This is no minor issue.

I have taught classes to the FBI, including on both Internet and Indian gaming. I have always found them to be professionals. They appreciate both their power and responsibility as the leading law enforcement agents of the federal government.

So, I was shocked to see this on the official FBI website:

“If you’ve ever thought about visiting a cyber casino, here’s something you should know: it’s illegal to gamble online in the United States…

The page is called “Online Gambling: Don’t Roll the Dice.”

And it’s completely untrue.

A quick lesson in the law: always read the actual language of the statutes. So, when the FBI lists what it says “are the primary federal laws that govern online gambling,” click on the links. What you will find are the following:

“Transmission of wagering, betting by use of a wire communication” takes you to the Wire Act. The statute’s opening words: “Whoever being engaged in the business of betting or wagering…” Since the law was enacted 50 years ago, there have been only one or two attempts to charge players under the Wire Act. The charges were thrown out. Courts have ruled the Act means exactly what it says: If you are not in the business of gambling, you cannot be violating this law.

The other statutes listed by the FBI even more clearly never apply to mere bettors. In fact, “Broadcasting lottery information,” doesn’t even directly apply to gambling operators. It is limited to TV and radio broadcasters. There is no way this law could be used against someone who is merely making bets using the Internet.

Incidentally, courts have held that sports books do not violate this and other federal anti-lottery laws. “Lottery,” under federal law, is limited to games that are 100% chance. Betting on sports events requires at least a little bit of skill.

But at least a lottery is gambling. The last two statutes the FBI lists, “Fraud by wire” and “Mail fraud: Attempt and Conspiracy,” only apply to schemes to defraud. Even if the gambling is illegal, it does not mean it is crooked, or that the operator lied.

And you can’t prosecute a mere bettor by throwing in “Conspiracy.” If that were allowed, everyone who bought illegal drugs would be guilty of conspiracy to sell drugs.

How did this happen? Why would the FBI put up information that is 100% incorrect?

Under J. Edgar Hoover, the FBI was a political force. Although Hoover made the Bureau, as Wikipedia puts it, “a large and efficient crime-fighting agency,” he also used it as a personal weapon to intimidate Presidents and Congress. Hoover was appointed director of the predecessor Bureau of Investigation in 1924. He helped found the FBI and ran it from its birth 1935 until his death in 1972.

Naturally, nobody wanted a repeat. So the FBI was reined in, put heavily under the control of the Attorney General and the Department of Justice.

The result, sadly, is this professional law enforcement agency has become a tool of the Department’s war of intimidation against Internet gambling.

© 2011, I. Nelson Rose. Prof. Rose is recognized as one of the world’s leading experts on gambling law, and is a consultant and expert witness for governments, industry and players. His latest books, Internet Gaming Law (1st and 2nd editions), Blackjack and the Law and Gaming Law: Cases and Materials, are available through his website, GamblingAndTheLaw.com.

Legal News

Technically, the only question being decided was “Whether proposals by Illinois and New York to use the Internet and out-of-state transaction processors to sell lottery tickets to in-state adults violate the Wire Act.” But the conclusion by the DoJ that the Wire Act’s “prohibitions relate solely to sport-related gambling activities in interstate and foreign commerce,” eliminates almost every federal anti-gambling law that could apply to gaming that is legal under state laws.

If the Wire Act is limited to bets on sports events and races, what other federal anti-gambling statutes are left? There are prohibitions on interstate lotteries, but Powerball and the other multi-state lotteries show how easily these can be gotten around, even before Congress passed an express exemption for state lotteries. And poker is not a lottery under federal law.

So, all that are left are the federal laws designed to go after organized crime. These all require that there first be a violation of another law, like the Wire Act, the federal anti-lottery statutes, or a state anti-gambling law. If a state has expressly legalized intra-state games like poker, as Nevada and the District of Columbia have done, there is simply no federal law that could apply.

If the bettors and operator are all in the same state, and the gambling does not involve a sports event or race, the Wire Act cannot be used against the operator, even if phone wires happen to cross into another state. And if the state legislature has made the online game legal, it does not violate any other federal anti-gambling law.

IN ANY EVENT…
I suppose it is possible that the DoJ could argue that poker is a “sporting event or contest.” But the language of the Wire Act prohibits “information assisting in the placing of bets or wagers ON any sporting event or contest.” If poker is a contest, it is one where players bet IN the contest, not on it. Anyway, the DoJ held that the Wire Act was designed to go after bookies taking bets on horse races and football games, etc., not other forms of gambling. And even the DoJ would not argue that a game like blackjack is a sporting event or contest.

In a footnote, the DoJ expressed no opinion about the provision in the Wire Act that allows prosecutors to shut down phone lines where true interstate or foreign gambling is taking place. But, since the DoJ has now concluded that every other section of the Wire Act applies only to races and sports events, it would be truly bizarre to believe that Congress intended only this one section to apply to other forms of gambling.

This means there may be nothing preventing states from making compacts with other states, and even foreign nations, once they have legalized an online game, like poker. If Nevada and the District of Columbia want to take Internet poker players from each other, what federal law would they be violating? And, if they agreed that their residents could bet with licensed poker operators in, say, Antigua and England, while residents of those nations could bet with poker operators in Nevada and Washington, we know they would not be violating the Wire Act, or the anti-lottery laws, or any of the federal prohibitions which require that the gambling be illegal under a state’s laws.

‘STATING’ THE OBVIOUS
The immediate beneficiaries will be the D.C. Lottery and Nevada-licensed private operators, since those jurisdictions are the furthest ahead. The state lotteries in Illinois, New York and New Hampshire will also initiate or expand their online games. After all, most of the provincial lotteries in Canada are already operating Internet poker.

I believe this will be a major incentive for the other states looking at legalizing intra-state poker and other games. First will probably be Iowa. The State Legislature mandated a report, which has already been submitted, concluding that intra-state poker can be operated safely and will raise money. The Iowa Legislature meets for a short period at the beginning of the year, so it has to act quickly, or it will be passed by other states in 2012.

Those other states are California and New Jersey. California is desperate for any source of revenue, and it has so much legal gambling that the only question is which operators are going to be the big winners. The Democratic-controlled Legislature in New Jersey approved intra-state online gaming, but the bill was vetoed by Gov. Chris Christie (R-NJ). Christie understands his state need the money, so he will probably help put the issue on the ballot in November. Last month, the voters of New Jersey approved sports betting. There is no reason they would not also approve Internet casinos. It will be interesting to see if the main author, state senator Ray Lesniak (D-Union), will limit online patrons to New Jersey, as his original bill stated, or, if he will accept players from any other state and nation where Internet gambling is legal.

Once these jurisdictions open their online games, even if limited to players who are physically within the state, operators will push for compacts to allows interstate Internet poker among the legal states. And other states, like Florida, will jump on the bandwagon.

