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Financial Crimes
08/02/2012

$731 million settlement of money laundering and forfeiture complaint

NEWARK, N.J. — PokerStars and Full Tilt Poker, two of three online poker companies sued by the U.S. in a money laundering and forfeiture complaint, have entered into a settlement agreement which requires PokerStars to forfeit $547 million and Full Tilt Poker to forfeit virtually all of its assets. The settlement comes as a result of an investigation which included the Asset Identification and Removal Group (AIRG) of U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI), along with the FBI.

The allegations are based on the amended civil forfeiture complaint filed in September and the indictments returned in the related criminal action:

On October 13, 2006, the United States enacted the Unlawful Internet Gambling Enforcement Act (UIGEA), making it a federal crime for gambling businesses to "knowingly accept" most forms of payment "in connection with the participation of another person in unlawful Internet gambling." Despite the passage of the UIGEA, Full Tilt Poker, PokerStars, and Absolute Poker/Ultimate Bet (the poker companies), each located offshore, continued operating in the U.S. Because U.S. banks and credit card issuers were largely unwilling to process their payments, the poker companies allegedly used fraudulent methods to circumvent federal law and deceive these financial institutions into processing payments on their behalf. For example, the poker companies arranged for the money received 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. Of the billions of dollars in payment transactions that the poker companies deceived U.S. banks into processing, approximately one-third or more of the funds went directly to the poker companies as revenue through the "rake" charged to players on almost every poker hand played online.

To accomplish their fraud, the poker companies worked with an array of highly compensated "payment processors" who obtained accounts at U. S. banks for the poker companies. The payment processors lied to banks about the nature of the financial transactions they were processing, and covered up those lies, by, among other things, creating phony corporations and websites to disguise payments to the poker companies. For example, a PokerStars document from May 2009 acknowledged that they received money from U.S. gamblers through company names that "strongly imply the transaction has nothing to do with PokerStars," and that PokerStars used whatever company names "the processor can get approved by the bank."

Full Tilt Poker further defrauded players by misrepresenting that player funds on deposit in online gambling accounts were safe, secure and available for withdrawal at any time. In reality, the company did not maintain funds sufficient to repay all players, and instead, utilized players' funds to distribute more than $400 million to Full Tilt Poker's owners. By March 31, 2011, two weeks before the initial complaint in this action was unsealed, Full Tilt Poker owed approximately $390 million to players around the world, including approximately $160 million to players in the United States. At that time, Full Tilt Poker had only approximately $60 million deposit in its bank accounts. Full Tilt Poker's scheme continued even after the civil forfeiture action commenced and the related criminal indictment was unsealed in April 2011. Full Tilt Poker continued accepting foreign player funds despite the fact that it had liabilities to players around the world for over $300 million, yet held only a small fraction of that amount in its bank accounts.

Eleven defendants were charged criminally in connection with the original Internet poker indictment, seven of whom have been arrested. All of the seven defendants except one have each pleaded guilty. Charges are still pending against the remaining four defendants.

According to court documents, under the terms of the settlement with Full Tilt Poker, the company agreed to forfeit virtually all of its assets to the U.S. to fully resolve the charges in the complaint. Under the terms of the settlement with PokerStars, the company agreed to forfeit $547 million to the U.S. and to reimburse the approximately $184 million owed by Full Tilt Poker to foreign players, in order to fully resolve the allegations in the complaint. The settlement further provides that PokerStars will acquire the forfeited Full Tilt Poker assets from the government.

Under the terms of the settlement with Full Tilt Poker, U.S. victims of the company's alleged fraud will be able to seek compensation from DOJ. The funds that will be used to compensate qualifying victims will come from the $547 million that will be forfeited by PokerStars as part of its settlement with the government.

In addition to forfeiting $547 million to the U.S., under the terms of the settlement with PokerStars, the company must make available to foreign players all balances that were held in the Full Tilt Poker accounts within 90 days; the amount of those balances is approximately $184 million. Pokerstars will also acquire the forfeited Full Tilt Poker assets from the government. PokerStars' acquisition will be complete upon the government's receipt of a $225 million payment from PokerStars, which must take place within six days of the entrance of Wednesday's settlement.

The charges and allegations contained in the complaint are merely accusations, and the defendants are considered innocent unless and until proven guilty.