The following article appeared in the Babson College Financial Report:
April 15th is a day to remember. Friday night, a prime time in the online poker world, is when players of all walks of life gather in a virtual space void of true identity. At one corner, there’s a die-hard Texan who’s been strategizing all day in hopes of winning the pot to pay the rent. He virtually sits beside a housewife whose alias is a bearded cowboy demanding authority. The group, joined by occasional college students making quick bucks to buy books, has formed a friendship – broken by the regulatory web holding the internet poker industry hostage to the moral judgment of pure losers.
Instead of gaining access to their accounts, and the diverse table offerings, poker players were welcomed with an FBI message stating that the domain has been seized as an arrest warrant is being pursued for illegal gambling commerce. The four leading poker sites: PokerStars.com, FulTiltPoker.com, AbsolutePoker.com, and UltimateBet.com (UB.com), were all shut down, affecting a large share of the fifteen million Americans who bet online.
The Manhattan US Attorney’s Office confirmed that eleven people, including owners of the poker sites were linked to gambling-related crimes based on “payment processing operations…a criminal fraud scheme involving massive money laundering and bank fraud…funds passing undetected through US banks, by law.” Seventy-six bank accounts remain frozen, along with player cash. The wire fraud gives the Feds reasonable evidence to seek $3 billion from the companies involved.
Although the terms used in the US Attorney’s statement blatantly seem like a vast ponzi scheme, sounding as if this is the next Madoff-Poker scandal, the law backing the charges is laughable when connected to the illegal matters. In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act, banning the transfer of funds from and through US banks for gambling purposes. In short, poker players are not allowed to use their banks for cash management and transfers during games; almost all use money orders and credit cards independent of banks. The internet poker companies are banned from using US banks entirely for funding and management of the operation. This then created a mini-bank in all online poker sites. Poker players will deposit and use cash held in their accounts on the poker sites.
Abiding by the law created lots of confusion and made the internet gaming process less efficient; holding back the industry’s expansion. The four leading poker sites decided to take matters into their own hand and hired Daniel Tzvetkoff, an Australian based entrepreneur. Daniel was skilled in reverse engineering money transfers, and set up fronts to spread cash through US banks for ease of management. Through the process, Daniel ended up pocketing cash for himself, and when the poker sites sued him, the entire process raised a red flag with the FBI. A dumb move yes, but inevitable under a nonsensical law created to promote unsustainable cash logistics to bring down an entire industry.
The Unlawful Internet Gambling Enforcement Act (UIGEA) has the penalty of 30 years in prison and $1 million fine (or twice the gross gain/loss from the internet operation). It was set up to protect individual losers and compulsive gamblers. Gambling and trading share the 90/10 rule – that is 90% losers, 10% winners. The 90% call for protection, and everyone must bear the brunt. This industry is not for everyone, and the objective is to weed out the losers. All odds are against the 90%, and when there’s an external force that interrupts the game theory, the entire process is artificially destroyed.
Like the UIGEA, the Commodities and Futures Trading Commission poses a threat to the unconventional online trading industry. In an attempt to decrease the number of speculators, there have been many laws put forth that give hedger’s preference in trading, despite the need for a diverse exchange. Currency traders might be limited to the amount of leverage used, as many freshman traders lose large sums due to poor risk management. If you want to trade options online, you must have years of experience trading traditional equities. So many regulations that cause many to wonder what the future holds for internet based trading and gambling.
-Damanick Dantes
Sources:
“Online Poker Sites Shut Down.” Internet-Poker.co.uk . April 15,2011
“The Boy Genius Who Took Down the Online Poker Industry.” Business Insider. April 15, 2011
“Why The Unlawful Internet Gambling Enforcement Act is a Bad Bet.” Duke Law. June 30, 2008
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