FEDERAL FUTILITY
What impact will all this have on proposed federal laws? Proponents are trying to spin the DoJ opinion. The Poker Players Alliance stated, “However, this ruling makes it even more important that Congress act now to clarify federal law, and to create a licensing and regulation regime for Internet poker, coupled with clear laws and strong enforcement against other forms of gambling deemed to be illegal.” But the reality is that Congressional advocates, like Barney Frank (D-MA) and Joe Barton (R-TX), have had some of the wind knocked out of their sails. Since states are now clearly free to legalize intra-state online poker, and perhaps even interstate, there is not as much reason to even bother with a federal law. Only the major operators, like Caesars Entertainment, need a federal law, because they don’t want to be competing with politically connected local gaming companies for limited numbers of licenses in 50 states.

Opponents, like Jon Kyl (R-AZ) and Frank Wolf (R-VA), might get some leverage for their attempts to expand the Wire Act to cover all forms of gambling. But, as I have pointed out (to the consternation of some who have donated money hoping for a federal Internet gambling law), Congress has passed literally no substantive laws since the Republicans took over the House of Representatives in January 2009. There is as little chance of this Congress passing a new Unlawful Internet Gambling Enforcement Act as there is its passing a repeal of the UIGEA.

The interesting question is what the Majority Leader of the U.S. Senate, Harry Reid (D-NV) and Kyl, the number two Republican in the Senate, will do. They had sent a letter asking the DoJ for clarification of its position on Internet gambling. They now have their answer, though it may not have been what they had wanted.

My bet is that they, and Congress, will continue to do nothing, while Internet gambling explodes across the nation, made legal under state laws.

© Copyright December 24, 2011, I. Nelson Rose, Encino, California. All rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com.

Legal News

The election tomorrow is not a sure thing.  As was shown in the 2010 voting, off-year elections are not like general ones, when millions more come out to decide who will be President.  Instead, older voters predominate, and they are more conservative, more religious, more Republican and, in general, more anti-gambling.

Still, the polls are favorable, with those in favor of Public Question 1 leading those opposed by more than 20%.  Even Gov. Chris Christie (R.-NJ) has said he will vote for it.  Now that he has decided that he won’t run for President until 2016 at the earliest, he can work on raising revenue for the state without raising taxes.  And five years from now, nobody will remember or care about his stand on sports betting.

But, even if New Jersey voters approve, it will still be some time before sports betting is allowed in the state.  The problem is the federal Professional and Amateur Sports Protection Act (“PASPA”).  First, New Jersey State Sen. Raymond Lesniak (D.-Union), has to revive, and then win, his federal lawsuit and get PASPA declared unconstitutional.

On March 7, 2011, U.S. District Court Judge Garret Brown dismissed Lesniak’s first complaint against PASPA.  Judge Brown was probably correct in ruling that the federal courts could not hear the case, since New Jersey did not have a sports betting law in place.  It may seem like a technicality, especially because most state courts would have made a ruling.  But it is a fundamental restriction on federal courts that they cannot give advisory opinions.

So Lesniak got Public Question 1 on the ballot.  Once the voters approve sports betting, the federal court will have a real “case or controversy” under the U.S. Constitution.  Congress, through PASPA, forbids any state from legalizing sports betting.

Just stating that shows why the courts will probably find PASPA unconstitutional.  I cannot think of any other act of Congress that prevented a state from changing its public policy on gambling.

The situation is even more bizarre, since there are plenty of states with legal sports betting.  Besides Nevada, the state lotteries of Oregon and Delaware are allowed to take parlay bets on NFL and other games.  Alaska allows Calcutta pools on amateur and professional sports; Montana and North Dakota have all sorts of sports pools; Wyoming permits Calcuttas on amateur events; Washington state has low-limit sports pools; and New Mexico even has “Keirin,” parimutuel wagering on bicycle races.  And that’s not counting all the betting on jai alai.

All of those states were grandfathered-in in 1992 when PASPA was enacted.  It is going to be difficult to find a constitutional reason why nine of the 50 states can have sports betting, but New Jersey cannot.

In fact, it is difficult to know where in the U.S. Constitution Congress got this power to begin with.  Gambling has always been an issue for the states to decide on their own.  When the National Football League and other sports organizations were lobbying for PASPA, the lawmakers, at first, looked to Congress’s power to protect trademarks.  This even worked in a lawsuit against the Delaware Lottery, where the NFL convinced the court that use of team names might look like they were endorsing Delaware’s games.  But, since sports books in Nevada take bets using the teams’ names, it is silly to say that PASPA protects the teams’ intellectual property in some states but not others.

Now, it appears that it is Congress’s power to regulate interstate commerce which will be used to justify PASPA.  Of course, those nine state exceptions, plus the dozens of other states that have betting on jai alai, and horse and dog racing, means PASPA is, legally, irrational.

Court cases take time.  Even though there will be no facts in dispute, it will still be months before Sen. Lesniak’s case against PASPA can reach the stage where the trial judge can issue a ruling.  Then, assuming New Jersey wins, the important question will be whether the state will be allowed to start accepting bets on sports events immediately.  The losers, aided by the NFL, will file an appeal.  In Delaware, the state could not get the courts to let it begin while its sports betting case (on the issue of whether it was restricted to parlay bets) was up on appeal.  The sticking point was what would happen to all the bets, especially the losing wagers, if the appellate court reversed and decided the state did not have the right to accept those bets.  Does everyone get their money back?

There are ways to protect the bettors and state against the slim possibility the appellate court reverses the trial court.  But, if the courts don’t allow the state to start until after the federal Court of Appeal decides, it could be two or three years before sports betting comes to New Jersey.

And then what?  The other states will not sit and let this opportunity go untapped.  Delaware will ask that the court reconsider the ruling that limited it to parlay bets.  Operators in other states, especially those with casinos, like Michigan and Louisiana, will immediately start pressuring legislatures to legalize sports betting, or at least put it on the ballot.

One of the more interesting states is Mississippi, which actually had a statute expressly allowing sports pools.  Code 1972, §§ 75-76-55, 75-76-89, 75-76-5(gg).  The State Supreme Court ruled that the statute does not mean what it says.  That fight will be revived, or rather, the Mississippi Legislature will probably legalize regular sports books for the state’s casinos.

The NFL and other sport leagues will try to get Congress to do something about this.  I don’t know if there is anything that could be done, short of an amendment to the U.S. Constitution.  But it does not matter.  Congress has not passed any substantive law of any kind in 2011, and it does not look like it will in 2012, an election year.

Besides, even a Republican Governor like Chris Christie is in favor of allowing sports betting.  Legal gambling is seen as a painless way for the states to raise revenue and create jobs.

