep people from avoiding the site. That's just the risk you take if you play online poker.

As I have stated several times now, slots are not any different in this regard. If we can regulate them, we should be able to regulate websites.

 

[LucyDuke]

Illegal gambling isnt a victimless crime, and gambling addiction certainly has victims other than the person doing the gambling. Speak to any spouse or children of someone addicted to gambling...i'll think you'll change your mind by the stories of those victims of gambling addiction.

Yeah, but gambling is a victimless crime.

 

[Bestbank Tiger]

Illegal gambling isnt a victimless crime, and gambling addiction certainly has victims other than the person doing the gambling. Speak to any spouse or children of someone addicted to gambling...i'll think you'll change your mind by the stories of those victims of gambling addiction.

Well, gambling in and of itself isn't harmful. People who can't control themselves are a problem, but we can't limit individual rights based on the lowest common denominator. Well, we can, but we'd end up with a Demolition Man style dystopia....junk food would be illegal because some people can't lay off it, alcohol would be illegal to protect alcoholics from themselves, clothing would be rationed so shopaholics can't bury themselves in debt, pet ownership would be a crime so there could be no hoarders, etc.

 

[Bestbank Tiger]

As I have stated several times now, slots are not any different in this regard. If we can regulate them, we should be able to regulate websites.

I think websites would be harder. A slot machine is something you play in person and can be physically inspected.

 

[Thedrin]

With a website, probably not. A smart cheater would rig the odds marginally so there are enough big winners to keep people from avoiding the site. That's just the risk you take if you play online poker.

While it may be possible that a website could cheat, I don't understand the motivation for doing so.

Players don't play against the website. They compete against each other. The website takes the same cut regardless of who wins. The website merely provides the location for playing.

With slot machines, the player is playing against the owner of the slot machine - the person who owns the gambling mechanism.

 

[Rashiminos]

In poker you're basically doing one of two things to win money: taking advantage of an ignorant opponent (to get his/her money), or deceiving a slightly better opponent into conceding (his/her money).

The house always gets a cut. Victimless it ain't...