Last week’s formal sentencing of PokerStars’ co-founder Isai Scheinberg to time served in his “Black Friday” plea-deal case signals the likely end of the Black Friday era of online poker, at least in a legal sense. Scheinberg’s sentencing in a federal Southern District of New York Courtroom by presiding judge Lewis A. Kaplan ended a nine-and-a-half-year legal saga that began late on April 14, 2011, when 11 defendants were charged with various crimes in the process of allowing US players to move funds to and from the largest offshore sites serving American online poker players at the time.
Scheinberg was the final of the 11 defendants to answer to the charges brought in the case, which was actually appended to the even-earlier US v. Daniel Tzvetkoff case centered on Australian-based online payment processor. When one adds in that earlier case and the ongoing DOJ and FEC investigations that brought about the sweeping 2011 indictments, the case spanned something closer to 14 years, not nine and a half. The US justice system, as always, grinds slowly but thoroughly, once it selects its targets.
Scheinberg and PokerStars were among the highest-profile of all the “Black Friday” targets, given that PokerStars was the dominant US-facing site before the Black Friday crackdown occurred. As with the other sites, PokerStars was adjudged guilty of manipulating certain elements of the US banking system to facilitate Americans getting money onto and off of the site, even if more blatant practices were undertaken by the other sites also crushed on Black Friday — Full Tilt Poker, Absolute Poker, and UB.com (known earlier as UltimateBet).
That PokerStars was able to pay out all balances due to US-based players and continue to thrive spoke to the quality and legitimacy of the operation. Such complimentary terms have long since fallen into disuse regarding the executives of the other Black Friday sites, who collectively looted a couple of hundred million dollars from the sites that quickly collapsed after Black Friday.
Yet that’s older news, and this all-but-final chapter was about Scheinberg, who with his son Mark created PokerStars. Isai was officially a fugitive from US justice for nearly nine years, but that was something of a laughable designation, since he had dual Israeli and Canadian citizenship, never traveled to the US in the years before Black Friday, and even conducted, through his counsel, years of negotiations with the US DOJ about how to resolve the Black Friday charges.
Eventually, though, the DOJ played its normal heavy-handed endgame. In February of this year, Scheinberg was detained by US request in otherwise-neutral Switzerland, and while Scheinberg could have battled the US’s extradition request, he finally agreed to surrender to US authorities, and he was then flown to New York and placed under arrest.
Scheinberg spent roughly seven months in US custody, though only a few days of that was in an actual jail cell. His indictment hearing had been prearranged and expedited, and after posting a million-dollar bond (and surrendering his passport), he and his wife stayed at the ritzy Sofitel in midtown Manhattan.
Covid-19 played a role in this, even after the framework of a plea deal was hammered out in March. As New York City was stricken with a severe Covid outbreak, the Sofitel was all but closed. The Scheinbergs were the only guests. With court approval, they were allowed to relocate to a resort in northern California to wait for the sentencing process to play out. That took over half a year, ending with the sentencing in Kaplan’s courtroom last week.
Despite the expectations that Scheinberg would indeed be sentenced to time served, it wasn’t quite a slam-dunk deal. In a pre-sentencing submission, SDNY prosecutors made a case that Scheinberg should possibly receive some time behind bars. The “Discussion” portion of that submission deserves wider publication, as it shows how the DOJ still thought about it all even nine years after Black Friday:
III. Discussion
The defendant’s offense was serious: for a decade, the defendant operated an illegal gambling business in the United States, generating enormous profits by violating U.S. law. Moreover, after he was indicted for his criminal activity, the defendant evaded justice for nearly another decade. While the Government agrees that there are mitigating factors in this case that support a below-Guidelines sentence, the Government submits the following additional
information [] for the Court’s consideration and to complete the record of the defendant’s criminal conduct.