What are the odds that the only law Congress passes this year or next is one that hurts jobs, prevents states from raising revenue without raising taxes, and directly interferes with states’ rights?-

© Copyright October 7, 2011, I. Nelson Rose, Encino, California.  All rights reserved worldwide.  Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com.  http://www.gamblingandthelaw.com/blog.html.

Sports News

First, Nevada regulators approved a partnership between Caesars and 888. Steve Wynn announced he would work with PokerStars in the hopes of setting up PokerStarsWynn.com, to accept American players. The District of Columbia legalized online gaming, including poker.

Then, on Black Friday, the Department of Justice indicted the principals of the three biggest poker companies still taking bets from the U.S., seized millions of dollars and their dot-com names worldwide, and filed a civil suit asking for billions more. Recently, the DoJ amended the suit to include allegations that Full Tilt defrauded players out of hundreds of millions of dollars.

Of course, no matter what the DoJ does, it cannot stop the press toward legalization. The states are desperate for revenue and cannot get any help from the federal government, with the Republicans controlling the House of Representatives. So, they are looking at more legal gambling, as a painless tax. Internet poker is almost the only form not already allowed in many states.

Online poker is coming, on a state-by-state basis. So, who will be the winners?

The decision on 888 shows that at least some states would be willing to license operators who had voluntarily pulled out of the American market. Publicly traded companies like Party Gaming and 888 left the U.S. after the Unlawful Internet Gambling Enforcement Act was passed in 2006.

The DoJ had indicated it wanted to prosecute anyone who ever took poker bets from Americans, even if they had stopped. Yet both the Nevada Gambling Control Board and the Nevada Gaming Commission declared 888 suitable to do business with one of its largest licensees.

The decision by Wynn was even more startling, because PokerStars was still taking bets from residents of the U.S. at the time. It was also significant because Wynn had been absolutely opposed to all Internet gambling only a few years ago, and his major focus is on Asia. If an operator as smart as Steve Wynn thinks now is the time to push for legalizing online poker, then now might very well be the time.

The two major arguments against licensing a company that took poker bets is that it was involved in illegal gambling, which gives it an unfair advantage through customer lists and brand name recognition.

These arguments seemed to win the day when wide-open licensing was under consideration in France. Lawmakers at first said no company which took bets from residents of France could get a license. Then they proposed an official “time out.” Operators would only be able to apply for a license after removing themselves completely from the French market for 18 months.

In the end, French authorities were won over by the counter-argument: It was unclear whether non-French operators could be prosecuted under European Union law.

More importantly, French gaming regulators and operators became convinced they needed the experience and expertise of the largest Internet gaming companies.

So, France decided on what amounts to a general amnesty.

This echoes the decision made in the early 1950s by Nevada regulators that they would ignore convictions for illegal gambling by applicants for the first state licenses. Reasoning that since all casino gambling was illegal in the U.S., only criminals had experience running casinos.

The second state to legalize casinos, New Jersey, felt the market would take care of the problem. They reasoned, correctly, that dealer schools would open up and experienced operators would come from other parts of the world.

It is difficult to predict who will win. Will there be a general amnesty, à la France, or will the door be slammed shut on everyone who might have been involved in even technically illegal gambling, as in New Jersey?

Even operators who used to take poker bets from U.S. have lost name recognition. So, they are trying to buy it. PartyGaming-bwin bought the World Poker Tour, and 888 is now with Caesars, which also owns the World Series of Poker.

On the other hand, International Game Technology, one of the largest manufacturers of slot machines, paid about $115 million for Entraction Holding AB of Stockholm, Sweden. Entraction has one of the world’s largest online poker networks and is one of the leading suppliers to the industry. Most importantly, it had never taken bets from the U.S., and will thus not cause IGT any problems with its dozens of regulators. But it is completely unknown to Americans.

So, if there is general amnesty, the winners will be companies like PartyGaming and Caesars. But, if regulators refuse to license anyone who ever took online poker bets from the U.S., the winners will be companies like IGT.

© 2011, I. Nelson Rose. Prof. Rose is recognized as one of the world’s leading experts on gambling law, and is a consultant and expert witness for governments, industry and players. His latest books, Internet Gaming Law (1st and 2nd editions), Blackjack and the Law and Gaming Law: Cases and Materials, are available through his website, GamblingAndTheLaw.com.

Prof. Rose will be attending the International Association of Gaming Advisors conference in Las Vegas Fri. Sept. 30 – Sun. Oct. 2, and the Global Gaming Expo Mon. Oct. 3 – Thurs. Oct. 6. On Mon. Oct. 3, he will appear on a panel at G2E: “In or Out: How Intrastate Online Gaming Would Work” in Room 601, 12:45 pm – 1:45 pm.

Business News

Gambling and the Law®: But – Is It Gambling?

Every week, I receive emails and phone calls from operators, reporters, and particularly entrepreneurs – individuals to large companies – wondering whether a new Internet idea is legal.

Auctions are particularly big at the moment, but these aren’t your grandfathers’ auctions.

Creative, non-traditional markets are blooming, sometimes having very little to do with stocks, bonds and commodities.

Inventors are developing more and better skill contests.

And no-purchase necessary games.

And variations on fantasy sports.

The reason they contact me is that they want to know: “Is it gambling?” And, if it is, what can we do to make it legal, that is, make it not gambling.

But this may not be the right question. Ironically, a statute that was supposed to kill Internet gaming, the Unlawful Internet Gambling Enforcement Act (“UIGEA”), has created new opportunities.

Before the UIGEA, developers tried to eliminate one of the three elements of gambling: prize, chance or consideration.

“Consideration” derives from the law of contracts. Today, just about everyone agrees there is no consideration if there is no requirement to pay. Even games like poker with free alternative means of entry are legal, if done right.

The element of skill is complicated, because every jurisdiction, meaning each state and the federal government, is free to create its own standard. In practice, trial judges are easier to convince than appellate courts. There are some standard ways of demonstrating to a live fact-finder that a game is predominantly skill, and different tests for justices who only have dry paper records to review.

The third element, prize, is the easiest to eliminate in theory, but used to be the most difficult in practice. After all, who would pay to enter a game of chance where winners win nothing? But millions of players pay to play social games, where they can win only bragging rights or fancy avatars.

Everyone wants to be the next Zynga.

The UIGEA introduced a wild card into the mix. Rammed through by the right-wing religious Republican, then-leader of the U.S. Senate, Bill Frist (R.-TN), the law contains express exemptions for such things as intra-state and inter-tribal gambling, and fantasy sports.

Technically the UIGEA exemptions apply only to this particular federal statute and would not overrule the federal Wire Act, let alone any state law. But everyone, including law enforcement, sees the UIGEA as expressing the will of Congress. The Obama Department of Justice (“DoJ”) has let state lawmakers know, informally, that it won’t interfere if a state wants to legalize purely intra-state poker, even if the computer lines happen to cross through a neighboring state. And for fantasy sports, prosecutors and regulators seem relieved to act like there is now a short checklist to determine whether a game is legal or not.

