- »PokerStars Founder Scheinberg Pleads Guilty in US Court
PokerStars Founder Scheinberg Pleads Guilty in US Court
The case lasted nearly nine years. It started on April 11, 2011, the day that the poker world knows as Black Friday. There were 11 indictments, four major poker sites seized by the United States government, and 10 guilty pleas. There was only one pending arrest, one of those indictments that remained open year after year after year.
Isai Scheinberg, the 73-year-old Toronto resident, finally faced the charges in a US court this year. And last week, he entered a guilty plea, now awaiting sentencing for running an unlawful gambling business.
The founder of PokerStars faces up to five years in prison.
Poker Players Never Forget Black Friday
Poker players in the United States found a surprising and terrifying situation on April 11, 2011. Anyone who logged on to PokerStars, Full Tilt, UltimateBet, or Absolute Poker saw a notice that the US Federal Bureau of Investigation (FBI) seized the sites. And they did so under the order of the US Attorney’s Office for the Southern District of New York.
The sites were referred to as illegal gambling businesses.
There was more. US Attorney Preet Bharara unsealed an indictment of 11 people associated with the online poker industry.
- Ray Bitar and Nelson Burtnick of Full Tilt
- Isai Scheinberg and Paul Tate of PokerStars
- Scott Tom and Brent Beckley of Absolute Poker (and UB)
- Ryan Lang, Bradley Franzen, Ira Rubin, Chad Eli, and John Campos of various payment processing companies
The charges of illegal gambling, violating the Wire Act, and conspiracy to commit bank fraud and money laundering were startling. Even worse for many players, all monies tied up in these companies and sites were in the hands of the US government.
Months of Unknowns
Players were terrified that their money in the sites was gone forever. Many of them also feared they lost their livelihoods, their careers, as poker pros.
In the months that followed, many fears were realized. Full Tilt collapsed, showing that hundreds of millions of dollars in player funds were used to pay dividends to site owners and board members. It put people like Howard Lederer and Chris Ferguson in the spotlight, as Bharara sued them for running a Ponzi scheme. In reality, it became apparent that those in charge at Full Tilt were spectacularly bad businessmen and, some would say, greedy.
Absolute Poker and UB executives absconded with player funds, gone forever.
Meanwhile, PokerStars had its player funds in a separate account (nearly $150 million) and paid all of its customers when the US government allowed it to access player information.
Eventually, PokerStars entered into a $731 million civil lawsuit settlement with prosecutors. This took care of all fines with the US government and allocated $330 million to repay Full Tilt players. The process of repayment took years, but eventually, extra money from that lawsuit was also used to repay many UltimateBet and Absolute Poker players, too.
Ten of the indicted executives from the various companies entered guilty pleas. They paid millions in fines; some served prison time.
Changing Hands of PokerStars
Isai Scheinberg stepped back while his son, Mark Scheinberg, continued to operate PokerStars. The elder Israeli-born Scheinberg forfeited his position at PokerStars as a part of the company’s deal with the US government.
As a part of the aforementioned deal with US prosecutors, PokerStars acquired Full Tilt Poker’s assets. Then, in the summer of 2014, Toronto-based Amaya Gaming bought PokerStars’ parent company, Rational Group, for $4.9 billion and turned it into The Stars Group. This eliminated the Scheinbergs from the company altogether.
In 2017, the company changed its name to The Stars Group. That company is now in the final stages of merging with Flutter Entertainment, formerly known as Paddy Power Betfair, in a multi-billion-dollar acquisition deal.
US Still Sought Scheinberg
The United States doesn’t like to lose. Federal authorities continued to seek the one that got away, Isai Scheinberg, who was at the heart of the one unresolved indictment.
Scheinberg continued on with life in Toronto – perhaps some years on the Isle of Man – and traveled at will, avoiding the US. But in 2019, he made a mistake. He traveled to Switzerland, which has an extradition treaty with the US.
Swiss authorities took Scheinberg into custody on behalf of the United States on June 7, 2019.
Scheinberg initially fought extradition to the US but eventually agreed. The Swiss Federal Office of Justice arranged to fly Scheinberg to New York City on January 17, 2020, and when he landed on US soil, federal agents took him into custody.
He appeared in a Manhattan federal court that same day, where he was officially arraigned. Scheinberg issued a not-guilty plea. Within four days, he had surrendered his passports and posted $1 million bail.
Charges and a Plea
There were five original charges against Scheinberg, which carried a cumulative total of 65 years of prison time, millions in fines, and forfeitures of proceeds. Those original charges were:
- Conspiracy to violate the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006
- Violation of the UIGEA
- Operation of an illegal gambling business
- Conspiracy to commit bank fraud and wire fraud
- Money laundering conspiracy
Reportedly, Scheinberg’s attorneys were already in negotiations with federal prosecutors. One of the latter, Olga Zverovich, told Forbes, “We have an agreement in principle on the basic terms.
They hit a few snags along the way. But on March 25, US Attorney Geoffrey Berman – Bharara’s successor – announced that Scheinberg entered a guilty plea to “running a multimillion-dollar unlawful internet gambling business.” His plea included an admission of knowledge of state and federal laws prohibiting offering internet poker when he did so, and he knowingly accepted money for this business. Thus, he violated the law regarding operating an illegal gambling business.
Berman was happy to obtain the guilty plea, especially after so many years and the successful prosecution of the other 10 defendants.
“As Isai Scheinberg’s guilty plea shows, the passage of time will not undermine this office’s commitment to holding accountable individuals who violate US law.”
The charge to which Scheinberg pleaded guilty carries a maximum sentence of five years in prison, three years of supervised release, a fine of $250,000 or twice the gross gain or loss, and the forfeiture of any proceeds of the offense.
Considering it took nearly two months to agree to the terms of the plea deal, it is unlikely that Scheinberg will receive the maximum sentence. However, it will be in the hands of US District Judge Lewis A. Kaplan.
A sentencing date will be set in the coming days or weeks.
That sentence and its ultimate completion will close the case on Black Friday, at least in the eyes of the court system. For poker players, however, Black Friday will always remain a stark reminder of the way online poker used to be.