Online Poker Kings Get Cashed Out

Killing livelihoods and a $2.5 billion industry, the feds attack Internet gambling

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

But Wright was now stuck in North Carolina, out of a job, and living with his in-laws, 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, 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, who were trying to protect their turf, had been pushing it for years without luck. That's when senators Bill Frist (R-Tennessee) and Jon Kyl (R-Arizona) got the bright idea to stuff it in a port security bill as a last-minute amendment.

Businesses such as Michael Minkoff’s, which ships poker books and videos, have suffered in the wake of the feds shutting down online gambling.
Photograph by Bill Hughes
Businesses such as Michael Minkoff’s, which ships poker books and videos, have suffered in the wake of the feds shutting down online gambling.
After losing his source of income on April 15, Maxwell Fritz moved from gambling online another type of betting: Wall Street.
Photograph by Will Rice
After losing his source of income on April 15, Maxwell Fritz moved from gambling online another type of betting: Wall Street.

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 senators had declared war on poker.

The amendment didn't actually outlaw online play. Kyl and Frist preferred their attack on the American pastime to remain surreptitious. Going after individual players would have meant a huge backlash. Instead, they targeted the financial institutions that handled the sites' money and made 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 on the U.K.'s Channel Islands, figured they were outside the reach of U.S. prosecutors. It wasn't long before the two companies had cornered some 70 percent of the American market with revenues of nearly $2 billion a year.

But because 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 has 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 the height of fiendishness. Representative Barney Frank (D-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 was pressing 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 especially were multiplying. Believing their revenue stream would soar eternally, its owners had pulled $444 million in profit from the business over the previous four years. But when the feds began seizing their payment processors' funds, the company had no war chest to cover the losses.

By last March, Full Tilt's customers held $390 million in their accounts. But the business only had $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. The feds accused the company of running a "global Ponzi scheme."

On that Black Friday, the Justice Department killed a $2.5 billion industry.

Four summers ago, Maxwell Fritz was making minimum wage serving cotton candy and curly fries at a Portland amusement park. He had just finished his first year at Princeton, where he was studying to become a math teacher.

Fritz had played poker online casually with friends back in high school. He'd managed to turn a few hundred dollars profit, and that planted the seed for next summer's job. It had to pay better than minimum wage.

Fritz made $10,000 after school let out, so he continued during the school year. Over an 18-month period, while still attending Princeton and working his teaching internship, he managed to take home $100,000. Over the next six months, he would grab another $200,000.

Then Black Friday hit. Suddenly, Fritz had not only lost his income, but also $65,000 was seized from his Full Tilt account.

He was among the fortunate to recover quickly. A fellow player provided a reference that allowed him to move from one kind of gambling to another: Wall Street.

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19 comments
leillin.travertski
leillin.travertski

Who knew that one could make poker online a steady full time job.  At least wright was able to use his skill and earn a decent living.  

-Ms.Leillin

meruja owo
meruja owo

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Play online casino
Play online casino

One of my friends has made the $836 on just the two days that's why Online Poker is the booming game for them who are contributing for making money at there.

AA
AA

Payo Pow, You are a fool. There is a world of difference between probabilities and "fixes", and it's people like you that effectively pay out to those who understand it.

I suppose you could call that a fix, or alternatively a wealth transfer from the stupid to the clever.

Payo Pow
Payo Pow

Everyone know's that Poker it's a fix game. However, ppl should have the right to throw away the few pennies they might have in their bank account even if its through gambling.

Uu
Uu

Stop the insanity. Let people and businesses transact business. And online gambling is a business.

twolaneflash
twolaneflash

Gambling is not a business, it's a drug, just as deadly as meth to some people. There's a good reason its called "Lost Wages", NV - they didn't build those gambling palaces on winners! Online gambling is just main-lining the drug directly to the brain, eliminating the competition for the addicts' money from the travel industry, hotel and restaurant businesses, and tourism-related benefactors of people seeking their fix, often at the expense of family and others. I'm glad Congress made a stand. Want your drug? Go to the desert.

missing_poker
missing_poker

Online poker is an entertainment option for many just as going to the movies. Whether someone chooses to blow $20 at @ the cineplex or online (with the chance of winning or breaking even) should be person preference. 90% of online players were casual player at .05-.10 or lower stakes.

This is very much a personal liberty issue.

Twiz1986
Twiz1986

This is a terrific article that highlights the rise and fall of online poker in America. The truth is this is just another example of what a joke it is to call America "the land of the free". We pretend to live in the worlds greatest democracy but ever since Sept. 11, 2001 we've allowed our government to seize more and more control of our rights and freedoms.It's happened slowly over time so most of us don't even bat an eye when we are violated at an airport or our television shows are censured. When you look at why our economy has struggled over the last decade and we don't have the spirit and drive we use to because we are now being controlled by the wealthy few who have the power, money and influence to mold our country in a way that benefits only their agenda. Until we as citizens stand up and demand that our freedom and liberty be returned to us we shouldn't be surprised that stories like these will continue to occur in the so called land of the free! Until we wake up with our eyes wide open there will continue to be an assault on the truths that we use to associate with being an American. Finally to Gospace's comments below, you are absolutely right that this article doesn't highlight the millions of dollars lost and the families effected by online poker but couldn't you say the same about casino gaming, drug addiction, criminals?? How can take away the freedoms of all to protect those who can't control themselves. If the people you speak of can't handle their gaming addiction shouldn't they take responsibility for their own actions? Is online gaming responsible for their losses? Were they forced to play? Where do we draw the line? If you are old enough to be sent to foreign lands to fight for this country then you should be old enough to decide if you want to participate in online gaming and old enough to know when to stop.

Gospace
Gospace

Great job of showing the gambling success stories. But-and this is a big but- unlike retailing, trading, producing, farming, where value is added and wealth is produced, gambling is a zero-sum game- and less. For teh casino/online-poker/whoever operator skims a profit off the top. Money does indeed exchange hands, but no value is added, nothing is produced.

Where's the article showing all the people who have lost heir houses, their jobs, their wives and kids because they lost all their money to easy access gambling? That;s the flip side of the story.

BustyVeronica213
BustyVeronica213

my roomate's sister brought home $19257 last week. she is making an income on the computer and got a $313300 house. All she did was get lucky and put into use the advice reported on this site www.CashMany. com

Marine52
Marine52

Disgusting that even the Commies in northern Korea and mainland China could gamble online while former soldiers like me have to shepherd bigasses in gated communities.

Mormovies
Mormovies

Our country sucks!! More freedom, not less!! Vote all the bastards out of office now!!!

Sheryl J
Sheryl J

Thanks for this informative article about online poker and what the government did to it. An entire industry was destroyed last year. This is the first article that really illustrates the situation. We need federal legislation that licenses and regulates online poker in the U.S. and brings back an industry.

mysue20
mysue20

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http://cashhuge.com
http://cashhuge.com

my co-worker's mother made $20302 last week. she is getting paid on the laptop and moved in a $397900 condo. All she did was get fortunate and put into use the steps laid out on that site top of this comment

Davidseawa
Davidseawa

It's poker, moron. You don't play against the house, you play against other people.

David
David

The people that are complaining are the people jealous !!! I understand you envy us...We are in our PJ's with no boss in front of our computers playing Poker and making more money then you . I understand ... I'm home more with my wife and kids.Your out working 40 + a week and probably working weekends. I'm sorry your mad about ONLINE POKER ! It's a skilled game, remember that ! Stop crying and let it be. There's more and bigger things in the world to worry about .

 
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