Black Friday - Five Years in the Works
The indictments of the owners of PokerStars, Full Tilt Poker and Absolute Poker/UB.com (plus five payment processors) may not have come down until April 15 of last year but the hammer had been slowly dropping for almost five years.
Passed in late 2006, the Unlawful Internet Gambling Enforcement Act (UIGEA) was, as mentioned, a last-second add-on to a Safe Ports bill.
Having virtually nothing to do with online poker per se, the law was shoehorned onto the Safe Ports Act as a means of "protecting” against the movement of funds by offshore terrorism groups.
Known originally as "H.R. 4411", the bill was merged with another anti-Internet gambling act, H.R. 4777, the Internet Gambling Prohibition Act, in July 2006 to form the full Internet Gambling Prohibition and Enforcement Act.
H.R. 4411 ostensibly prohibited Internet gambling transactions made through American financial institutions but also tried to update the Wire Act of 1961 (which prohibits gambling over telephone wires) to include sports betting, casino and poker Web sites.
The Act also expressly prohibited lotteries based on sports events but activities such as securities and commodities traded on U.S. exchanges were not considered "gambling." Horse racing was also exempted from the Act.
While not expressly declaring any form of online gambling illegal, it did make the processing of any online gambling transactions illegal.
Despite several attempts to both repeal the bill and pass new legislation amending the UIGEA, particularly by Rep. Barney Frank, the bill still holds as law.
The Rise and Fall of the Big Three
Despite a 270-day implementation period, shortly after the UIGEA was passed the fallout began across the online poker and sports betting industries.
Party Poker, at that time the largest poker site on the US market, voluntarily withdrew from offering services to the US market despite it making up 80% of its overall business.
Founder Anurag Dikshit eventually settled with the US government for $300 million over its participation in the US market prior to the UIGEA.
Other, smaller sites also withdrew from accepting US players over the first few months. Stepping into the void, however, were Full Tilt Poker and PokerStars.
Citing legal advice that assured them online poker fell outside of the realm of the UIGEA, PokerStars and Full Tilt Poker ramped up their marketing and promotional efforts quickly to grab market share.
With expansive outlays on TV time and growing stables of sponsored pros, the two sites scooped up almost all of the Party refugees and within a year were easily the most dominant forces in the US market - where they remained until the Department of Justice seized the PokerStars and Full Tilt Poker .com domains on April 15.
Absolute Poker and Ultimate Bet also continued to accept US players post-UIGEA, although a forthcoming superuser scandal, financial meltdown and eventual re-birth/merger on the new Cereus network prevented the two sites from ever competing on the FTP/PokerStars level.
Moving Money the New Crux and Ultimate Downfall
While legal opinion convinced both PokerStars and Full Tilt to stay in the US market, the UIGEA still changed how sites could move money from American players to and from accounts.
With direct credit card payments, PayPal and bank transfers eventually becoming off limits as enforcement came into play, third-party payment processors began to sprout up to take the weight.
Falling directly in line with the UIGEA's mandate however, payment processors quickly fell into the DOJ's sights.
In what was a sign of things to come, in July of 2007 the DOJ arrested the founders of payment processor Neteller and seized millions of dollars in funds reportedly transferred from US players to online gambling sites. Notably caught up in the seizures was $800k of Isaac Haxton's take from finishing second in the 2007 PCA main event.
The owners eventually reached a settlement and relinquished over $136 million in funds to the DOJ. Haxton also eventually got his money back.
Given increasing uncertainty over the legality of transferring money from US players, PokerStars and Full Tilt Poker began looking for alternate processing solutions.
One of those solutions turned out to be the Daniel Tzvetkoff-led Intabill, an Australian payment processing company that masked online gambling transactions as retail purchases.
Four years later, after stealing well over $1 million from the online poker sites while processing those transactions, Tzvetkoff was arrested in a Las Vegas casino.
A few months later, he reportedly turned state's witness and his private correspondence reportedly makes up the bulk of the DOJ's case against the 11 indicted individuals.
You can find a comprehensive accounting of the events since Black Friday on our Black Friday Bulletin Board.
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