Here's the letter:
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August 8, 2012
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Policy and Training Unit
Asset Forfeiture and Money Laundering Section
U.S. Department of Justice
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Washington, DC 20530
Re:
United States v. Pokerstars,
et. al, No. 11-Civ-2564 (LBS) (S.D.N.Y).
Dear *********:
As we briefly discussed on the phone, I am contacting you on behalf of the Poker Players’ Alliance to offer our assistance with, and provide our views on, the return of funds to Full Tilt Poker (“FTP”) players as a result of the forfeiture settlements in
United States v. Pokerstars, et. al, No. 11-Civ-2564 (LBS) (S.D.N.Y). We are very thankful for this opportunity and on behalf of our members wish to convey our appreciation that your office will be considering the concerns of players. This letter provides some background on the PPA and explains, in detail, PPA’s position that FTP players should be entitled to recover as their “loss,” the balance in their FTP accounts as of April 15, 2011, the date on which the United States Attorney for the Southern District of New York took action against FTP and the last day on which U.S. players could access their funds.
The PPA
The PPA is a non-profit organization, whose membership includes over a million professional and amateur poker players and enthusiasts. The PPA is dedicated to protecting the legal rights of poker players and to provide poker players with a secure, safe, and regulated place to play. The PPA does so through advocacy work in Washington, D.C. and throughout the United States. It has also regularly appeared as
amicus curiae in cases affecting its members’ ability to play poker both online and in their homes.
See United States v. DiCristina, No. 1:11-cr-0414-JBW, Dkt. No. 83 (E.D.N.Y. July 10, 2012);
South Carolina v. Chimento, No. 98045DB (Mt. Pleasant Mun. Ct. Feb. 19, 2009);
Pennsylvania v. Dent, Nos. 167-MDA-2009, 168-MDA-2009 (Pa. Super. 2009), and
Kentucky v. Interactive Media Entertainment & Gaming Assoc., Inc., No. 2009-SC-000043 (Ky. May 12, 2009);
People v. Raley, No. 08M2463 (Weld County Ct., Colorado Jan. 21, 2009).
As a result of the PPA’s large membership and established position in the poker-playing community, it has well-developed lines of communication with likely claimants and is positioned to play a key role both in disseminating information to players about the loss remission process, as well as to help the Department of Justice understand the player experience and the nature of the information available to players to initiate and complete the remission process.
[1] As such, the PPA stands ready to assist the Department of Justice in helping create a streamlined, victim-friendly process for remission. As part of that process, the PPA would like to share its views as to why the Department of Justice should consider player balances at the time of the seizure
[2] to be the appropriate full loss amount. As described more fully below, using this amount is appropriate because:
1. The charging documents make clear that the fraudulent scheme was designed not just to induce players to make deposits, but also to keep their funds held on account with FTP and rarely, if ever, withdraw them despite the purported ability to do so;
2. The forfeiture settlement was designed to ensure that the Department of Justice had sufficient funds to pay back full balances for U.S. players;
3. PokerStars was permitted by the Department of Justice to pay back all of their U.S. players without any claim that the payment of full balances was impermissible; and
4. FTP’s foreign players will be paid back at the full amount of their balances through the transaction that the Department of Justice negotiated with PokerStars.
1. As Described in the Charging Documents, Full-Tilt Not Only Induced Players to Deposit Funds, It Also Induced Them Not To Withdraw Funds
The facts relating to the seizure of funds make clear that FTP players were victims of what the DOJ has described as a fraudulent scheme to induce players to deposit, and then not withdraw, funds into accounts with FTP. As the complaint alleges, FTP made no efforts to hold player funds in a secure manner or ensure the availability of funds for withdrawal, despite making representations to that effect. Instead, FTP frequently used player account funds to make over $443 million in payments to its owners over the last four years. (First Amended Complaint, “FAC” at ¶ 99).
The charging documents and forfeiture petitions also make clear that FTP players did not blindly trust FTP. Instead, players frequently sought assurances that funds deposited into their accounts were secure, and specifically whether those funds were held in bank accounts FTP did not utilize for other purposes. (FAC ¶ 100). FTP responded to these inquiries by continually representing to players that their funds would be available for withdrawal at any time, and that FTP was not in any financial trouble. (FAC ¶¶ 100-105). Specifically, FTP is alleged to have stated that
- “Your funds are available to you 24 hours a day, 7 days a week, and 365 days a year.” (FAC ¶ 100a).