First, the defendant attempts to distinguish himself from his co-defendants by noting that he received advice from lawyers that online poker operations did not violate federal law. But the defendant also evaded prosecution for nearly ten years by staying outside the United States, even as all of his co-defendants pleaded guilty. If the defendant truly believed the legal advice he received, he could have appeared before this Court to contest the charges against him or to advance arguments in mitigation, instead of avoiding the United States for nearly a decade as he did.
In a related argument, the defendant notes that he did not simply remain a fugitive, but rather had ongoing plea discussions with this Office in hopes of being offered a non-felony disposition. The fact that the defendant engaged in protracted negotiations does not weigh in his favor. As the defendant observes, as early as 2015, this Office offered to accept a plea that did not include the bank fraud charge, but rejected a non-felony disposition as the defendant had proposed. Not satisfied with the Government’s offer, the defendant evaded justice for another four years while awaiting the outcomes of his co-defendants’ prosecutions. There is no evidence to suggest that the defendant would have ever surrendered to U.S. authorities if he had not been arrested in Switzerland in June 2019.
Second, the defendant points out that he voluntarily surrendered to U.S. authorities after his arrest and release on bail in Switzerland. He notes that he ended his initial challenge to the Swiss Federal Office of Justice’s (“FOJ”) decision granting extradition, despite having received legal advice that he had strong grounds to continue to resist extradition. By way of background, the defendant contested extradition when he was arrested in June 2019. The
premise of his challenge was primarily the alleged absence of dual criminality. (See Translation of Extradition Decision dated October 4, 2019, attached hereto as Exhibit A, § 2, ¶ 5 (“[T]he person persecuted [sic] essentially submits the following: The dual criminality was not fulfilled.”); see also Def. Ltr. at 33 (arguing that the defendant’s “Swiss lawyers told him that there was a high likelihood that the decision would not survive judicial review, principally because PokerStars’ operations did not violate Swiss law”)).
However, in a thorough decision, the FOJ expressly considered and rejected the dual criminality argument, finding it was no obstacle to extradition. (See Exhibit A, § 2, ¶ 4.2 (“The requirement[s] of dual criminality within the meaning of [the relevant provisions of the Extradition Treaty between the United States and Switzerland] are thus fulfilled.”); see also § 2, ¶ 6.2 (“The question of whether Swiss criminal law applies extraterritorially or not does not need to be examined further here, as no compelling obstacle to extradition can be derived from this.”)). The defendant then appealed the FOJ decision, but later withdrew the appeal. Given the strength of the FOJ decision, the Government submits that the defendant ultimately surrendered to U.S. authorities only after concluding that he would not prevail on appeal and therefore had run out of options.
Third, the defendant argues that a downward variance is warranted because attitudes toward online gambling have changed in the past ten years. Assuming arguendo that assertion is accurate, the rationale should nonetheless be rejected. The defendant should not benefit from societal changes that occurred during the period when he was a fugitive. Rather, he should be judged by the same standard as all of his co-defendants: the laws and norms that prevailed at the time of the offense conduct.
Fourth, the defendant seeks a downward variance because PokerStars assumed approximately $304 million of Full Tilt Poker’s liabilities to players. Government agrees that action warrants consideration in fashioning the appropriate sentence. At the same time, the Government notes that the action was not without financial benefit to the defendant. As part of a tripartite agreement among the Government, Full Tilt Poker and PokerStars, PokerStars acquired Full Tilt Poker’s technical platform, which no doubt enabled PokerStars to capture a portion of Full Tilt Poker’s client base, which in turn likely enabled PokerStars to command a higher sale price when it was sold to Amaya Gaming for $4.9 billion in 2014. See https://www.forbes.com/sites/nathanvardi/2014/06/12/amaya-gaming-in-deal-to-buypokerstars-for-4-9-billion/#1dbaf4644698.
On balance, however, the Government believes that the mitigating factors in this case— particularly the defendant’s low likelihood of recidivism, the fact that PokerStars properly segregated player funds, the need to avoid unwarranted sentencing disparities, and the defendant’s good deeds—warrant a sentence below the Stipulated Guidelines Range.
