The Feds have struck back and struck back hard! This story has everything – domain names seized, executives arrested, and billions of dollars in fines agains the three largest online poker companies. Keep in mind these companies operate completely legally in most of the world and are even publicly traded. This is almost the equivalent of Saudi Arabia arresting the executives of the American movie studios because their movies are on the internet and accessible to citizens of that country who are legally prohibited from viewing them. Things are going to get ugly folks…

via the LA Times

The founders of the three largest online poker sites were indicted by the FBI on Friday in what could serve as a death blow to the thriving industry.

Eleven executives at PokerStars, Full Tilt Poker and Absolute Poker were charged with bank fraud and money laundering in an indictment unsealed in a Manhattan court. Two of the executives were arrested on Friday morning in Utah and Nevada. Federal agents are searching for the others.

Prosecutors are seeking to immediately shut down the sites and to eventually send the executives to jail and to recover $3 billion from the companies. By Friday afternoon Full Tilt Poker’s site displayed a message explaining that “this domain name has been seized by the F.B.I. pursuant to an Arrest Warrant.”

The online gambling industry has taken off over the last decade, drawing an estimated 15 million Americans to bet online.

In 2006 Congress passed a law prohibiting online gambling. Most of the leading sites found ways to work around the law using foreign banks, but prosecutors allege that in doing so they broke the law.

“These defendants concocted an elaborate criminal fraud scheme, alternately tricking some U.S. banks and effectively bribing others to assure the continued flow of billions in illegal gambling profits,” Preet Bharara, the U.S. attorney in Manhattan, said in a statement.

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Hope everyone is enjoying March Madness – it’s been a while since our last post. Here is a quick rundown of today’s most interesting sports betting stories that you may want to check out:

• Mike Herndon from the Alabama Press Register authors an incredibly well thought out editorial on the future of gambling. A small excerpt:

  Caught up in Gov. Bob Riley’s end-of-term crusade against electronic bingo, Mobile County District Attorney John Tyson danced around the subject last week when asked if office pools are legal. The head of Riley’s task force on gambling, Tyson said he could offer no opinion on whether such pools are legal, but warned would-be bracket-fillers to “seek the advice of their lawyer, and do it immediately.”

  Want to hear something even sillier? According to the Mississippi attorney general’s office, office pools could potentially break two laws in the land of the Beau Rivage — a general statute about sports gambling and another provision about gambling outside casinos.

  You can blow a mortgage payment playing Texas Hold ’Em, apparently, but don’t dare drop $10 on an office pool.

  It’s been estimated that between one-fourth and one-half of the working American public enters a March Madness office pool.

  And I dare say just about all of us gamble in one form or another. We buy a lottery ticket when we go to Florida or Louisiana. We wager small favors on the outcomes of petty disagreements, like the couple in the Chase credit card commercial who bet a massage on whether an actual person will answer their customer service call. We settle trivial debates by agreeing that the loser will buy lunch.

• I don’t really understand how this can be legal (it would be great if someone with a legal background could explain) : Entrepreneur Touts Loophole That Allows Online Betting On Sports.

  The Cambridge, Massachusetts, native’s startup, StarStreet Inc., is treating pro sports like a stock market. Gamers place bets with real cash by buying shares in a team or an individual player. If the team or player does well, those share prices may go up, and the gamer wins.

  Levine swears it’s legal. He has the online game in a private beta test at StarStreetSports.com with about 150 users betting cash on teams in this year’s NCAA Men’s Basketball Tournament. He hopes to have the site ready for public unveiling in time for the 2010 professional football season.

  “The real simple reason it’s legal is because it’s a game of skill, not chance, that doesn’t depend on the outcome of any single event,” he said.

• Malaysia to legalize sports betting ahead of the World Cup. Malaysia is a pretty repressive country and even they are allowing their citizens to bet on sports. The United States Congress should take note.

It’s not just the temperature on the thermometer that is heating up as we enter into the summer months here in the U.S.; the war over the legality of sports betting has been growing hotter in recent weeks, setting the stage for explosive conflicts between powerful entrenched forces on both sides of the volatile issue.

Some of the incredible stories coming out in recent days:

• Federal prosecutors have seized $30 million of winnings from online poker players. Appealing directly to the banks used by the payment processing companies, the Feds have seized not the funds made by the poker sites, but the legitimate payouts won by U.S. based players. This should be a real wake up call for anyone who cares about their freedom and constitutional rights.
• The Governor of NJ has joined the fight to legalize sports betting in his state. What started as the David and Goliath story of a single state legislator against the U.S. Federal Government is quickly becoming an increasingly fair fight as various heavyweight lobbying groups and political players such as Governor Corzine enter the fray. Is it just a matter of time before other states take up the cause?
• The NCAA threatened to bar tournament games in the state of Montana due to its state-run fantasy sports league. Montana has responded with a rather weak attempt to appease the NCAA bullies.
• The WTO once again rules against the Unites States in a worldwide dispute over the online gambling ban in the United States. Unfortunately these rulings are consistently ignored by our government.
• The NFL is fighting tooth and nail to stop legalized sports betting in Delaware. The truth is that the NFL should be grateful for sports betting according to industry insiders. Meanwhile NFL owners just voted to allow NFL logos to appear on state lottery tickets.
• A guy got his hand chopped off for a gambling debt in NJ. Needless to say this kind of stuff doesn’t happen in the online gambling world where deposits are made up front.
• Finally, the state of Minnesota backs down on its ridiculous demand that the biggest Internet Service Providers block access for Minnesota citizens to certain gambling sites. This is the kind of thing they are doing in China my friends. Credit to iMEGA and the PPA for this small victory.