As icing on the cake, the UIGEA called for regulations to be issued by the Federal Reserve Board and Treasury, in consultation with the DoJ. These went into effect on June 1, 2010. They allow banks and other payment processors to accept online gaming operators as patrons, if the operators have “reasoned legal opinions” from lawyers, explaining why the Internet gambling transactions are legal.

Entrepreneurs are taking advantage of the UIGEA, using these “reasoned legal opinions.” For example, a couple of poker players have asked whether it would be possible to created fantasy teams for poker tournaments, and whether a person could be on his own fantasy team.

Technology has opened the door to other ideas, that may, or may not, be gambling. Insurance used to be considered gambling. That is one reason why you cannot take out a policy on the life of a person you do not know – plus, lawmakers are afraid you might do something to increase your chances of collecting.

Entrepreneurs have come up with innovative variations on insurance, all designed to allow individuals to pay small amounts to protect much larger investments. These include policies to refund expensive tickets of final playoff games, if the buyer’s teams is knocked out of the running, to compensating students monetarily if they are forced to withdraw from college.

It is only a small twist to convert these into money-making plans. How about allowing fans to pay small amounts way in advance for very expensive playoff tickets, good only if their team makes the playoffs? Or rewarding students with large payoffs in cash if they achieve straight A’s?

Online auctions have evolved far beyond eBay. Many sites today allow participants to obtain expensive goods and services for a fraction of their retail costs, if they have the winning, unique bid, high or low. The sites can be extremely profitable, because participants have to pay a small fee for each bid they make. The psychological impact of sunk costs can be so great, that many people find they can’t walk away and write off the money they spent on losing bids.

Some gaming lawyers analyze these online auctions in the traditional terms of prize, chance and consideration. Like insurance, or trading commocities and securities on listed exchanges, conventional auctions are not analyzed this way.

I believe the correct question is not “Is it gambling?” When I give a “reasoned legal opinion” I focus on “Is it legally an auction?”

There are many forms of gambling, or what used to be considered gambling, that are now perfectly legal.

A smart gaming lawyer will know that changes in the law and technology have changed the questions they must ask, and answer.
END

© Copyright 2011. Professor I Nelson Rose is recognized as one of the world’s leading experts on gambling law, and is a consultant and expert witness for governments and industry. His latest books, INTERNET GAMING LAW (1st and 2nd editions), BLACKJACK AND THE LAW and GAMING LAW: CASES AND MATERIALS, are available through his website, www.GAMBLINGANDTHELAW.com.

Legal News

On August 22, 2011, California State Senate President Pro Tem Darrell Steinberg sent a letter announcing that the bills to legalize intra-state Internet poker would not be voted on this year.  The letter was also signed by Sen. Roderick D. Wright, Chair of the Governmental Organization Committee, and author of one of the bills.

Both legislators made it clear they are in favor of Internet gaming; just not now.

Anyone receiving the letter knew it was going to be bad news from the start.  It opens with “Dear Stakeholder;” not exactly the warm salutation you would expect from sophisticated politicians.

Sen. Steinberg told the Sacramento Bee that, although he personally “supports legalizing Internet gambling in California,” he “does not want any legislative action on the issue this year.”

Why the delay?  After admitting that the issue has been studied for the past three years, including “numerous hearings” and “hours of testimony over the last several months,” Senators Steinberg and Wright declare:

“Despite these efforts, significant, unresolved issues remain, including tribal exclusivity and waiver of sovereign immunity, the types of games that would be authorized, who would be eligible to apply for gaming site licenses and potential federal constitutional questions.”

The State Legislature goes into Interim Study Recess on Sept. 9.  “[W]e fully expect an objective proposal will be developed during the interim…”  The G.O. Committee will hold a hearing in January 2012.

Do lawmakers in Sacramento really need another half-year to study the issues?

For the record, the State Legislature spent only a few days deciding that California should have legal landbased casinos.  A senior Assembly staff member told the Los Angeles Times how Prop. 1A and the model compact passed in 1999:

“It was a stacked deck.  It just sailed through both houses in three days without a single genuine public hearing, with hurry-up legislative hearings often held in out-of-the-way conference rooms, and after hours of closed-door negotiations between the governor, legislators and Indian representatives.”

But, maybe the legal issues involving Internet gambling are more complicated than those surrounding Nevada-style tribal casinos.  Unfortunately, none of the remaining “unresolved issues” seem all that difficult to resolve:

1. Tribal exclusivity.  If that is an issue, there is nothing more to discuss.  A few California tribes have taken the position that their compacts with the state, giving them the exclusive right to have slot machines in return for revenue sharing, mean no one else can operate Internet poker.  Their reasoning is that a home personal computer becomes a slot machine if used for online betting.  If that were true, the state would already be in breach for having authorized at-home wagering on horse races.  Also, this is probably an argument most tribes would not want to win, because California would then have no reason not to authorize highly-taxed, privately-owned landbased casinos.
2. Waiver of sovereign immunity.  The state has signed dozens of compacts with tribes for both casinos and off-track betting.  There is no reason for waivers for online poker to be any different from those prior compacts.
3.  The types of games.  Sports betting is prohibited by the federal Professional and Amateur Sports Protection Act.  Remote betting on horse racing is already legal in California.  No one is seriously thinking about competing against the California State Lottery, one of the largest in the world.  Bingo is limited to charities and tribes, and would require an amendment to the California Constitution to allow private operators.  Casino gaming is also limited by the Constitution to federally recognized tribes.  So the only game that could attract competitive bids from cardclubs and outside corporations is poker.
4. Who would be eligible to apply.  This is obviously the big money question.  Politically, at least one of the licenses has to go to a consortium of tribes, and one to a consortium of cardclubs.  But politicians are looking at legalizing online poker not to protect local operators, but to raise money, because the state is desperate for revenue.  So, at least one license has to go to an outside company with more money than any California operator, such as Caesars or Bwin/party.  The only question is whether there will be a limited number of at least three licenses, or unlimited to any operator with enough money.
5.  Potential federal constitutional questions.  This is probably a reference to the position by the Department of Justice under Pres. George W. Bush that even intra-state Internet poker violates the Wire Act.  Since then, courts have ruled that the Wire Act does not apply to poker.  But, if intra-state poker violates federal law, there is nothing more to discuss.

So, why the delay?  Maybe the senators really do have questions like these, which could be answered quickly by any competent gaming lawyer.  Or maybe they are still trying to negotiate the political fight among various tribal factions, cardclubs, tracks and others over how many licenses will be issued, and to whom.
But, the Sacramento Bee may have been the first to publish what a lot of us have been thinking.  An editorial on August 19, 2011, three days before the “Dear Stakeholder” letter, began:

“Whether or not they are in support or opposition, lawmakers are unlikely to take decisive action until the last possible moment on two bills to legalize Internet poker and other forms of gambling in California.