- “To protect both our players and business from financial problems, all player account funds are segregated and held separately from our operating accounts. Unlike some companies in our industry, we completely understand and accept that your account money belongs to you, not Full Tilt Poker.” (FAC ¶ 100b).
- · Responding directly to player inquiries on a popular message board, an FTP representative stated that “I don’t know enough about the specific legal terms for all of this to speak with any authority. I can say with authority, though, that we do not mix deposits with operational expenses. . . .” (FAC ¶ 100d).
- · Once concerns regarding its financial condition arose, FTP continued to provide assurances, stating that, “We always make sure we can cash out any of our players at any time. You should never have to worry that you won’t get your money . . . .” (FAC ¶ 102).
Those representations appear to have been false, but were designed to induce players to rely on them in making decisions about their funds.
Similarly, players who relied on regulation by gambling authorities were also deceived. FTP allegedly misrepresented its financial condition to the Alderney Gambling Control Commission (“AGCC”), which licenses online gambling operations that may legally operate throughout the world, including in the United Kingdom and throughout Europe. In filings to the AGCC, FTP stated that “[a]ll players have an account that holds money that is available to them on the Full Tilt Poker system,” and that “[t]he player may withdraw funds up to the current balance of their account at any time, subject to any applicable bonus terms and conditions.” (FAC ¶ 103).
Players that choose not to withdraw their balances in reliance on FTP’s statements and oversight by gambling authorities ended up losing their entire balances, not just their initial deposits. Indeed, FTP did not adequately protect player funds, and instead squandered them on repeated large payments to its owners. Representing to players that they had a secure balance, when in fact the money was not actually available for withdrawal, is the very fraud that the DOJ has alleged, and not mere inducement to make an initial deposit.
In fact, the full extent of this conduct only became known
after the seizures were effected. As a result of these payments to FTP shareholders, according to the complaint, by March of 2011, FTP owed almost $400 million to players, but only had $60 million in assets on its books. (FAC ¶ 105). Even after April 15, 2011, FTP continued to accept player funds despite the fact that it had only a fraction of the amount in its bank accounts. (FAC ¶ 116). Indeed, in early June 2011 the situation is alleged to have deteriorated greatly from March 2011, leaving FTP with only about $6 million on hand to repay players. (Id.)
The net effect of FTP’s deception as described in the complaint was to encourage players to continue to deposit funds with FTP, but more importantly,
not to withdraw their winnings. The First Amended Complaint makes clear that FTP was increasingly more concerned about withdrawals in its waning days than it was with additional deposits. As the indictment alleges, Ray Bitar, the CEO, stent an internal email at the time stating that he was concerned that bad news about FTP’s financial performance could cause a “run on the bank” which would expose its failure to secure player funds. (FAC ¶ 117.)
2. The Forfeiture Complaint, Interim Agreements, and Settlement Agreement Contemplate Returning Funds to Players
Throughout the pendency of this forfeiture action, the United States Attorney’s Office has supported the return of funds to FTP players. Prior to discovering the extent of the fraud at FTP, the U.S. Attorney entered into an agreement to allow use of the FTPpoker.com domain name. That agreement “d[id] not prohibit, and, in fact, expressly allow[ed] for, FTP to utilize the Domain (and any other forms of communication) to facilitate the withdrawal of U.S. players’ funds held in account with FTP.” (Ex. A, April 19, 2011 Ltr. to Barry Boss fr. U.S. Attorney for the S.D.N.Y., re: Use of FTPpoker.com Domain Name at ¶ 3). The agreement also expressly allowed for FTP to engage in financial transactions to return funds to players, and allowed FTP to post information on its website to facilitate the return of funds.
After that letter, the U.S Attorney continued to make statements and enter into agreements that contemplate returning funds to players. The settlement agreement signed at the conclusion of this action also reflects an intent to return funds to players. The settlement agreement specifically states that “victims of offenses alleged to have been committed by [FTP] ... will have the opportunity to file petitions … for remission of forfeiture, including with respect to PokerStars forfeited funds.” The U.S. Attorneys’ Office’s press release regarding the settlement likewise indicated that players would be able to recover funds held by FTP, and specifically identified the $547 million forfeited by PokerStars as the source for these repayments.
