Last week’s voluntary surrender to United States authorities by PokerStars co-founder Isai Scheinberg marks the end of a saga stretching more than a decade, all centered on the April, 2011 “Black Friday” clampdown by the US Department of Justice targeting US-facing offshore poker sites.
Scheinberg was among 11 individuals charged in the sweeping Black Friday indictments, which also included the seizure of several prominent online poker domains. The 11 men indicted included officials of PokerStars, Full Tilt Poker, and Absolute Poker (which also included the old UltimateBet/UB.com), along with several independent “third party” payment processors. One by one, they were either arrested by US agents or surrendered to face the charges until — for several years — only Scheinberg remained officially on the run from US justice.
That term never really captured the nature of the situation, however. Scheinberg, who along with his son and PokerStars’ other co-founder, Mark Scheinberg, had become billionaires through their astute operation of what became the world’s largest online poker site. That wealth allowed Isai Scheinberg the means to remain outside the reach of US justice, despite most countries in the world having extradition agreements with the States. Scheinberg spent much of his time in Israel, and he was also known to spend significant time on his large yacht, which sailed in international waters.
Yet despite being an “official” fugitive, active negotiations between Scheinberg and the US DOJ had likely been going almost since the Black Friday charges were announced. And, had it not been for Scheinberg, the story of the other two online poker companies involved, Full Tilt and Absolute Poker, would have had a much darker outcome.
Scheinberg and his PokerStars representatives negotiated the late-2012 deal with the DOJ in which Stars agreed to compensate all former players of the defunct Full Tilt. In exchange, PokerStars parent Rational Group received all remaining Full Tilt assets, including its still-active international player database. (The deal providing compensation to jilted AP and UB players was welded into the situation a couple of years later.)
Scheinberg and PokerStars significantly overpaid in the asset exchange, firing off $731 million to the DOJ. Some of that eventually went to pay for the Full Tilt and AP/UB remission programs, but hundreds of millions more was earmarked as a fine for Stars’ own alleged sins. Yet PokerStars’ position was always that online poker was never illegal in the States, excepting perhaps a handful of individual US states that had more specific laws regarding online gambling.
What was the purpose, then, of that massive overpayment in 2012? In a word, goodwill. PokerStars had already shown that it was the only one of the indicted “Black Friday” firms that had been run as a responsible, quality buiness. Full Tilt had long been exposed as a fraud controlled by Howard Lederer, Ray Bitar, and Chris Ferguson, while Absolute Poker was just a fleece-and-run show run by Scott Tom and family and friends. Both of those supposedly respectable sites quickly folded their virtually debts, running off with hundreds of millions of dollars in customer deposits that would never be returned.
PokerStars and Isai Scheinberg were different. They took the giant hit, paid out far more than they actually needed to, and kept Stars’ good international name intact. PokerStars still faced plenty of rough waters, including its difficult battles to re-enter the US market and its sagging reg with consumers following its sale to Amaya, but the Scheinbergs had built a responsible and profitable online giant.
The differences between PokerStars and the other Black Friday firms were stark and irrefutable, yet Isai Scheinberg himself remained a fugitive in technical terms. There’s no doubt terms of a legal surrender had been negotiated for years. Indeed, the public may never know why it took so long for the legal deal to be cemented.
Be that as it may, the Scheinberg part of the story is now almost over. On January 17, he surrendered to US marshals. Scheinberg was arraigned later that same day before US Magistrate Judge Katherine H. Parker, and on January 21, he was released on $1,000,000 bail. (Scheinberg wrote a check, in case you wondered.)
Still, there are some conditions attached to his release. Scheinberg was ordered to stay within the Eastern and Southern Districts of New York, which includes New York City, Long Island, and most NYC suburbs. Scheinberg is also free to travel to Washington D.C. for conferences with his pricey attorney, L. Barrett Boss of prominent D.C. legal firm Cozen O’Connor.
Scheinberg was also ordered to surrender his international passport and other travel documents, and he can’t apply for new ones until his case is settled. In the meantime, he’ll be residing at the tony Sofitel in New York City.
Scheinberg is likely to receive a plea deal in the very near future that could be as little as the $1,000,000 bond being forfeited as a fine, along with time served — his detention at the Sofitel — as an official jail sentence. When one realizes the nature of the prosecutorial handslaps that fellow defendants such as Ray Bitar and Scott Tom received, there’s no reason at all that Scheinberg should receive a harsher sentence. It’s Scheinberg and PokerStars who have already paid a large penalty for those other sites’ misdeeds, anyway.
Whenever the terms of a plea deal with Scheinberg are announced, that should mark the end of the entire Black Friday saga. 2011 wasn’t even close to the beginning; the story really began in 2007 when DOJ and FTC investigators began chasing alleged violators of the 2006 Unlawful Gambling Act (UIGEA). Those agencies went after the weakest links first, meaning the independent third-party processors. Layer by layer, they chased the processors down. The entire Black Friday case as most people recognize it is actually an offshoot of the late-’00s “USA v (Daniel) Tzvetkoff” case, that targeted a major Australian payment processor.
And now, it’s almost over.