Drawing the curtain on Black Friday

Drawing the curtain on Black Friday

  • Hannah Gannagé-Stewart
March 31, 2020 6:28 PM
  • Hannah Gannagé-Stewart

Last week saw the culmination of a ten-year campaign by the U.S. justice system to bring Isai Scheinberg, the founder of Internet-gambling giant PokerStars, before a federal court.

Scheinberg was already in Europe when the U.S. government turned out the lights on three major online poker operators that continued to run ostensibly above-board businesses despite various legislation challenging the legality of online gaming in the country at the time.

Having eluded extradition for almost a decade, Scheinberg was arrested in Switzerland in June 2019 and having appealed the extradition order to begin with, surrendered to U.S. authorities in January. He pled not guilty and was released on a $1 million bail.

At court in New York on 25 March 2020, Scheinberg — like all of his fellow defendants before him — finally pled guilty, presumably in the hope of a more lenient penalty, as he could face up to five years in prison.

Now 73 years old, Scheinberg was one of 11 defendants accused of operating an illegal online gambling business in 2011, following the enactment of the Unlawful Internet Gaming Enforcement Act (UIGEA) under President George W. Bush’s presidency in 2006.

Introduced to clarify the illegality of online gambling in the U.S., UIGEA prompted most igaming companies to play it safe and pull out of the U.S.

However, a notable few remained and were pursued by the Department of Justice (DoJ) for doing so, among them PokerStars, Full Tilt Poker and Cereus, which operated the Absolute Poker and Ultimatebet brands.

For PokerStars, digging their heels in at this time paid major dividends. The platform’s biggest rival, Gibraltar-based PartyPoker, pulled out of the States and chose to make hay while the sun continued to shine in Europe. It is now part of GVC Group, an acquisitive igaming business headquartered on the Isle of Man with annual revenues of around €3.7bn.

This shot PokerStars to the top of the rankings in the U.S. and built the foundation for the major private-equity-backed business it went on to become. After Scheinberg withdrew from the business, his son Mark took it over, subsequently selling it to Amaya Gaming for $4.9bn.

Later renamed Stars Group, the business acquired Sky Betting & Gaming in April 2018 and merged with Flutter Entertainment, the umbrella company of some of Europe’s biggest betting brands, in October 2019. It is now part of a gaming behemoth bringing in annual revenues of around £3.8bn ($4.6bn) per year.

It seems an unlikely outcome for a company that on 15 April 2011 was at the centre of the U.S. clampdown dubbed ‘Black Friday’ by the poker community. On that day, the DoJ released an indictment against the leaders of the three companies known to still be operating, putting them at risk for hefty prison sentences, alongside the financial repercussions of a major civil suit.

Two of the defendants, John Campos and Chad Elie, payment processors for the blacklisted platforms, were arrested that day. Another payment processor, Bradley Franzen, pledged to turn himself in the following week.

The remaining eight were outside of the U.S. at the time, including: Scheinberg, Paul Tate (payments director at PokerStars), Ray Bitar (CEO of Tiltware), Nelson Burtnick (payments director at Tiltware), Scott Tom (co-owner of Absolute Poker),  Brent Beckley (payments director at AP), and two other payments processors, Ryan Lang and Ira Rubin.

All, except Scheinberg, gradually pled guilty over the following years and were given penalties ranging from misdemeanour fines to federal prison sentences.

A date for Scheinberg’s sentencing has not yet been set and recent media reports suggest that negotiations for a settlement of some kind are underway. Will we see a penalty to match the crime it was when committed, or one more in keeping with post-PASPA sensibilities? Arguably, not much has changed in New York on that score, but will Scheinberg’s guilty plea close one chapter of the igaming story in the United States, only to usher in another?

Following PASPA’s repeal in May 2018, many states are exploring the possibility of legalising igaming. The need for cross-state liquidity could hamper efforts to bring poker back at the scale it once was, but it’s not inconceivable that the future may see something akin to a legitimate version of the online-poker industry that rose during the dot-com boom.

Geoffrey Berman, the United States Attorney for the Southern District of New York, is reported to have said: “The passage of time will not undermine this Office’s commitment to holding accountable individuals who violate U.S. law.” But accountability is subjective, right?

Unfortunately for Scheinberg, the grey areas were made a little more black and white in 2013, with the U.S. Court of Appeals in Manhattan ruling that offering poker in a state where poker was illegal violates federal law, whether poker is considered a game of skill or not. So, with his old defence out of the window, it’ll be down to the courts to look for mitigating factors that may amount to leniency.