Poker Indictments Part II: An Upside-Down Pyramid Scheme

It’s been awhile since my last blog post, and I’ve had the opportunity to read and review the 50 page complaint detailing the government’s allegations. The government charges include nine counts, as follows:

Count
1: Conspiracy to Violate the UIGEA
2: Violation of UIGEA (Pokerstars)
3: Violation of UIGEA (Full Tilt)
4: Violation of UIGEA (Absolute Poker)
5: Operation of an Illegal Gambling Business ( Pokerstars)
6: Operation of an Illegal Gambling Business (Full Tilt)
7: Operation of an Illegal Gambling Business (Absolute Poker)
8: Conspiracy to Commit Bank & Wire Fraud
9: Money Laundering Conspiracy

First, it’s important to understand what is prohibited by UIGEA itself. According to the indictment, UIGEA makes it

“a federal crime for gambling businesses to ‘knowingly accept’ most forms of payment ‘in connection with the participation of another person in unlawful internet gambling.’”

[1]

The UIGEA also makes clear that, although it defines a prohibited bet or wager (as detailed in my prior post), it is not intended to enlarge or replace any state law on the issue. As such, in order for an individual to violate UIGEA, they must also operate an “illegal gambling business” under state law. Thus, the first four counts are premised on a violation of a state law leading to a violation of UIGEA, and the next three counts are based entirely on violation of the state law. I thought it would be interesting to take a look at that law today.

Paragraph 33 of the indictment (among others) alleges that the defendants knowingly accepted

“ in connection with the participation of another person in unlawful internet gambling, to wit, gambling in violation of New York Penal Law Sections 225.00 and 225.05 and the laws of other states where the gambling businesses operated…”

[2]

New York Penal Law Sections 225.00 and 225.05

As an initial matter, Section 225 is the “definitions” section of New York’s gambling law, and I am pretty sure that you can’t actually violate a definition. Which brings us to §225.05 – the real substance behind this billion dollar indictment. Under §225.05, a person is guilty of “Promoting Gambling in the Second Degree” when he “knowingly advances or profits from unlawful gambling activity.” [3]

The defendants may indeed have violated this section. Unlawful gambling activity is defined in §225 as any gambling activity that is not specifically authorized by law. The next sentence is the one that got me though. “Promoting gambling in the second degree is a class A misdemeanor.” [4]

As a Class A misdemeanor, a defendant cannot be sentenced to more than a year in jail for its violation. To give you some idea, other Class A misdemeanors include: making graffiti, fourth degree marijuana possession, menacing in the second degree, or jostling. Yes, jostling.

So, basically, this entire indictment is built like an upside-down pyramid. At the point, holding the entire weight of the indictment, is a Class A misdemeanor in New York. The UIGEA counts form the next layer of the pyramid, based entirely upon the same misdemeanor. Finally, to top it off, the government has thrown in the bank fraud, wire fraud and money laundering, all allegedly designed to get around the original Class A misdemeanor. Viola. Looks sturdy enough to support several billion dollars…


1. Superseding Indictment: US. v. Scheinberg et. al. at paragraph 14.
2. Id. At paragraph 33.
3. NY Penal Law Section 225.05.
4. Id

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