Two Black Fridays
The robber barons of the Gilded Age, Jay Gould was an American railroad magnate and James Fisk was a stockbroker and corporate executive. In September 1869, they led a ring of speculators who attempted to corner the gold market. While buying up all available bullion, they enlisted the help of Abel Corbin, brother-in-law of then US President Ulysses S. Grant, to try to drive up the price of gold by having him limit its availability. However, when Grant got wind of their intention, he ordered the US Treasury to sell gold instead.?
The government unloaded $4m worth, and on Friday, September 24, 1869, the price of gold plummeted from $160 to $130 per ounce. The gold market collapsed, precipitating a stock market collapse, and in one week, more than 20% was wiped off the value of shares, ruining many investors. The day became known in financial history as Black Friday.
Bank accounts attached to the sites were frozen, internet addresses were seized.
On April 15, 2011, the U.S. Department of Justice unsealed a 52-page indictment and a civil complaint against the top executives at PokerStars, Full Tilt Poker, and Absolute Poker/Ultimate Bet, the three largest sites in online poker. Bank accounts attached to the sites were frozen, internet addresses were seized. At the time, US Congressman Barney Frank said it was “an incredible waste of resources” to go after the poker world, but he was a lone voice in Washington.
Those named in the indictment faced prison time while the civil complaint sought $3bn in assets from the sites. PokerStars and Full Tilt Poker immediately withdrew from the US market as did Absolute Poker/UltimateBet a short time later. Players were left in limbo, unable to logon and unsure if their deposits were safe and would be returned. That day became know in poker history as Black Friday.
Ten years on and the memory of that day still looms large in the minds of poker players and industry professionals alike.
UIGEA set the wheels in motion
On October 13, 2006, the United States Congress passed the Unlawful Internet Gambling Enforcement Act (UIGEA), making it a federal offense for a gambling business to knowingly accept payments in connection with the participation of another person in unlawful internet gambling. The leading online poker operator at the time, PartyPoker, pulled out of the US market but other sites remained, taking maximum advantage of poker’s surging popularity.
In April 2010, Daniel Tzvetkoff, the former head of Intabill, a defunct Australian payment processor with links to PokerStars and Full Tilt Poker, was arrested by the FBI, charged with money laundering, bank fraud, and wire fraud. He turned government informant, arming then-US Attorney for the Southern District of New York Preet Bharara with evidence of how those sites got around the UIGEA by miscoding transactions via shell companies and the SunFirst Bank in Utah.
On April 15, 2011, the United States Department of Justice issued an indictment against PokerStars, Full Tilt Poker, and Absolute Poker. They seized their .com internet addresses and all their URLs. Over 70 bank accounts in 14 countries were frozen, preventing players from accessing balances held by the companies. In total, 11 individuals were charged, including PokerStars founder Isai Scheinberg, CEO of the Full Tilt software company Tiltware Ray Bitar, and Absolute Poker owner Scott Tom.
PokerStars bought Full Tilt, reimbursed players
On April 20, 2011, use of two of the domain names was returned to PokerStars and Full Tilt by the US Attorney’s office only to facilitate the withdrawal of US players’ funds. Absolute Poker/Ultimate Bet also reached an agreement by which funds could be returned to US players.
Full Tilt had not segregated player funds from company funds
There was one problem, though. Full Tilt had not segregated player funds from company funds and there was a staggering $330m shortfall. On June 29, the Alderney Gambling Control Commission suspended Full Tilt’s poker license and the site suddenly shut down worldwide.
On September 20, the Department of Justice amended the civil complaint to include allegations that Full Tilt Poker and its poker player board members Howard Lederer, Chris Ferguson, and Rafe Furst had defrauded players, claiming that Full Tilt Poker was a Ponzi scheme.
After initial signs that French investment firm Groupe Bernard Tapie would purchase Full Tilt once it forfeited its remaining assets to the US government, the site was ultimately purchased by PokerStars. In a deal struck with the US government, PokerStars forfeited $547m and agreed to pay back the Full Tilt players in full.
Everyone indicted finally faced their charges
On July 31, 2012, the US government dismissed with prejudice all civil complaints against PokerStars and Full Tilt Poker with both companies admitting no wrongdoing as part of the settlement. Isai Scheinberg agreed to step away from his role with PokerStars within 45 days, but the criminal indictments for him and the other named individuals remained in place.
Most of the men indicted by the DOJ were rounded up, charged, and convicted within a year of “Black Friday.” On December 20, 2011, Absolute Poker co-founder Brent Buckley pleaded guilty to misleading banks, receiving a 14-month sentence. Ray Bitar surrendered to authorities on July 2, 2012 and was made to forfeit the $40m which he had syphoned from 18 bank accounts across five countries.
On January 17, 2020, Isai Scheinberg surrendered to authorities in New York, the last of the 11 original defendants to face his charges in the US. In September 2020, he was sentenced to pay a fine of $30,000 with no jail time.
Online poker world still hasn’t recovered
Today is the tenth anniversary of Black Friday and to say that poker is still suffering some PTSD would be an understatement. US poker players were approximately 40% of the global playing population in 2011 and the industry immediately felt that loss of liquidity. In the years since, states have only come back online in piecemeal and ring-fenced fashion.
players in New Jersey, Delaware, and the Silver State can compete against each other
Nevada brought back online poker first in 2013 and now players in New Jersey, Delaware, and the Silver State can compete against each other in a shared player pool arrangement known as the multi-state poker alliance. Online poker came back to Pennsylvania in November 2019, while Michigan saw its first online poker room launch just this past January. West Virginia has also authorized internet poker alongside online casino gambling, but poker has yet to get off the ground in the state.
Post-Black Friday, professional online poker players based in the US were forced to emigrate, quit, transition to the live felt, or play on unregulated sites (or more recently apps). These sites operate under the radar, getting around the UIGEA via the use of cryptocurrency or an agent system which offers plausible deniability to the company providing the poker playing platform. In most cases, these sites provide little in the way of game security or game integrity.
Poker shows discussing Black Friday
In the months after Black Friday, poker on television all but vanished and has only begun to creep back in recent years. Poker content moved online faster than it probably would have otherwise. This week, poker web shows are covering the anniversary of Black Friday, most notably “The Lock-In” and “The Orbit.”
This week’s episode of “The Lock-In” features Andrew Brokos, who speaks about the impact of Black Friday on his poker playing and poker coaching business. Host Dara O’Kearney remembers the week when it happened and gives his opinion on how the industry “bungled its way into the crisis” and “bungled around after it.”
This week’s episode of “The Orbit” features host Robbie Strazynski welcoming former Full Tilt pro Mike Matusow, poker pro Blair Hinkle, Gaming Law Review editor-in-chief Steve Ruddock and former PokerStars VP of corporate communications & marketing Eric Hollreiser. The show contains some measured opinions from inside the industry from Hollreiser, some personal anecdotes from Hinkle, some thought on the legal ramifications from Ruddock, and some truly unhinged takes and wild accusations from Matusow.
“The Orbit” will air Thursday night at 7pm in the UK on Twitch and YouTube, immediately followed by “The Orbit Extra,” a live show hosted by the talented Natalie Bromley, with Daniel Negreanu and James Dempsey giving their thoughts on the episode and fielding questions from the chat audience.