Longform

Jon Kyl's Attack on Online Poker and Livelihoods

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Most of their bank account was consumed by the move, but he had few worries. Why should he? He could always make more.

They moved April 1. Two weeks later, the federal government took his job.

In the poker world, April 15 is known as Black Friday. That's the day the U.S. Department of Justice seized the assets and shut down the three biggest companies serving the American market — PokerStars, Full Tilt Poker, and Absolute Poker (which also operated Ultimate Bet) — charging them with bank fraud, money laundering, and illegal gambling.

Wright was luckier than most. Only a few thousand dollars in his PokerStars account was frozen by the feds. Others saw tens of thousands confiscated in the raids.

But he was now stuck in North Carolina, out of a job, living with his in-laws, and with no way to provide for a family of four. Their financial troubles accelerated. When the first opportunity came for his wife to take the bar exam, they didn't have the money to pay for the test.


Hardly anyone noticed when the Unlawful Internet Gambling Enforcement Act passed in 2006. Moralists and casinos, trying to protect their turf, had been pushing it for years without luck. That's when U.S. Senator Jon Kyl and his Senate colleague from Tennessee, Bill Frist, got the bright idea to stuff it in a port-security bill as a last-minute amendment.

In true Washington fashion, most legislators never read the final bill. Many didn't even know an anti-gambling measure was in it. But in one secretive stroke, the two Republican senators had declared war on poker.

It didn't actually outlaw online play. Kyl and Frist preferred that their attack on the American pastime remain surreptitious. Going after individual players would have meant a huge backlash. Instead, they targeted the financial institutions that handled the sites' money, making it illegal to deal in gambling proceeds.

Party Poker, the world's largest site, decided to cash in its chips. It agreed to pay a $105 million fine and leave the American market in exchange for not being prosecuted.

That left the world's most lucrative market up for grabs. PokerStars and Full Tilt, also-rans at the time, were quite willing to step into the breach, despite the legal risks.

Why not? PokerStars, based on the Isle of Man, and Full Tilt, headquartered in the UK's Channel Islands, figured they were outside the reach of U.S. prosecutors. It wasn't long before the two companies had cornered about 70 percent of the American market with revenues of nearly $2 billion a year.

But since the feds were squeezing banks and credit-card companies, finding payment processors to handle their money grew increasingly difficult.

"By early 2007, suddenly the payment options are becoming much more tricky for PokerStars and Full Tilt," says Melinda Sarafa, a New York lawyer who's represented gamblers. "That's where they're starting to look into alternative providers."

The feds' squeeze was working. By 2009, an audit of Absolute Poker revealed that almost one-third of its revenue went to disguising the money trail.

Says Sarafa: "The allegation is that the companies tried to find banks that were essentially in distress, providing them with a very lucrative lifeline, and that the transactions were disguised as other types of transactions so it wouldn't raise regulatory eyebrows."

Some in Congress tried to fight back, realizing that playing a few hands of poker after work wasn't exactly fiendish. Congressman Barney Frank, a Democrat from Massachusetts, authored a bill to legalize online games.

But while that measure was winding through the House, the U.S. Attorney's Office of the Southern District of New York pressed ahead. In 2009, it filed charges against Allied Systems and Account Services for processing poker money. The feds seized $34 million owed to 27,000 players.

The sites reimbursed their customers and rolled on. PokerStars and Full Tilt discovered that SunFirst, a struggling Utah bank, was willing to handle the payments in exchange for fees and an investment.

But the feds killed that deal a year later. They also quashed Full Tilt's attempts to make similar arrangements with two Illinois banks.

Full Tilt's problems were especially multiplying. Believing their revenue stream would soar eternally, the company's owners had pulled $444 million in profit from the business over the previous four years. When the feds began seizing their payment processors' funds, the company had no war chest to cover the losses.

By last March, its customers held $390 million in their accounts. But Full Tilt had only $60 million in the bank to cover those accounts. When the feds seized its assets a month later, American players alone were owed $150 million.

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Chris Parker
Contact: Chris Parker