[3]
3. Poker Stars was permitted by the Department of Justice to pay back all of their U.S. players without any claim that the payment of full balances was impermissible
The Department of Justice permitted PokerStars to pay back all of their U.S. players without any assertion that the payment of full balances (which may have included gambling winnings) was impermissible. PokerStars’s domain name use settlement agreement, like FTP’s, allowed it to use the PokerStars.com domain and financial accounts to refund player account balances, including to U.S. players. (Ltr. fr. U.S. Attorney for the Southern District of New York to D. Zornow, J. Carroll, & A. Raman, April 19, 2011). That agreement states that “it does not prohibit, and in fact, expressly allows for, PokerStars to utilize the domain (and any other forms of communication) to facilitate the withdrawal of U.S. players’ funds held in account with PokerStars.” (Id.) Pursuant to that agreement, PokerStars has allowed users to access their accounts on the PokerStars.com website, and “cash out” any balance in their account, using a variety of means including eChecks, direct bank transfers, paper checks, or wire transfers, depending on the account balance.
[4] PokerStars has been allowing such cash outs to U.S.-based players for over a year, including player deposits and gambling winnings without objection.
This payback is permissible, and there can be no claim that returning funds to players, even from Internet poker websites, violates the Unlawful Internet Gambling Enforcement Act (“UIGEA”). As you know, UIGEA prohibits financial institutions and third-party payment processors from processing “restricted transactions” involving transmission of funds or proceeds related to unlawful Internet gambling. The UIGEA defines “restricted transactions” to “mean[] any transaction or transmittal involving any credit, funds, instrument, or proceeds described in any paragraph of section 5363 which the recipient is prohibited from accepting under section 5363.” 31 U.S.C. § 5362(7). Section 5363 prohibits persons “engaged in the business of betting or wagering” from accepting any transfer of funds “in connection with the participation of another person in unlawful Internet gambling.” 31 U.S.C. § 5363. In the Final Rules issued pursuant to the UIGEA, the Department of the Treasury (“the Treasury”) made clear that § 5363’s limitation of liability to “person[s] engaged in the business of betting or wagering” means that the term “‘restricted transaction’” can never “include funds
going to a gambler”—as a gambler is not “‘engaged in the business of betting or wagering.’” 73 Fed. Reg. 69382, 69387 n.37 (Nov. 18, 2008) (quoting 31 U.S.C. § 5363) (emphasis added). Accordingly, PokerStars’s return of funds, and any return that would be done through a petition for remission process is not the type of transaction UIGEA sought to prohibit.
4. Full-Tilt’s Foreign players will be paid back at the full amount of their balances through the transaction that the Department of Justice negotiated with PokerStars
Allowing FTP’s U.S. players to cash out the full balance of their accounts will place them on equal footing with foreign players. The settlement agreement with PokerStars expressly states that “within ninety (90) of the Closing Date” PokerStars shall, “make available for withdrawal by players, without any limitation other than as required by applicable law, all balances for non-U.S. players of the FullTilt Group … in an amount believed to total approximately $184 million.” (Stipulation and Order of Settlement Regarding PokerStars, 11-Civ.02564 (LBS) at 3.) As such, all non-U.S. players will receive their full account balances pursuant to the settlement agreement, without any alteration related to the amount deposited or the amount won through play. As such, the PPA believes that U.S.-based player funds should be treated in the same manner.
The PPA appreciates your willingness to consider its perspective on the amount of loss for the purposes of the remission process. The PPA also stands ready to assist the Department of Justice in creating a streamlined and accessible process to help reunite players with their seized funds. Please let us know how we can be of further assistance in that process.
Sincerely,
Marc J. Zwillinger
ZwillGen PLLC
Counsel for the Poker Players Alliance
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[1] ************************************************** ************************************************** *.
[2] ************************************************** ************************************************** ************************************************** ************************************************** ************.
[3] http://www.justice.gov/usao/nys/pres...ettlement.html
[4] http://www.pokerstars.com/usaplayers/faq/#cash
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