Why?

These two bills are the ultimate ‘juice bills’ of the session.  Indian tribes and other groups on various sides of this issue are spending huge sums on lobbying, campaign contributions and consulting.  The more this issue drags out – and the more that lawmakers can gin up drama and stress over it – the more money will flow through the Capitol.”

The Bee and other newspapers have been reporting on the millions of dollars being spent on these bills.  The lobbying has become so lucrative that it has even attracted such political heavyweights as former Assembly Speaker Willie Brown, hired by the Morongo tribe as a consultant.

A careful reading of the letter makes it clear that the politicians in Sacramento want additional input:  “Toward that end we strongly encourage you, as a Stakeholder, to be actively engaged during the interim in helping craft this objective proposal.”

And Stakeholders should be prepared to write additional checks in 2012, 2013 and 2014.

Next year is the presidential election, and one-third of the California Senate and 100% of the State Assembly seats will be decided.  So the few million dollars that are being spent on Internet poker will be unnoticed in the coming flood of political solicitations and donations.

If Internet gambling is not made legal in California next year, the bills have to be introduced, again, in 2013.  The California Legislature meets in two-year sessions.  Bills like this, even without the incentive of big money donations to drag things out, are only voted on in even years.

©Copyright August 30, 2011, I. Nelson Rose, Encino, California.  All rights reserved worldwide.  Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com.

Legal News

Unfortunately for all advantage players, Judge Hunt’s decision was correct.

A Los Angeles lawyer, Ernest J. Franceschi Jr., alleged that Harrah’s Entertainment falsely advertised that that all residents of California were welcome at its Nevada casinos.

Franceschi claimed that on five separate occasions between 2005 and 2006 he was “backroomed,” photographed and ejected. Finally, he was permanently barred from “playing blackjack at multiple Nevada casinos, including Harrah’s Las Vegas, Caesar’s Palace, Paris Las Vegas, the Rio All-Suites Hotel, and Harrah’s Reno.”

So, the gist of his claim was that Harrah’s casinos never really intended “to offer their services as advertised because they have an undisclosed policy and practice of barring ‘skillful’ blackjack players from playing blackjack…”

This is where advantage players and casino employees say, “I’m shocked! Shocked!”

In a somewhat surprising move, Judge Hunt dismissed the case for failure to state a claim, without Harrah’s even raising the issue.

Judge Hunt, who was born in Overton, Nevada in 1942 and apparently lived in Nevada nonstop, except for college and law school, understands the way casinos work.

Franceschi had originally filed the suit in California state court. It is the normal practice of plaintiffs to file where they live, because it is easier and cheaper for them and more expensive for out-of-state defendants, and because state courts have the reputation of sometimes favoring locals over foreigners. But Harrah’s lawyers knew all that, and got the case transferred to Nevada, since that is where most of the witnesses were and the events took place.

Still, the case involved claims under California statutes. But Judge Hunt ruled that even under California law, a claim of false advertising or unfair competition will not stand if the actions of the defendant were legal.

So that is where my book comes in. Do Nevada casinos have the right to exclude card-counters and other advantage players?

Citing BLACKJACK AND THE LAW Judge Hunt declared, “In addition, Nevada and California courts have long since established that the ‘right to exclude others’ is a ‘fundamental element of private property ownership.’ The same fundamental rights of private property ownership also extend to gaming establishments.”

As I explained in my book, Judge Hunt is right. The New Jersey Supreme Court has ruled that that state had imposed so much regulation on every part of the casino business in Atlantic City that only the regulators could pass a rule excluding advantage players, which they never have done. Nevada, on the other hand, has the old common law doctrine that a man’s home, or in this case, a corporation’s casino, is his castle, and the owner has the right to exclude anyone for any reason, or for no reason at all. The sole exceptions are that you can’t discriminate on the basis of race, religion, etc.

I have to admit it feels great to be included in a decision by the Chief Federal Judge in Nevada. I just wish it were one where the player won.

© 2011, I. Nelson Rose. Prof. Rose is recognized as one of the world’s leading experts on gambling law, and is a consultant and expert witness for governments, industry and players. His latest books, INTERNET GAMING LAW (1st and 2nd editions), BLACKJACK AND THE LAW and GAMING LAW: CASES AND MATERIALS, are available through his website, www.GAMBLINGANDTHELAW.com.

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Robert Goodman, for example, is a discredited “anti” and the founder of the grandly named, though now defunct, “United States Gambling Research Institute.” He is infamous for proclaiming, “The American Insurance Institute estimated that 40 percent of all white collar crime had its roots in gambling.”

The only problem is that there never was an American Insurance Institute. The 40 percent number is pure fiction.

Supporters can also be mistaken. The most enduring myth about casinos and state lotteries is that they can bring in enough revenue to balance budgets.

But it is opponents of legal gaming that seem willing to stretch the truth to make political points.

Take, for example, the 2008 book GAMBLING, FREEDOM AND DEMOCRACY by Dr. Peter Adams. In 2002, while Adams was Chair of the Problem Gambling Foundation of New Zealand, its Executive Director, Ralph Gerdelan, resigned and sought treatment for compulsive gambling, after being accused of embezzling hundreds of thousands of dollars. Questions naturally arose how Gerdelan could have been put into a position of such responsibility, because, as the New Zealand Herald described him, Gerdelan was “a staunch anti-gambling campaigner since he was convicted in 1987 for misappropriating $140,000 and spending it at the TAB [race and sports bets].”

But you wouldn’t know this from Adams’s book. He writes that it was his and his colleagues’ “challenges to the expansion [of legal gambling]” that made them “unpopular.” He states that it was getting the New Zealand government to take a public health approach to gambling that “came at enormous cost to us and our relationships . . . I faced the collapse of the organization as a consequence of pressure from the media, government, and gambling industry figures.”

He wrote the book to warn people about how legal gambling could bring the downfall of civilization.

“This is no ordinary book about gambling. Democracy is too weighty a topic and freedom is too close to the heart of most people for it to be treated lightly.”

Of course, the truth is that, except in very small jurisdictions, like Atlantic City or Nevada, the industry is simply not that large, or influential. But Adams tries to make it bigger than it is.

For example, Adams estimates that the worldwide “consumption” of all forms of legal gambling, is about $300 billion a year. He says this ranks with the estimated $364 billion spent in 2001 on pharmaceuticals.

True. But Adams is comparing all gambling, including “sweepstakes, raffles, poker among friends,” with only pharmaceuticals, which is not even all medicine, let alone all expenditures on health care. The $300 billion is merely a rounding error compared with the trillions of dollars spent each year on all health care.

Adams spends many pages describing the “ecological degradation” of clear-cutting a virgin forest; then equates that with the introduction of gambling.