It’s an interesting time to be following the issue of online sports betting. The landscape could be very different by the start of the football season – though I wouldn’t bet on it.

The EU Parliament just issued a draft report on ‘the integrity of online gambling’ which will be used to shape future policy decisions on the issue of online gambling and free trade. Things do not look good for the freedom of EU citizens to wager online. The report basically rehashes a bunch of tired old arguments that could be used against any number of online activities and comes to the conclusion that it likely would not be against the EU’s free trade agreements for a member country to prevent it’s citizens from being allowed to gamble online.

They begin by pointing out what a legal mess the issue of online gambling has become:

The issue of regulating EU gambling markets, whether conventional or online, is very sensitive. But there is a clear need for clarification about the regulatory environment concerning online gambling. At present, almost 50 % of the cases pending at the European Court of Justice right now are related to gambling.

They then go on to make the genius argument that online gambling is fundamentally different than casino gambling because in a casino, someone can make the determination that you are too drunk to gamble:

It is difficult for online gambling operators to supervise their customers as opposed to conventional gambling where it is possible to see whether the customer is under age, is drunk or in other ways intoxicated or behaving suspiciously. Also since access to online gambling services is easy and can be done in isolation, social checks and constraints that can be exercised by the presence of others are lacking.

Obviously these guys have never been to Vegas. If this statement doesn’t epitomize the “nanny state” mentality that has been leading to the rapid erosion of our precious freedoms, I don’t know what does. Meanwhile in Australia, the politicians are trying to filter the internet for the entire country to block citizens from accessing online gambling sites. Let’s hope that they are not successful.

Download the full EU report here.

Things are looking bad for Bodog. A U.S. based judge just affirmed a ruling that could end up costing them around $50 million dollars. Given that they are not an American company, it’s possible that they will try to not pay the amount. Bodog’s founder has claimed that the company was not served in the original suit and that the company has an insufficient presence in the United States to infringe any US patents.

From Gaming Intelligence Group

Online gaming operator Bodog has failed in its attempt to set aside a $46.6 million judgement against it in the patent infringement suit brought by 1st Technology LLC. With interest, Bodog must now pay 1st Technology over $50 million following yesterday’s ruling.

Bodog was sued by 1st Technology for patent infringement based on Bodog’s distribution of software used for online gaming. A default judgement was issued against the gaming operator on August 1st 2007 after it failed to answer the allegations made against it in the suit.

As part of the ruling, the registrar of Bodog’s domain name was ordered to remove all nameservers associated with Bodog and founder Calvin Ayre, rendering them useless. Bodog subsequently changed its name to NewBodog before finally settling on its current name of BodogLife.

Despite numerous challenges by Bodog against the original judgement by the U.S. District Court for the District of Nevada, the Court of Appeals for the Federal Circuit yesterday affirmed the lower court’s ruling.

“We are extremely gratified for our client that the Court of Appeals saw the merits exactly the way we did,” said Mr. Greenspoon, the lawyer representing 1st Technology.

In August of this year, Parlay Entertainment settled a similar patent infringement lawsuit with 1st Technology. The terms of that settlement remain confidential and there was no admission of liability by either party.

This is the latest in a string of recent problems for Bodog. Most recently in July, Forbes magazine released news of an IRS affidavit from a forfeiture lawsuit in Baltimore, Maryland reporting an investigation into the matter of the seizure of over $24M in assets from bank accounts inside the United States that are said to involved in what appears to be money laundering activities in order to process payments to users of the Bodog online gambling casino. The filings are said to involve an elaborate international structure of bank accounts at numerous institutions such as Wachovia, Sun Trust Banks, Bank of America, Regions Bank, Nevada State Bank, a division of Zions Bancorporation in the name of Zaftig Instantly Processed Payments, doing business as ZipPayments.com and business’ said to be linked directly to Bodog founder Calvin Ayre.

If you have a lot of money in your Bodog account, you may want to consider diversifying your assets.

Yahoo News ran an interesting article the other day about the growth of illegal online sportsbooks and the supposed corrupting effect they are having on sports.  The article starts off with some background on the issue:

The rapidly mushrooming number of illegal sports betting websites is heightening concerns among authorities about global corruption, money laundering and gambling addiction.

There are now an estimated 15,000 such sites on the World Wide Web, including some 13,000 illegal ones, shuffling around 15 billion euros (23.6 billion dollars) a year, according to the authorities.

The author then goes on to detail how the illegal sportsbooks are causing all sorts of problems for sports federations who are eager to wipe them out.  At the same time these very same federations are vying for a piece of the gambling pie from the so-called legitimate sports betting channels:

Sports federations — notably for tennis, football and cricket, the pioneers in the fight against harmful effects of illegal gambling — have become increasingly worried about the issue.

But, apart from fears about the tarnished image of their sport, at the same time they are trying to secure a financial stake for themselves from the booming phenomenon.

Each year, French gamblers place sports bets worth more than 510 million euros on the Internet.

Of this, only around 12 million euros is believed to be legal, by means of the French National Lottery, the only authorised online sports betting operator in the country.

Following the example of the French Tennis Federation, a number of sports bodies are trying to claim part of the lucrative Internet betting industry on the model of television broadcasting agreements.

It seems to me that the issue here is not the evils of online sports betting, but the problems caused when a government tries to monopolize a market and suppress all competition to the detriment of the consumer.  I hope one day that the various governments will realize that they can’t have it both ways – decrying the immorality of sports betting while simultaneously trying to corner the market.

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