On December 1, oral arguments were heard in Manhattan Federal Court before NY Federal Judge Lawrence Kaplan, in the motion to dismiss the UIGEA, IGBA, and fraud charges facing two of those criminally charged on Black Friday. Before a gallery full of prosecutors, attorneys, law enforcement and journalists (including Subject: Poker), attorneys for John Campos and Chad Elie challenged the legality of the charges facing their clients. Judge Kaplan has yet to rule on the motion, but seems very unlikely to dismiss all of the charges. He told the parties to proceed as if they were going to trial.1
Campos, former Vice Chairman of the Board and part owner of SunFirst Bank in Utah, is alleged to have given approval on behalf of the bank to process over $200 million in transactions for PokerStars and Full Tilt Poker. In return, he allegedly solicited a $10 million investment into the failing bank and a finder’s fee for himself. According to court documents, the bank earned about $1.6 million in fees for this processing before it was ordered to stop by the FDIC late in 2010.
Elie is the payment processor charged with allegedly using Campos and Sunfirst to handle transactions on behalf of PokersStars and Full Tilt in their efforts to provide “transparent processing” as well as handling other payment processing transactions for all three of the major poker sites whose principals were indicted on April 15th.
Campos waived his appearance in court, but was represented by counsel. Elie appeared with counsel and sat at the defense table. Missing was Ira Rubin, but Rubin’s attorney, Stuart Meissner, waived the appearance of his client citing medical reasons for the record. He also advised the court that Rubin and the US Attoney’s Office were close to finalizing a plea agreement that would remove Rubin from future trial plans.
Frederick Hafetz, attorney for Campos, took on the task of confronting the UIGEA charges for the defense. Hafetz’s primary claim was that UIGEA provides an exemption for the “activities of a financial transaction provider.”2 He argued that SunFirst Bank, its agent John Campos, and payment processor Chad Elie were financial transaction providers and therefore should be exempted.
Judge Kaplan immediately discounted this argument. He objected strongly to the use of the word “exemption.” Hafetz argued that later text in the UIGEA, which specifies certain situations in which a financial transaction provider can be charged, did not make sense unless this was an exemption, but the judge did not seem to accept this argument either.3 Instead, the judge said that what Hafetz read as an exemption was simply Congress’s attempt to clarify that banks who unknowingly process gambling transactions should not be prosecuted.
Assistant US Attorney Arlo Devlin-Brown took up the argument on behalf of the government. Devlin-Brown pointed out that neither Elie nor Campos has actually been charged as “person[s] engaged in the business of betting or wagering.” Instead, they are charged with aiding and abbetting such people. He agreed with the judge that there was no such exemption for financial transaction providers who knowingly worked with the poker sites. Judge Kaplan and he also agreed that even if SunFirst Bank were exempt, it would be a “huge leap” to include either of the defendants in that category because both had interests independent of the bank. He thus argued that the government could have charged them directly under the circumvention clause of UIGEA, which clarifies that the “exemption” language to which Hafetz referred does not apply to financial institutions that blatantly violate the UIGEA (See footnote 2). Judge Kaplan asked him why the Southern District of New York had not brought these charges, and Devlin-Brown conceded that not doing so may have been a mistake; he even raised the possibility of going back to the grand jury to add these charges.
Though Hafetz barely mentioned the idea that poker might not be gambling, Devlin-Brown actually opened his speech with an argument that poker is gambling, perhaps because he had anticipated a different discussion. He stated emphatically that “poker is gambling” in the common lexicon. He said that it was exactly what Congress had in mind when they drafted UIGEA. Judge Kaplan seemed to agree with this argument, but he hurried Devlin-Brown along to discussion that was more relevant to the defense’s argumens.