He argues that legal gambling inevitably corrupts everyone, from politicians, who want cash contributions, to journalists, whose jobs depend on casinos buying newspaper advertising. Even academics and researchers can’t help being tainted.

There really is a need to have a calm, reasoned debate about the impact of legalizing or expanding gambling, based on objective evidence. But too many of the anti’s see gambling as the source of all evil.

And nobody wants to debate someone who sounds like they believe in conspiracy theories.

© 2011, I. Nelson Rose. Prof. Rose is recognized as one of the world’s leading experts on gambling law, and is a consultant and expert witness for governments and industry. His latest books, INTERNET GAMING LAW (1st and 2nd editions), BLACKJACK AND THE LAW and GAMING LAW: CASES AND MATERIALS, are available through his website, www.GAMBLINGANDTHELAW.com.

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The fact that the authors could agree on even a letter is itself amazing. Harry Reid is the Majority Leader and a moderate Democrat. He represents Nevada, which makes him pro-gambling. Jon Kyl (R.-AZ) is a conservative Republican, a redundancy since all but two Republicans (the senators from Maine) are conservative. He is the GOP Whip, the third most powerful Republican, and responsible for rounding up the votes of his party in the Senate. More significantly, he is so opposed to Internet gambling that his name has become synonymous with efforts to outlaw it, as in “the Kyl bill.”

So how did sworn enemies come together on this issue? And what exactly did they agree to?

Optimists see the letter as a breakthrough, that Kyl is getting ready to allow, at least, intra-state Internet poker. As additional evidence, they point to this language from Kyl’s website:

“Efforts to carve out an exception for games like poker, which many believe is a game of skill, may be considered later this year. Until I have the chance to review them, I cannot make a judgment about their merits; but I will consider them carefully as long as they leave in place the broader proscriptions against online betting.”

But, if anyone thinks Kyl has suddenly become reasonable, here is the preceding paragraph:

“I have opposed efforts to legalize Internet gambling in the past because evidence suggests that it fosters problems unlike any other forms of gambling. Online players can gamble 24 hours a day from home; children can play without sufficient age verification; and betting with a credit card can undercut a player’s perception of the value of cash — leading to possible addiction and, in turn, bankruptcy, crime, and even suicide.”

So, what is really going on? It is not cynical to remember we are dealing here with professional politicians. Notice, for example, Kyl’s careful language about Internet gambling being “unlike any other forms of gambling.” Kyl is a social conservative, one of those Big Brother types who want government in the wedding chapel, bedroom and doctor’s office, particularly if you are female. He is against gambling. But Arizona’s casino tribes are politically powerful and able to give, or withhold, millions of dollars in campaign donations.

Reid says he is personally opposed to Internet gambling. But he represents Nevada casinos. So, his position switched when the American Gaming Association’s switched. Reid went so far as to introduce his own online gaming bill, which would have benefited Harrah’s (now renamed Caesars).

Deconstructing the letter — a copy is attached — it is clear the real enemies are the state lotteries. The one thing Reid and Kyl can agree on is that Internet poker should be run by their constituents: Indian casinos for Kyl and commercial casinos for Reid. So, it is possible that Congress might legalize intra-state and ever interstate online poker, if they can figure out a way to prevent state lotteries from being the operators.

Of course, this requires Congress to actually do something. Reid has proven himself to be such a weak leader that Democrats could not accomplish their full agenda, even when they had the Presidency, control of the House, and a filibuster-proof 60 votes in the Senate. And the Republicans were rewarded in the 2010 election for being the “Party of No.” They are anti-government to begin with — except for trying to impose their religious views on everyone else — and believe they can win in 2012 if Obama accomplishes nothing more.

Some conservatives, like Rep. Joe Barton (R.-TX), best known for apologizing to BP for the White House daring to investigate its Gulf oil spill, have come out in favor of Internet poker. But all it will take is one letter from an anti-gambling religious group, like Focus on the Family, to get the right-wing riled up. The tea-party controls the GOP, and while Democrats still have the presidency and a majority in the Senate, the Republicans have veto power over everything.

© Copyright July 18, 2011, I. Nelson Rose, Encino, California. All rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com

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The paper is: “The Legal Rights of Players with Unpaid Account Balances – A PPA Information Guide.” The PPA even included the claim form. It’s the last two pages of the paper.

You don’t need a lawyer to file, but you should get one. The PPA’s lawyers were worried that a player might be hit with fines if the court decides the claims are frivolous. I’m more concerned that you have to file the claim form under oath, swearing that you have an ownership interest in an account you may not have even known existed. Perjury is a real crime, with real penalties. And both I and the PPA attorneys agree that the additional papers you will have to file within 21 day after filing the claim form, should be written by a lawyer.

The reason you might have the right to file a claim is that the Department of Justice decided that at least some of the bank accounts would be seized under what is known as a civil forfeiture. Criminal cases are limited to the government and the defendants. Civil cases involving the seizure of the poker operators’ and payment processors’ bank accounts are open to anyone who has a good faith claim on the money.

But there is a tight time limit. The DoJ published its notice of intent to seize the online poker funds on May 16, 2011. Claimants have only 60 days to file their verified (meaning under oath) claim with the U.S. District Court Clerk in Manhattan; that means before the end of the day on Friday, July 15, 2011. You can file electronically.

Extensions are possible, but they would require either getting a court order or an agreement with the prosecutors. In fact, PokerStars, Absolute Poker and Full Tilt all were given until September 30, 2011, to file their claims. But I doubt either the DoJ or federal Judge Leonard B. Sand would agree to give more time to a mere player.

Some claims have already been filed. The first was by Chad Elie, who claims an ownership or possessory interest in a third of the accounts seized. Chad is the Las Vegas defendant who married former Playmate Destiny Davis the day after he was arrested in connection with Black Friday. He is out on $250,000 bail.

Other claims have been filed. The second was by LST Financial, Inc., which calls itself “a full-service, third-party financial processor and service bureau.” It is claiming an interest in five bank accounts in Texas and North Carolina seized from Four Oaks Bank and Trust. MAS, Inc., claims money seized from Hawaii National Bank. And, Ultra Safe Pay says it is the owner of the funds seized from Umpqua Bank in Roseburg, Oregon.

Should you file a claim? You probably don’t have much chance of success, unless you have a communication that mentions one of the bank accounts listed in the Complaint. They are on the pages immediately preceding the claim form in the PPA paper. You want to find a name or number that matches an email from a payment processor or online poker operator.

Even then, there are some risks. I don’t think the judge would punish a player if the claim failed. But the DoJ will now have your name and identifying information. There is no federal crime against playing poker online. But you can be sure that if you are claiming hundreds of thousands of dollars that you will have your taxes audited.

© Copyright July 12, 2011, I. Nelson Rose, Encino, California. All rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com.

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The short version of her 10-page-long legal analysis: “No.”

