Federal prosecutors are again indicating they mean business in going after the online poker business. Their strategy is focused on the industry's payment processors, the folks who move the money among players, banks and poker companies.
The U.S. Attorney in Manhattan struck a big blow on Tuesday by getting Douglas Rennick, 35, a Canadian payment processor, to show up in New York and plead guilty to violating the Wire Act by processing more than $350 million in the U.S. for Internet poker companies and other online gaming firms.
The plea deal hits the biggest online poker companies offering U.S. play, PokerStars and Full Tilt Poker. Rennick agreed to forfeit $583 million, funds that partly belonged to players of those and other companies. PokerStars and Full Tilt reimbursed the players after federal prosecutors froze funds handled by Rennick in June 2009.
Rennick faces 12 months in prison and is slated to be sentenced in September. A spokesperson for the U.S. Attorney in Manhattan declined to comment on whether Rennick is cooperating with any ongoing investigation. Rennick's plea agreement only says it is conditional on "subsequent conduct prior to the imposition of sentence." The question is whether Rennick's plea deal is part of a prosecutorial strategy that is going after only payment processors, or the online poker companies as well.
As Forbes pointed out in February, the owners and operators of the biggest online poker firms are an open secret--and many of them can be found regularly playing poker in Las Vegas or promoting their companies at U.S. events shown on television.
The U.S. online poker industry services 2.5 million Americans who play and bet $30 billion annually. Since PartyGaming exited the U.S. online poker market, it has been dominated by PokerStars and Full Tilt, a company associated with famous poker players like Howard Lederer and Christopher Ferguson.
The online poker firms take the position that online poker does not violate any U.S. laws, but the Justice Department has consistently said that facilitating for-money online poker is illegal. Speculation that the Obama administration's Justice Department would not pursue online poker cases as aggressively as was the case during the Bush administration appears to be receding.
Still, U.S. law is vague enough on the issue of online poker that the Justice Department has appeared reluctant to confront online poker firms directly and in court. Federal prosecutors have been much more comfortable going after payment processors. In April Daniel Tzvetkoff, the Australian owner of another payment processor used by online gaming firms, was arrested in Las Vegas and charged by federal prosecutors of bank fraud and money laundering.
Rennick's legal problems began last June when the U.S. Attorney in Manhattan froze $34 million owed to at least 14,000 players from companies that processed payments for poker games hosted by Full Tilt and PokerStars, which both reimbursed its players. The companies targeted in the seizures included Rennick's Account Services Corporation, which had $16.3 million in an account at Wells Fargo frozen.
Rennick tried to contest the seizures in federal court in San Diego with the support of the Poker Players Alliance, a Washington, D.C., lobbying group whose chairman is Alfonse D'Amato, but Rennick was indicted by federal prosecutors shortly afterwards. Rennick is forfeiting the frozen funds as part of his plea deal.