Elie’s attorney, Paul Clement, former Solicitor General of the United States, took up the argument for the defense of the Illegal Gambling Business Act charges. The IGBA is a 1970 law that was intended to help fight organized crime by making it a federal crime to run a large gambling business that violates state law. In short, Clement argued that IGBA was not intended to apply to internet businesses that are located outside of the United States. He cited the 2010 Supreme Court case Morrison vs. National Australia Bank, in which the Court ruled that “When a statute gives no clear indication of extraterritorial application, it has none.”
In addition, the defense argued that the IGBA does not apply to poker. The law does not define gambling, but instead provides a non-exhaustive list of nine examples that does not include poker.4 Clement argued that poker was substantially different than the games in the list because it is not house-backed and includes skill. In particular, he pointed out that Congress went out of its way to reference bolita, a relatively obscure game, but did not mention poker. Finally, because of the alleged vagueness and ambiguity in the statutes for the above reasons, Clement argued that the rule of lenity should apply, and the IGBA charges should therefore be dismissed.
Devlin-Brown pointed out that not every game that could be considered gambling could be written into the law specifically and again argued that a reasonable person would agree that poker is gambling. He stated that sportsbetting is a game that includes some skill but is named explicitly in the IGBA and pool-selling is not house-backed but is also used as an example in the law. Therefore, Devlin-Brown contended that the IGBA should apply to poker. In response to the defense’s claim that the IGBA does not apply internationally, Devlin-Brown first argued that Elie and Campos essentially acted as US branches of foreign businesses.
Clement further argued against the charges of conspiracy to commit bank and wire fraud, claiming that the indictment does not identify a victim of the alleged fraud. He cited United States vs. Shellef: “[A] scheme that do[es] no more than cause [an alleged victim] to enter into transactions [it] would otherwise avoid… do[es] not violate the mail or wire fraud statutes.” Devlin-Brown said that this was a matter to be discussed at trial, and Judge Kaplan appeared to agree.
Judge Kaplan has yet to officially rule on the motion to dismiss, but he did say that he thought it “extraordinarily unlikely” that all charges against Elie and Campos would be dropped. He suggested that the parties prepare for trial on the planned date of March 12, 2012. (Of course, even if the judge does not dismiss the charges, the defendants could reach plea agreements before the trial.) The two sides estimated that, if the trial does take place, it should be expected to run three to four weeks. The judge joked that it would be difficult to find twelve jurors in New York that didn’t have an opinion on whether poker was gambling.
In related news, the day before the arguments were heard, a request to file an amicus brief was filed by the firm of Lewis Baach PLLC. The firm claimed knowledge of the history of the statute that could offer additional support for the statutory arguments before the court. Judge Kaplan denied the request. He noted that the request was filed very late in the process and well beyond the deadline, and it neglected to include how and when the petitioner learned of the case, if any defendant’s counsel authored the brief, or whether any defendant’s counsel contributed payment towards its preparation.
- This hearing was only to consider whether the various charges in the indictment are legally worthy of a trial. There is a relatively high burden on the defense for a motion to dismiss. ↩
- US Code Title 31 Section 5362-2 says “The term ‘business of betting or wagering’ does not include the activities of a financial transaction provider, or any interactive computer service or telecommunications service.” ↩
- Hafetz was referring to USC Title 31 Section 5367:
Notwithstanding section 5362(2), a financial transaction provider, or any interactive computer service or telecommunications service, may be liable under this subchapter if such person has actual knowledge and control of bets and wagers, and -
(1) operates, manages, supervises, or directs an Internet website at which unlawful bets or wagers may be placed, received, or otherwise made, or at which unlawful bets or wagers are offered to be placed, received, or otherwise made; or
(2) owns or controls, or is owned or controlled by, any person who operates, manages, supervises, or directs an Internet website at which unlawful bets or wagers may be placed, received, or otherwise made, or at which unlawful bets or wagers are offered to be placed, received, or otherwise made.
- According to the IGBA, “‘gambling’ includes but is not limited to pool-selling, bookmaking, maintaining slot machines, roulette wheels or dice tables, and conducting lotteries, policy, bolita or numbers games, or selling chances therein.” ↩