Arelia Margarita Taveras, a disbarred lawyer, sued most of the casinos in Atlantic City, as well as many of their owners and employees.

She alleged that “the Defendants facilitated Plaintiff’s gambling addiction and induced her to gamble away money belonging to her and others . . .” She pleaded 12 separate causes of action, including negligence, negligent and intentional infliction of emotional distress, breach of contract, unjust enrichment, and violations of the federal racketeering statutes and the Bank Secrecy Act.

Some of Taveras’s claims were a stretch. For example, she alleged that the casinos owe her money because they failed to report her cash transactions of more than $10,000. The problem is that even if a casino does fail to file its required reports, that does not give a player the right to sue.

But raising every possible claim required U.S. District Judge Renee Marie Bumb to examine every possible legal theory a compulsive gambler could have.

Judge Bumb is a federal judge, so she is free to interpret federal statutes, like the Bank Secrecy Act, bound only by the decisions of higher federal courts. But many of Taveras’s causes of action were based on New Jersey state law. Judge Bumb’s role was to decide how the New Jersey Supreme Court would answer legal questions, which it often had never considered.

Judge Bumb started with the rule that for there to be negligence, “the Court must find as a matter of law that Defendants owed Plaintiff a duty.” Taveras argued that casinos have a duty to keep their premises safe, and “that her continued gambling was an unreasonable danger foreseeable to Defendants.”

Judge Bumb focused on New Jersey’s “extraordinary, pervasive and intensive regulations over virtually every facet of casino gambling.” Her conclusion: If the state had wanted to impose a duty on casinos to rescue compulsive gamblers from themselves, it would have said so.

Judge Bumb similarly rejected Taveras’s request to create a duty somewhat like that imposed on bars to not serve drinks to obviously drunk patrons. “Plaintiff’s theory would, in effect, have no limit . . . [it] would impose a duty on shopping malls and credit-card companies to identify and exclude compulsive shoppers.”

One of the more interesting parts of the Opinion was Taveras’s claim that gambling is an “abnormally dangerous activity.” Looking at cases such as dumping toxic waste, Judge Bumb concluded: “Needless to say, gambling can indeed be a safe activity, gambling is common, and state-regulated casinos are not inappropriate locations for gambling.”

The Opinion contains other statements that can prove useful for the gaming industry both legally and politically. In rejecting Taveras’s claims for emotional distress, Judge Bumb held, “In allowing, even encouraging, Plaintiff to continue gambling, Defendants acted well within the bounds of the community norms reflected in state law.”
In dismissing the counts based on fraud, for supposedly misleading Taveras “into thinking that gambling would result in high returns and rewards,” Judge Bumb ruled, “Plaintiff fails to identify with particularity (by quoting, for example) even a single falsehood or misleading statement . . .”

There is no doubt that compulsive gambling can destroy lives. But the legal problem for compulsive gamblers is that the decision by a state to legalize gaming means the state has consciously weighed the pros and cons.
So long as card clubs and casinos, and their executives, obey the rules, they should not be legally responsible for the harm compulsive gamblers do to themselves.

© Copyright 2011. Professor I Nelson Rose is recognized as one of the world’s leading experts on gambling law and is a consultant and expert witness for players, governments and industry. His latest books, INTERNET GAMING LAW (1st & 2nd editions), BLACKJACK AND THE LAW and GAMING LAW: CASES AND MATERIALS, are available through his website, www.GAMBLINGANDTHELAW.com.

Legal News

The District of Columbia officials held a public hearing today, Wednesday, June 29, on their plans to start taking money bets on online gaming in September. Opponents were there in force. They appeared to be mostly people opposed to all gambling, rejecting the arguments that this was being done to protect players, since D.C. was only going to make legal what was already taking place.

Players and others sitting in front of screens think that setting up an online gaming site is easy. Oh sure, you have to get the techies to do whatever it is they do with computers. But once the operation is legal, you just sit back and watch the money roll in.

Antar C. Johnson, Assistant General Counsel to the D.C. Lottery, can tell you different. Working with Ridgely Bennett, the General Counsel, Antar has to develop regulations for the first legal internet poker and casino games in the United States. The present plans are 10 to 20 “hot spots,” where anyone 19 and older can bring their own laptop computer and play games for money. Think Starbucks, only with 100% legal gambling. Since there is nothing like this in America, the Lottery’s lawyers have had to start from scratch.

The first step in setting up internet gaming is to get it authorized. This was the relatively easy part. The District of Columbia is a unique federal enclave. It has no voting representatives in Congress, but it does have the power to make its own laws… so long as Congress does not object. Like 46 of the 50 states, D.C. is facing a large budget deficit. At-large Councilman Michael Brown proposed amending the proposed budget to include online gaming to help fill the gap. Under federal law, Congress then had 30 days to object. When the time was up, in early April, technically D.C. became the first jurisdiction in the U.S. with the right to offer online poker and other “games of chance” and “games of skill” to adults who are playing while physically within the boundaries of the District.

Of course, games require rules. Antar sent me the first set, for free games.

The idea is that the D.C. Lottery will introduce online gaming through these “internet demonstration games:”

a) Victory at Sea;
b) Blackjack;
c) Texas Hold’em;
d) Bingo;
e) Electronic Instant Tickets; and
f) Random Number Generated Games.

The first games will be poker and Victory at Sea, which is like Battleship, though played against the computer. Although the last game sounds like it could mean anything, or everything, since all gambling games have random number generators, even if that is only a pair of dice; in practice, the random number games will act as mini-games for players waiting to get into a poker game.

The D.C. Lottery has filed a trademark on the official name of the endeavor: igamingdc.com. The games are legal because they are under the control of the District of Columbia Lottery and Charitable Games Control Board, even though the actual gaming will be operated by Intralot, the giant Greece-based company. The website is being designed by Intralot’s recently acquired CyberArts.

The Lottery will give instructions on how to play the games on its website. These first games will be 100% free. Players will get free point or credits when they register, and receive more every day. The prizes are points or credits redeemable only for “participation in games or contests offered by the” D.C. Lottery. Of course, the Lottery offers money games, but, I checked, and during the demonstration period, prizes will not include real lottery tickets.

Interestingly, the minimum age will be 19. Most lotteries restrict their games to adults over 18, while casinos, especially those that serve alcoholic beverages, exclude everyone under 21. And the Lottery will check to make sure no one underage participates, or even signs up.

Registration looks like it will be fairly simple. Since no money can be won, there is no need to get players’ social security numbers. On the other hand, play is strictly limited to those physically located in the District. So, the Lottery is trying out is “location verification technologies.” It will also put in cyberborder software and other means to prevent outsiders from playing. The Lottery is worried about collusion in poker games, bots and cheating, and is taking steps to prevent these, even on the free demonstration games.

