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Black Friday: How the Feds Shut Down Online Poker

$2.5 billion industry cut off, taking livelihoods with it

Says Mogelefsky: "It's month to month, but the game plan is, hopefully, I can make enough playing live to survive until that day comes whenever it may be — five years from now? Two years from now? Ten years from now? — when I can go back to playing online."

Vanessa Peng is a vivacious, engaging young woman from Singapore. She came to the United States with her newly remarried mother when she was 8, settling in Rock Hill, S.C.

ILLUSTRATION BY JESSE LENZ
Maxwell Fritz: "I  figured if gambling online is illegal, I might as well go to legalized gambling in the form of the stock market."
PHOTO BY WILL RICE
Maxwell Fritz: "I figured if gambling online is illegal, I might as well go to legalized gambling in the form of the stock market."

It was a culture shock, to say the least. She and her brother found comfort playing video games as they slowly assimilated, and the seed of competition was sown. She eventually would study law in little Lexington, Va. Her eureka moment came when she watched a friend play poker online. "I was completely fascinated."

It wasn't until her third year of law school that she found the time to dive in. She started with $25 in her account and played the penny tables, slowly learning the game. She was thrilled by the competition and the mental challenge.

"The thing about living in a very, very small town is you get bored pretty quickly," Peng says. "Since I didn't have much of a social life in that little town, I was able to play a lot of poker in that six months. By the time graduation came, I was supposed to be studying for the bar and that good stuff, but I was so wrapped up in poker, that was kind of what took over my life. On top of everything else, the legal market had sort of crashed at this point."

She found a job working with a divorce attorney in Chicago but discovered she didn't have much stomach for it. Then she failed the bar. It was something of an omen.

"I was able to take a step back and really re-examine my life. Around that time poker was going really well for me. I had my first five-figure month and I just really started re-evaluating, thinking, maybe this is what I was meant to do."

She made $40,000 that first year. By 2010, she was pulling in six figures annually.

When Black Friday hit, Peng was one of the top moneymakers on Ultimate Bet, with $30,000 in her account. She'd also just won $12,000 in a Full Tilt tournament. All told, she saw $80,000 frozen in the crackdown.

Peng was better situated than most to weather the storm. She and her boyfriend — who also plays — moved to Windsor, Ontario. The Canadian town sits just across the river from Detroit, allowing her to play online while still traveling to live tournaments in the United States and abroad.

Nearly a year after the feds froze her money, Peng, who had planned to use it to start a used-jewelry business on eBay, still hasn't seen a penny of it.

Within a month of the federal crackdown, PokerStars returned $100 million to U.S. players; it continued to operate abroad.

Full Tilt was cleared to offer returns but never did, since it doesn't have the money. It owes $150 million to American players alone. In September, the feds accused owners Howard Lederer and Chris "Jesus" Ferguson of running a "global Ponzi scheme."

"Banks fail for not having sufficient revenue to cover customer deposits all the time," the company's lawyer, Jeff Ifrah, said at the time. "No one refers to such failures as Ponzi schemes. And there was no Ponzi scheme here."

The court battle rages on.

This fall the French company Groupe Bernard Tapie stepped in to buy Full Tilt for $80 million, promising to pay off the debts to international players. The feds have assumed responsibility for paying American players. They've announced no timetable for repayment.

Absolute Poker — originally formed by four frat brothers at the University of Montana — wasn't liquid enough to continue, either. None of its players has been reimbursed.

In December, Absolute Poker co-owner Brent Beckley pleaded guilty to lying to banks about the nature of his transactions. He's expected to receive a jail sentence of 12 to 18 months.

His partner, Ira Rubin, ran a payment-processing company in Costa Rica, which disguised gambling proceeds through fake merchants and suppliers. He pleaded guilty in January and is expected to receive up to two years of jail time.

Rumors have been circulating that Absolute Poker will repay players soon, though payoffs may be as little as 25 cents on the dollar.

"If you had a federally state-regulated system, that wouldn't happen," says Rep. Joe Barton, R-Texas. He's also pushing a law to legalize online poker. "This is one of those rare congressional bills that's not a Republican-Democrat issue. There are people for it and against it on both sides, but there are much more people for it. If it came up on the floor of the Senate on a majority-vote-wins, it would pass. Whether it has 60 votes, I just can't tell you."

The general sentiment, from players to politicians, is that something will get done ... eventually.

In the meantime, poker has gathered some powerful advocates. Casinos that once guarded their turf are hoping to get in on the online action, pushing pushing Senate Majority Leader Harry Reid, D-Nev., to get something done. However, Republicans quashed Reid's attempt to pass online poker regulations in 2010.

