Online poker busts only a prelude to legalization

Politicians are trying to legalize online poker. Prosecutors are trying to shut it down.

Neither is succeeding. Last week's government seizure of 10 gambling sites following indictments by a federal grand jury in Baltimore is another loss for the industry and may further stall legislation in Washington and some states to regulate and tax online poker.

But don't bet against online betting. The day after the indictments were unsealed,, a popular gambling site that was part of a previous investigation by the Maryland U.S. attorney, changed to a European domain — — in an apparent attempt to avoid a crackdown by U.S. authorities. No doubt Bodog and other operations will win business from, and others nailed by the feds.

And if Senate Majority Leader Harry Reid and Massachusetts Rep. Barney Frank have their way, today's outlaw poker sites could become 2013's tax-paying corporate citizens.

Given that Congress badly needs revenue and Republicans have vowed not to raise taxes, eventual legalization of online wagering is a certainty. Trade groups and legislators have suggested that Web wagers could generate more than $2 billion in annual taxes.

Democrats such as Reid and Frank will get the revenue they want. Republicans can pretend that Internet gambling taxes aren't new taxes and take credit for defending the freedom to ruin your life online.

Meanwhile, Maryland U.S. Attorney Rod J. Rosenstein has been a key player in efforts to send Congress' future cash cow to the Hormel plant.

An investigation led by Rosenstein's office led to the April 26 indictment of two firms charged with processing money for Internet gambling and the closure of popular sites such as Truepoker and Doylesroom. Try to play those rooms and the screen flashes a big Justice Department seal and Homeland Security badge, FBI-bust style.

Authorities also seized nearly a dozen bank accounts associated with the companies. The indictments were unsealed Monday.

The attack goes beyond previous efforts by Rosenstein, Assistant U.S. Attorney Richard C. Kay and allied agencies to go after virtual poker tables and sports betting sites. A few years ago a government mole started betting on Bodog, a site widely reported to have turned owner Calvin Ayre — who grew up on a farm in Saskatchewan and whose motto is "Gambling, drinking and carrying on" — into a billionaire.

That investigation, well chronicled by Van Smith last year in the Baltimore City Paper, led to the civil forfeiture of more than $20 million from bank accounts the government said were linked to Bodog.

It's hard for prosecutors to go after the virtual poker rooms directly; they're operated outside the United States. So they aim for the funds moving from the American gambler to the sites and the companies that handle them. Processing the funds also seems to be more clearly against the law than running a virtual gambling joint.

This time, instead of just assigning a mole gambler, the feds set up an entire fake processing company. Over two years, Linwood Payment Solutions reached deals with BetEd and K23 Financial Services and processed $33 million in transactions linked to online betting in Maryland and elsewhere, according to federal charging documents.

"That's a brilliant move on the part of the prosecutor — having undercover agents present themselves as legitimate processors and gathering evidence for statements against interest from the operators directly," says Jeff Ifrah, a lawyer based in Washington who has represented Internet gambling defendants. "It's a much better way of building your case."

One indictment charged ThrillX Systems and Canadians Darren Wright and David Parchomchuk with running an illegal gambling business and money laundering. Another made the same allegations against K23 and Ann Marie Puig of Costa Rica. I was unable to contact the defendants.

Although Rosenstein's office helped blaze the trail on Internet gambling enforcement, in typical bigfoot fashion the Southern District of New York has swooped in for the biggest cases.

On April 15, known among online gamblers as Black Friday, Southern District U.S. Attorney Preet Bharara unsealed bank fraud and money-laundering indictments against operators of Full Tilt Poker, PokerStars and Absolute Poker, three of the biggest online gambling sites. The government seized their Internet addresses and seeks at least $3 billion in civil penalties and forfeitures.

But online U.S. poker is by no means bust. There are still hundreds of sites allowing Americans to bet. Their business spiked after Black Friday as customers of Absolute Poker and the other seized operations sought new outlets, according to the American Gaming Association, a trade group that wants Web gambling legalized and regulated.

"You can't expect to put every operator out of business," Rosenstein said in an interview. "But the ones that are the most flagrant violators of the law and generating the most business — those are the logical targets."

He said he couldn't comment in response to a frequently asked question among online bettors: How come the government hasn't seized Bodog's Web address? (Bodog didn't respond to emails.)

In any event, the New York and Maryland indictments have stalled legislative efforts to legalize online gambling, Ifrah said. "It remains to be seen whether the momentum that was present prior to Black Friday can be reinitiated," he said.

Bet on it. Internet gambling is legal in the U.K. and much of Europe. Someday soon taxes from the likes of Absolute Poker and PokerStars will help pay the salaries of Rosenstein, Bharara and the others who have been persecuting them.

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