The major worry of outsiders is whether there will be enough liquidity for the poker games. D.C. has only about 600,000 full-time residents. Of course, it gets millions of workers and tourists visiting every week, and there are millions more potential players in nearby states, if they can be enticed to visit. And liquidity is not an issue for a banking game, like Blackjack. But the demonstration games will, at the beginning, only be offered between 10 am and 4 p.m. This is the height of the visitor influx, but not normally when people play poker. And the stakes will be fairly low, probably limiting players to $250 deposits a week. But, I bet there won’t be any trouble finding a poker game online during lunch hours.

If D.C.’s experiment with legal internet gambling is a success, states will be sure to follow. The first will probably be California, Iowa, New Jersey and Florida. It is important to remember that there were no legal state lotteries in the U.S. when New Hampshire held its first drawing in 1964. Today, 43 of the 50 states, and D.C., have state lotteries. But it did take more than 40 years to reach this stage.

If legal internet gambling works in Washington, D.C., this time, it won’t take 40 years for the states to climb aboard.

© Copyright June 29, 2011, I. Nelson Rose, Encino, California. All rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com.

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We might not know the reasons for the timing. But we can understand why the prosecutors structured their cases as they did.

I often act as a consultant and expert witness for governments and industry. But I am also a professor of law, teaching not only Gaming Law, but also Criminal Law. So, here’s my view of why the DoJ’s indictment reads the way it does.

The 52-page document contained nine counts: violation of the Unlawful Internet Gambling Enforcement Act (“UIGEA”), conspiracy, illegal gambling business (“IGB”), bank and wire fraud, and money laundering. The criminal charges were carefully structured for maximum legal and public relations impacts.

The UIGEA was used because it covers money transfers, and to reinforce the false message that it made Internet gambling illegal. The UIGEA is actually only an enforcement act. It requires there be a violation of some other federal or state anti-gambling law.

The UIGEA was rushed through Congress by then-Majority Leader Bill Frist (R.-TN) and is a mess, with typos and other problems. For example, the UIGEA is expressly limited to payments going from players to operators for illegal online gambling, not the other way around. Do all the bank accounts that were seized only contain money being sent by players in New York to the poker sites? Was none of it money won by players?

Conspiracy is often called the prosecutor’s friend. All you need to prove is an agreement and an act in furtherance of the conspiracy. You don’t need to show any other crime was actually committed or even attempted. Conspiracy also makes trials easier for prosecutors. For example, testimony by a cooperating witness, “He told me he was going to take poker bets from the U.S.,” would normally not be allowed in as evidence under the hearsay rule. But, “He asked me if I wanted to help him set up a site to take poker bets from the U.S., and I agreed” comes in, to prove there was an agreement.

Almost all of the DoJ’s legal claims depend on the underlying activity, online poker, being illegal. The problem for prosecutors is that the main federal anti-gambling statue, the Wire Act, has been held in a published federal Court of Appeals decision to be limited to bets on sports events and races. Since the Wire Act won’t work, prosecutors used the IGB. That statute makes it a federal felony if five or more people do more than $2,000 in business a day in violation of state gambling laws.

The only ones mentioned in the indictment are New York’s misdemeanor anti-gambling statutes. These clearly do not apply to players, which means the DoJ may not have had the right to seize players’ bank accounts. More importantly, the New York laws have never been tested, to see if they overcome the strong presumption that a state law does not reach beyond its borders. It also raises the issue of whether poker is a “contest of chance,” as required by Penal §225.00.

Note the repeated use of the word “fraud.” With Internet gambling, prosecutors have tried to find ways to include fraud whenever possible. For example, among the 22 counts in the criminal complaint filed against BetOnSports was a charge of mail fraud, for the weak claim of falsely advertising that sports betting was legal. (The website reached the whole world, including places where sports betting is, in fact, legal.) I believe, the DoJ’s emphasis on fraud is designed, in part, to create the impression among players that online sites cannot be trusted.

Most of the mail and bank fraud counts are actually weak. They involve defendants lying to banks to disguise the fact that online poker was involved. Phony companies were allegedly created and transactions labeled as sales of dog food and golf balls. There will be factual issues whether the banks actually knew what was going on – billions of dollars is a lot of dog food. And are we to believe no player ever mentioned online poker to his bank?

The bank fraud statute requires a scheme to either “defraud a financial institution” or to obtain any money owned or held by the bank. The second one won’t work. Lower courts have said the law was designed to protect the integrity of the banking system. But, the U.S. Supreme Court ruled that part of the statute means what it says: prosecutors have to show the victim lost money. Here, the banks were supposedly tricked into making millions of dollars. Talk about a victimless crime.

So, the DoJ is left with having to show that banks were “defrauded.” Again, there will be an issue of what exactly did the banks lose? Even after the UIGEA a bank cannot be charged with a crime for unknowingly facilitating online poker. As of June 1, 2010, there are regulations the banks have to follow. But, almost all the events took place prior to that; and, the final regulations do not provide for fines.

Bank fraud carries a maximum sentence of 30 years and a $1,000,000 fine. Money laundering also can lead to hefty penalties. It is another commonly used count in gambling prosecutions, because the prison sentence is based on the volume of money that was transferred, not on the gaming operations’ actual profit and loss. A defendant faced with 50 years in prison can be persuaded to plead guilty to illegal gambling charges that would otherwise be dismissed.

The indictment sets forth facts that would seem to call for a count of bribery, if true. Some of the defendants paid a small Utah bank $10 million to buy 30% of the bank, so the bank would transact online poker payments that the bank was reluctant to do. An officer and part-owner allegedly asked for, and received, $20,000. The indictment is careful to call this payoff a “bonus” rather than a bribe. The banker was charged with conspiracy and being part of the other activities constituting crimes. This avoids the question of who exactly was the victim, since it was the banker who solicited the payment. It also gets around the problem of whether a briber and bribee can also be charged with being coconspirators.

The DoJ has done what it could to make this indictment as frightening as possible. But we will probably never know just how strong the government’s case actually is. The payment processing defendants who are now in the U.S. will fight for a while, but will eventually have to agree to plea bargains.

The others, especially the big fish, also won’t stand trial. They would like to settle, even paying hundreds of millions of dollars and admitting they violated the law, but only if they won’t serve long prison sentences and risk losing their licenses in other countries. The operators have one major bargaining chip: If the DoJ won’t make a deal they can live with, they will simply stay away from countries where they might be extradited.

© Copyright May 6, 2011, I. Nelson Rose, Encino, California. All rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com.

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Professor I Nelson Rose will also be making a number of appearances over the coming days and they are as follows:

Tuesday May 10
California Assembly Judiciary Committee – Expert witness on a bill to make gambling debts legally collectable.

Tuesday May 17
GiGSE San Francisco – Panel on UIGEA

Thursday May 19
CasinoFest 9, Tulsa – Keynote speech

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