When the U.S. Department of Justice and the Federal Bureau of Investigations arrested the owners of three major online poker websites earlier this year, it served notice on the entire online gaming industry operating illegally in the United States, said Jeff Voyels, professor of casino management in the L. Robert Payne School of Hospitality and Tourism Management.
“The Department of Justice didn’t like the fact that these companies were disregarding the Unlawful Internet Gambling Enforcement Act, so they picked the largest sites and they carefully set their case, described their case and went after them, setting a precedent.”
Ponzi scheme accusations
The indictments affected three poker websites, including Absolute Poker, PokerStars and Full Tilt Poker. In September, the Department of Justice alleged that Full Tilt Poker was a Ponzi scheme against its players.
A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Allegedly, Full Tilt Poker paid old customers with money from new customers.
The Department of Justice didn’t like the fact that these companies were disregarding the Unlawful Internet Gambling Enforcement Act.
“It was very aggressive for them to identify that, especially after the Madoff case,” Voyel said, referencing Bernard Madoff, admitted operator of a massive Ponzi scheme that defrauded thousands of investors of billions of dollars.
“I think that a Ponzi scheme is really difficult to determine. Is it a strong word to use? It certainly is,” Voyel said.
“Were they simply mismanaged? Well, possibly, but mismanagement leads into corruption, which leads to fraud and illegal behavior.
“I think Full Tilt Poker opened and operated the company from the beginning with good intentions. I believe that that might be the case, but as it goes, a lot of the money that was being made — or that amount of money that’s being made — can really breed corruption internally and they just didn’t have control over it.”
While only three companies were indicted, they are the largest with revenues at more than 50 percent of the industry total, Voyel said.
Identifying fraudulent behaviors
The day the indictments were served is known as “Black Friday” in the online poker community, as it shut down the three most popular online poker websites. The Department of Justice accused the companies of money laundering and defrauding banks to get around gambling laws.
“The FBI was able to identify some of these fraudulent behaviors of these companies and a lot of that had to do with them setting up false e-commerce sites, being able to manipulate the banks in some way or another.
“When the banks stopped refusing to process payments, they actually invested in banks and owned the bank in some regards. There was a lot of manipulation that went on in order to keep these processes going,” Voyels said.
Future of online gaming
But, Voyel is hopeful that the initial action against the three companies will lead to federal legislation legalizing online gaming in the future.
“I’m excited to see that the U.S. is pushing forward to legalize online gambling in the next year,” Voyel said. “We’ll most likely have some type of federal legislation on this. I think there had to be something like this to clean up the misconceptions of the industry and to reward those who did participate in legal gambling.”
Editorial disclaimer: The opinions and views expressed above do not necessarily reflect those of San Diego State University or SDSU NewsCenter.