IV. Conclusion
For the reasons discussed above, the Government respectfully submits that a below Guidelines sentence would be fair and appropriate.
Scheinberg’s lawyers fired back at several of the DOJ’s assertions in their own pre-sentencing submission. Most notable was their response that Scheinberg was “evading justice,” as he somehow had a responsibility to fly himself to the US’s whim to answer to these charges. His counsel’s submission broke it down better, like this:
The government writes as if Mr. Scheinberg were a fugitive who hid from
authorities for a decade before his arrest in Switzerland. As discussed in our sentencing submission, that picture is false. Mr. Scheinberg lived openly on the Isle of Man and in the United Kingdom and Canada for most of the period, and, for some of it, continued to work for PokerStars with the government’s approval. [] During those years, through counsel, he was in contact with the U.S. Attorney’s Office. There were dozens of telephone calls, countless emails, and six presentations between 2013 and June 2019, all in an effort to persuade the Office to dismiss the bank fraud charge (which it agreed to after Mr. Scheinberg met with prosecutors in London in 2015) and to dismiss or reduce the gambling charge (which it did not agree to). Mr. Scheinberg was not flouting justice.
Scheinberg’s lawyers also took umbrage with the DOJ’s assertion that the deal in which PokerStars paid a massive fine to the US, acquired the assets of the defunct Full Tilt Poker, and set up a massive fund to reimburse former Full Tilt players was a massive long game that enriched PokerStars’ parent Rational Group as it was acquired by Amaya in 2014.
Any competent researcher would’ve easily discovered that Full Tilt was dead in the water by 2014. Having been throughly looted by Bitar, Lederer, Ferguson, and other owners, the site (relaunched by Stars as Full Tilt Gaming) was the ultimate “once bitten, twice shy” choice for international players who waned nothing other than to join their US counterparts in getting their bankrolls the hell off of the site. Scheinberg’s counsel noted that Full Tilt’s value was only 3% of the value of the whole Rational family package when the Amaya deal was done, meaning Full Tilt was indeed worth less than what Scheinberg and Stars paid for it. That doesn’t mean, of course, that Scheinberg wasn’t playing a leniency long game all along, but that’s a different flavored beast.
Perhaps the most salient point in all the government’s wordage, however, was the “third” element of the discussion. Once the DOJ had let Full Tilt’s Ray Bitar walk free on a time-served sentence (and an almost surely bogus story of impending near death from a heart condition), the US government’s lot was largely cast. The DOJ could hardly proclaim Isai Scheinberg deserved more time behind bars than Ray Bitar. The sentencing guidelines for Scheinberg indicated a 12 to 18-month sentence. However, with Scheinberg already to receive credit for about seven months of US-based detention, a time-served sentence was truly the only realistic option.
Scheinberg was fined a nominal $30,100, meaning he’ll get back the vast majority of that million-dollar bond. Once his passport is returned, he’ll be free to leave the US, and it’s a safe bet he’ll never return.
The Scheinberg sentencing is almost surely the last legal hammer to fall in the extended Black Friday, yet it’s not quite an absolute. There are still a few scattered dozens of former US-based players of Full Tilt Poker and AP/UB who remain involved in very slowly grinding remission battles with the DOJ over long frozen balances.
Remissions claims administrator Garden City Group hasn’t made a public statement about players’ claims in nearly two years, but reports indicate that a few players have received payouts in just the past few months. It is unlikely (but not impossible) that there’s an aggrieved former FTP or AB/UP player who ends up being denied a balance that’s both still in dispute and is large enough for him to pursue in court. It’s a long shot to occur, but such a lawsuit would reopen the Black Friday legal saga once again.
Of course, the whole Black Friday thing utterly reshaped the online poker world, if not all of poker. It’s been a long, important, uneven tale. And in the legal sense, it may finally be complete.