April 18, 2011 10:07 PM

Defense Counsel Eye Seats at Table in Major Federal Poker Case

Posted by Brian Baxter

Clarification, 5/10/11, 4:50 p.m. A previous version of this story referenced an article from the Las Vegas Sun that reported that John Campos was tied to a separate FTC investigation in Las Vegas. We should have noted that Campos is not a target in that FTC matter. SunFirst Bank, where Campos is vice chairman, is a creditor of one of the defendants in the FTC action.

Update, 4/20/11, 1:15 p.m. Domain name agreements reached by the Justice Department and Full Tilt Poker and PokerStars reveal that Skadden and Cozen O'Connor have been officially retained.

In what's been dubbed Black Friday for the online poker industry, federal prosecutors in Manhattan have indicted 11 people linked to some of the world's largest Web-based poker operators and have moved to shutter their companies and seize their assets in the U.S.

Among those charged by the Justice Department Friday afternoon with operating illegal gambling businesses: Isai Scheinberg and Raymond Bitar, the founders of PokerStars and Full Tilt Poker, respectively. In a sweeping 52-page indictment, Scheinberg and Bitar, as well as nine other defendants, including Absolute Poker founders Scott Tom and Brent Beckley, are accused of bank fraud, money laundering, and other gaming-related offenses. Prosecutors also filed a civil complaint seeking $3 billion in forfeitures from the three companies and their related entities.

The online poker industry in the U.S. reportedly generates some $30 billion in betting a year, according to a feature story published last year by Forbes. The industry took in about $1.4 billion in revenue in 2009, with PokerStars and Full Tilt accounting for roughly 70 percent of that sum, Forbes reports.

The government's case targets individuals, rather than the companies themselves. The Am Law Daily has learned that several of the defendants named in the federal indictment are now moving to retain high-powered defense counsel to fight the government's charges.

Two lawyers close to the case with whom The Am Law Daily spoke Monday--both of whom requested anonymity when discussing matters that could affect potential clients--say that such Am Law 100 firms as Blank Rome, Cozen O'Connor, Debevoise & Plimpton, Skadden, Arps, Slate, Meagher & Flom, and Williams & Connolly have been approached about taking on defense roles in the case.

Cozen, for instance, is representing Dublin-based Full Tilt. Contacted by The Am Law Daily, Barry Boss, who heads the firm's Washington, D.C., office, declined to comment on the matter. Isle of Man-based PokerStars, meanwhile, has turned to Debevoise for representation. The firm's litigation chair, former Manhattan U.S. attorney Mary Jo White, did not respond to a request for comment about PokerStars.

Jerry Bernstein, head of the white-collar defense and investigations practice at Blank Rome, also did not immediately return a phone call regarding Absolute Poker. Nor did Blank Rome partner Stephen Schrier in Philadelphia. Lawyers at Skadden and W&C were unavailable for comment.

Sources also tell The Am Law Daily that Full Tilt's Bitar has retained A. Jeff Ifrah, a former Greenberg Traurig partner and of counsel at Paul, Hastings, Janofsky & Walker. Ifrah, who founded D.C.-based Ifrah Law in October 2009, did not respond to a request for comment.

As part of the case, federal prosecutors also charged four "payment processors"--defendants Ryan Lang, Ira Rubin, Bradley Franzen, and Chad Elie--who allegedly obtained U.S. accounts for the three offshore poker companies named in the government's criminal complaint.

Franzen pleaded not guilty to money laundering and other charges on Monday in federal court in Manhattan and paid a $200,000 bond, according to the New York Post. Sam Schmidt, of counsel to New York's Joseph Potashnik & Associates, is representing Franzen and had no comment when asked by reporters about the charges against his client.

Elie was arrested on Friday in Las Vegas, married a former Playboy Playmate on Saturday, and is scheduled to appear in a federal court in Manhattan on Tuesday. William Cowden, a former federal prosecutor and partner at D.C.'s Mallon & McCool, represents Elie, as does Craig Denney of Downey Brand in Reno.

The government's criminal complaint accuses Elie of approaching another defendant, John Campos, the vice-chairman and part-owner of St. George, Utah-based SunFirst Bank, about processing Internet poker transactions.

Campos was arrested in Utah and appeared before a magistrate judge in Utah on Monday before being released on a $25,000 bond. Neil Kaplan, cochair of the white-collar group at Salt Lake City firm Clyde Snow & Sessions, is representing Campos on the charges. SunFirst has turned to Loren Weiss, a partner with Salt Lake's Ray Quinney & Nebeker, for counsel. Weiss, who joined the firm last month from Salt Lake rival Van Cott, Bagley, Cornwall & McCarthy, declined to comment.