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9 comments
Live casino
Live casino

Gambling is now one of the big business for every one and there are lots of people losses or earn money from playing online game.

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Gail S.
Gail S.

Great information. Thank you for shedding light on this story! I'm glad you are providing information on the tragedy that was our Black Friday. It is well past time to license and regulate this industry in the US. Most of the world is able to play this game of skill and strategy online and Americans, of all people, should be free to play as well.

Rob
Rob

This article is journalistically shabby and, frankly, would be laughed out of any college journalism course.

1. It merely gives us anecdotal accounts of people who have managed to make online poker work, but it does not discuss how many thousands, tens of thousands, hundreds of thousands, etc, may have lost substantial sums gambling online.

2. It blithely blames the religious nuts for the shutdown of online poker in the U.S. However, there is zero direct evidence provided in this article of this. There are no statements, for example, from the usual suspects in the evangelical or other faith based crowds. Mere name calling with no evidence is not journalism.

3. It is fine to go after Kyl and Frist, two clowns who I don't particularly like myself, for this, but where this article REALLY fails is to discuss if there was any Abramoff-style lobbying by casinos in the U.S. to have their online competitors taken out. To read this article, it was almost as if Kyl and Frist just one day got up on the wrong side of the bed and decided to take it out on online poker sites. Now the combination of this kind of lobbying, if it happened, and pressure from the religious nutbars could have been the hammer that made the crackdown happen, but this piece just does not give us any clear picture as to whether that is, in fact, what happened.

4. The article thus reads too much like it was written by a public relations firm for the online providers. The online poker sites are cast, in a very simple way, as victims here without any sense of skepticism on the part of the writer that the truth may be more complex than that. Consequently, this article is little more than glorified spam---Make Money Gambling Online! should have been the real header here.

One of the things dogging the mainstream media is that it has gotten so lazy it often rips, reads and reprints corporate press releases as worthy news articles when they are anything but. The L.A. Weekly has thus fallen into that same lazy habit, or so it appears.

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. -

Billdale
Billdale

Mr.Parker:

You really, REALLY don't get it.

When someone builds a car, or grows some wheat, or performs a cabaret act on the Sunset Strip, there is an exchange of cash for goods and/ or services. Gambling is not like that. It is not an "industry" employing people as you suggest, it's nothing more than shuffling money around from one set of hands to another, with no product or service provided. If one person such as Walter Wright, Maxwell Fritz or Michael Minkoff can make enough money from their activities to provide for a lavish lifestyle, it's because they understand card counting or some other version of an inside track that is sapping the life from other households-- there is no free lunch. If someone gets rich by building fancy furniture, or selling push-up bras or cleaning carpets, it's because someone got something in exchange for that money; when Mr. Fritz gets rich playing cards, it is only because someone else is getting poor playing with him, thinking he, too, can ride a gravy train. But whenever anyone wins in gambling, it's because someone else is losing... and getting nothing out of the deal but a bit closer to bankruptcy, or divorce, or Gambler's Anonymous.

When I buy junk food from a fair-- cotton candy, as in the story-- it might eventually give me diabetes, but I at least get something for my money. All I might get from Mr. Fritz is the wrong lesson-- that I need to learn to play better, and waste my money on Mr. Minkoff's books so that next time, Mr. Fritz will be the one who can't pay his mortgage, not myself.

There is no winning in gambling... not overall. There is only money shifted from one soulless sap's pocket to another.

These men are all obvuously more intelligent than normal in some way or another. I hope that Fritz and others like him can use their greater ken of numbers, averages, odds or whatever to find other outlets for their talents that actually provide benefits for someone besides themselves-- that's the difference between win-win, and win-lose. It's also what defines personal satisfaction-- when you're getting someone else's money because you're helping him, it's much easier to sleep at night than knowing you have his money just because you beat him AND HIS FAMILY with a deck of cards.

Sheryl J
Sheryl J

There is definitely winning in poker. Ever hear of entertainment? There is no reason why I shouldn't be able to play a $3.30 tournament from my home. That $3.30 tournament on a Friday night is my entertainment (I'm disabled and don't get out much). And I usually win enough to not have to re-deposit. Sometimes I even win enough to withdraw, which is quite the headache right now. We need licensing and regulation in the U.S.

lchris33
lchris33

Only the government and large banks are allowed to run shady financial schemes.

TCasey
TCasey

That's a very informative article about what happened to online gambling. I like your work, Chris Parker. To any law makers paying attention: I favor legalizing online poker; I vote.

 
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