NEW YORK - The multi-billion-dollar business of the three biggest Internet poker companies became a target of federal authorities before an indictment was unsealed Friday, charging 11 people with bank fraud and illegal gambling.
Prosecutors in Manhattan said they've issued restraining orders against more than 75 bank accounts in 14 countries used by the poker companies, interrupting the illegal flow of billions of dollars.
U.S. Attorney Preet Bharara said the defendants "concocted an elaborate criminal fraud scheme, alternately tricking some U.S. banks and effectively bribing others to assure the continued flow of billions in illegal gambling profits."
The companies, all based overseas, were identified as PokerStars, Full Tilt Poker and Absolute Poker. The indictment sought $3 billion in money laundering penalties and forfeiture from the defendants.
The indictment said the companies ran afoul of the law after the U.S. in October 2006 enacted the Unlawful Internet Gambling Enforcement Act, which makes it a crime for gambling businesses to knowingly accept most forms of payment in connection with the participation of another person in unlawful Internet gambling.
Authorities said Absolute Poker responded by saying in a release after the new law was enacted that it would continue its U.S. operations because "the U.S. Congress has no control over" the company's payment transactions.
Late Friday, Full Tilt Poker released a statement defending its executives named in the indictment, including Nelson Burtnick and its CEO, Raymond Bitar.
"I am surprised and disappointed by the government's decision to bring these charges," Bitar said in a statement. "I look forward to Mr. Burtnick's and my exoneration."
Bitar is accused of arranging for money received from American gamblers to be disguised as payments to online merchants that didn't exist.
The company said it has suspended play for real money on its site in the United States but would continue offering gambling on poker in other countries.
Efforts to reach the other companies were not immediately successful. Phone calls either went unanswered or messages were not immediately returned. An attempt to look at the website for PokerStars.com was met with a message from the FBI saying the domain name had been seized as part of a criminal probe. In all, authorities said they had seized five Internet domain names used by the poker companies to operate illegally in the U.S.
The indictment said the defendants turned to fraudulent methods to trick financial institutions into processing payments on their behalf after the law was passed.
It said they sometimes arranged for money from U.S. gamblers to be disguised as payments to hundreds of non-existent online merchants purporting to sell merchandise such as jewelry and golf balls.
Prosecutors said about a third or more of the billions of dollars in payment transactions that the poker companies tricked U.S. banks into processing went directly to the poker companies as revenue. They said the money represented the "rake" charged to players on almost every poker hand played online.
Two arrests occurred Friday in Las Vegas and Utah, while another man was expected to surrender in Utah on Monday. Eight others were not yet arrested. Chad Elie, 31, arrested in Las Vegas, was freed Friday on his own recognizance. Prosecutors said he obtained accounts at U.S. banks for the poker companies after lying to banks about the nature of the financial transactions they were processing.
Prosecutors said Elie and others in September 2009 approached John Campos, the vice chairman of the board and part-owner of SunFirst Bank, a small private bank based in Saint George, Utah, about processing Internet poker transactions. The government said Campos expressed "trepidations" but agreed to process the transactions in return for a $10 million investment in SunFirst by Elie and an associate. Authorities say Campos also received a $20,000 "bonus" for his assistance. It was not immediately clear who was representing Campos in court. The bank referred questions to the bank president but said he would not be available for comment until Monday.
Authorities say Elie's associates bragged about buying the bank and said they were looking to buy as many as three more to process poker revenue.
Elie's lawyer for the court appearance, Craig Denney, said Elie planned to fight the charges. The lawyer said Elie was arrested at a home, where he lives with his fiancee.
Meanwhile, the casino companies that once partnered with the poker companies in online poker have backed away.
Wynn Resorts Limited and Fertitta Interactive had deals in place with PokerStars and Full Tilt Poker, respectively, in the hopes of partnering on online poker if it were made legal in the United States.
Michael Weaver, a spokesman for Wynn Resorts, a major casino company run by billionaire Steve Wynn, announced Friday that it had terminated its alliance with PokerStars as a result of the criminal indictment.
Caren Bell, a spokeswoman for Fertitta Interactive, owned by brothers who own Station Casinos Inc., said the deal between Full Tilt Poker and Fertitta Interactive was contingent upon the passage of federal legislation legalizing Internet poker, along with its internal due diligence and a finding of suitability for gaming licensure.
Frank Fahrenkopf, chief executive of the American Gaming Association, the commercial casino industry's main trade group, said the prosecution shows a "clear need to strengthen laws to address illegal online gambling in the U.S."
He added: "Tough law enforcement is the key to making such a system work, and the AGA supports strong enforcement against illegal online gambling activity in this country. But illegal activity and the risk of consumer fraud, money laundering and underage gambling will continue until the U.S. passes laws ensuring that only licensed, taxed and highly regulated companies can operate in the U.S. market."
Nevada Gov. Brian Sandoval said the allegations made by federal prosecutors against the three companies were of "grave concern." But he added that he remained committed to the possibility that federal legislation will eventually permit Internet gambling in a way that matches the same rigorous standards that apply to traditional gaming institutions.
Australian internet entrepreneur Daniel Tzevetkoff, who was released from federal prison last August, is giving prosecutors insider knowledge of how online gambling companies transfer money out of the U.S. in exchange for a deal, reports Australian newspaper The Courier-Mail.
Tzevetkoff was jailed for money laundering, bank fraud and conspiracy. It is believed Tzevetkoff is hiding in New York with his partner, Nicole Crisp, and their two young children, reports The Courier-Mail.