The government's crackdown against offshore poker companies began in 2006 when Congress passed the Unlawful Internet Gambling Enforcement Act. The legislation is aimed at preventing credit card companies and other financial services firms from processing the transfer of funds for Internet gambling. While the law didn't go into effect until last year, its passage led most major online gaming companies to cease doing business in the U.S.

Among the first targets of federal prosecutors was PartyGaming, whose former CEO, Mitchell Garber, was once a lawyer at Montreal firm Lazarus Charbonneau. Garber assumed the company's top job in March 2006. The next month PartyGaming--represented by late Paul Hastings partner E. Lawrence Barcella--agreed to pay $105 million through 2012 as part of a nonprosecution agreement with federal prosecutors over the Gibraltar-based company's activities servicing U.S. customers between 1997 and 2006. (Harrah's, which pulled a $500 million IPO last year that would have changed the company's name to Caesars Entertainment, hired Garber in 2009 to run its online gaming unit.)

In July 2007 federal prosecutors in Manhattan reached a deferred prosecution agreement with Isle of Man-based payment processor NETeller, securing the guilty pleas of the company's former president and founder to charges of conspiracy to conduct illegal Internet gambling. Timothy Treanor, a Sidley Austin partner and former federal prosecutor who led the government's case against NETeller, says the latest move by the Justice Department should serve as a warning to offshore poker operators keen on doing business in the U.S.

"The recent indictment is the latest attack by the U.S. government on a multibillion-dollar industry that accesses U.S. customers from outside of the U.S. using the Internet," Treanor says. "The degree to which these companies allegedly compromised the U.S. payment system through deception and bribes is astonishing and should serve as a caution to any business that transfers money internationally."

In December 2008 the Indian-born founder and former director of PartyGaming, Anurag Dikshit, reached a $300 million settlement with the Justice Department and agreed to cooperate with prosecutors in an investigation of the company in which he owned a substantial stake. Paul, Weiss, Rifkind, Wharton & Garrison partner Mark Pomerantz, who represented Dikshit in the settlement, did not respond to a request for comment on how his client's case might affect the government's latest poker charges.

In September 2010 federal prosecutors in Manhattan secured another $33 million from British online gaming company Sportingbet, related to its gambling business servicing U.S. customers between 1998 and 2006. Buchanan Ingersoll & Rooney business litigation vice-chair Stuart Slotnick, who advised SportingBet on its nonprosecution agreement, says that "much of the world thought that the U.S. attorney's office did not have an interest in pursuing poker, and they've now announced to the world that assumption is incorrect."

The case against the 11 poker defendants unsealed on Friday has already attracted the attention of lawyers and legislators across the country. States such as Florida, New Jersey, and Nevada have sought to fill their coffers by legalizing online poker, which supporters of such a move claim is not gambling because success depends on skill, not chance. Washington, D.C., recently became the first U.S. jurisdiction to allow Internet gambling in a bid to bring in millions of dollars in revenue, according to The Associated Press.

Poker has powerful advocates elsewhere.

Full Tilt once once sponsored its own late-night poker-themed television show on NBC. ESPN, which has now removed poker-related content from its Web sites, had a big role making poker more mainstream. In March, Forbes reported that casino billionaire Steve Wynn made a big bet on PokerStars by establishing a strategic relationship aimed at regulating online poker in the U.S. Wynn has since severed his ties to PokerStars, but foreign companies are still bankrolling a U.S. lobbying campaign to push online poker, according to this story by The New York Times.

"The Poker Players Alliance and some of those other lobbying groups that represent poker companies have for a while now been very active, and they have been almost challenging the [Justice Department] to bring a poker case," says Baker & Hostetler partner Jonathan New, who worked on the NETeller, PartyGaming, and Dikshit cases as a federal prosecutor. "They want to prove once and for all that poker is not illegal gambling despite what the government has charged. So I imagine that they're going to use this somehow to litigate the issue, but whether someone is going to be the sacrificial lamb to come back and test it, I don't know."

In a statement released to the press, Full Tilt's Bitar said that he was "surprised and disappointed by the government's decision to bring these charges," but looked forward to "Mr. Burtnick's and my exoneration." Web sites for Full Tilt, PokerStars, and Costa Rica-based Absolute Poker have all been taken down.

Visitors to those sites are now met with the following statement: "This domain name has been seized by the FBI pursuant to an Arrest Warrant in Rem obtained by the United States attorney's office for the Southern District of New York and issued by the United States district court for the Southern District of New York."

The statement goes on to warn any prospective poker players of the legal peril they put themselves in by engaging in illicit gambling activities. With the three top sites all down, online poker players have already started flocking to rivals like PartyPoker.

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