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Old 12-04-2008, 12:55 PM
Rogthedodger Rogthedodger is offline
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Default Clearing Some Misinformation in the 60 Minutes Report...By Hartley Henderson

On November 30th, CBS show "60 minutes" aired a report about the gambling scandal at Absolute Poker and Ultimate Bet that has been discussed at MajorWager on numerous occasions. There was wide belief that the "60 minutes" episode would be so onerous that it could essentially kill online poker as we know it. The piece was a big disappointment if it's goal was to dissuade people from playing poker online. It did outline that cheating occurred and it illustrated that online poker is not foolproof. What the piece failed to do was make any convincing arguments that this was anything but an isolated incident, and it certainly didn't prove that online poker is fixed. The segment also logically concluded that cheating could happen again. However, what was upsetting about the report was the amount of misinformation and half truths, which I'm going to address in this article.


First, the report stated over and over how playing online poker is illegal in the United States. That is patently untrue. The only law on the books relating to online gambling is the UIGEA, which only had final regulations passed last week and takes effect in January. Technically, therefore, the UIGEA still isn't an enforceable law. Also, the UIGEA doesn't apply to bettors. The law only makes it illegal for banks to process transactions that are used for the purpose of online gambling. It cannot be enforced against offshore gambling sites and it certainly isn't applicable to the players. If an American citizen attempts to make a deposit to a gambling site it is the banks or other payment solutions that are held accountable for ensuring the deposit isn't processed. As long as the banks do some sort of due diligence, however, they cannot be held responsible. Furthermore, there were no actual penalties mentioned for the payment companies under the UIGEA final regulations for failing to stop transactions. The player cannot be arrested federally for betting online or for trying to make the payment. Only states have the power to charge players for betting online, and thus far only one state, Washington, has made it a felony to bet online. A handful of other states have made it a misdemeanour offence, but in the vast majority of states online gambling is not addressed in any way shape or form and general gambling laws do not make it an offense to place a bet (even with a bookie), only to be in the business of accepting wagers. It should be noted that a couple of individuals are prepared to take on Washington's law and no one has been charged in that state with placing an online wager, although many citizens do bet online there. It is a sound belief among many constitutional lawyers that Washington would lose a constitutional challenge to its online gambling bill if it tried to defend it in a court of law and that the statute was only written by the state to try and frighten citizens away from placing bets. The bottom line, however, is that playing poker online is not "illegal in the United States".

A second area where the "60 minutes" segment seems to have missed the boat is with the focus on Joe Norton. The segment, along with the companion write-up in the "Washington Post," implicated Norton for being the owner of both Absolute Poker and Ultimate Bet. The suggestion seemed to be that because Norton was a former Grand Chief of Kahnawake and because the two sites involved in the cheating ran servers from Kahnawake that Norton, therefore, was an insider who was involved with the cheating. What the "60 minutes" segment failed to mention was that Tokwiro Enterprises (Norton's company) only acquired the two sites in 2006 from Excapsa Software Inc. in response to the passing of the UIGEA in the United States. Excapsa was listed on the AIM stock exchange just prior to being sold off, but like most other publicly traded companies was forced to sell its U.S. facing business upon passing of the new law. Tokwiro Enterprises, using the name Blast Off Inc., bought the companies and moved the servers to Kahnawake where they were able to operate since Norton was a Mohawk (which is a requirement in owning a company on the reserve). Needless to say Norton bought a lemon, and if anything was guilty of not being more thorough in analyzing the software he was purchasing. For that lack of foresight his company has paid the price in both fines and loss of customer goodwill, but there is absolutely no indication anywhere that Norton or others at Kahnawake knew about the faulty software. In fact Excapsa is reimbursing Tokwiro all money that players lost to the fraudulent accounts so that no players were out of pocket by being cheated. Mind you, while the Excapsa liquidation required the payment, it is still almost certain that the phoney superuser accounts that were used to cheat players were generated in the original design of the software long before Excapsa acquired the 2 sites.

The belief that Norton was more involved could be a misunderstanding of the Mohawk nation and how it operates. Many people I spoke to suggested that Kahnawake has refused to seriously investigate Norton because he was a Grand Chief and essentially has immunity. The term Grand Chief may be confusing to outsiders. Many believe that a Grand Chief would have the same powers as a President or Prime Minister. But as Chuck Barnett told me, Grand Chief is just a term that describes head of a council. "We have many chiefs at Kahnawake and none have any more power than the others. The grand chief is just a position and if they are guilty of a crime they can be charged just like anyone else. If the Kahnawake Gaming Commission discovered any impropriety on Norton's part we would have acted on it and revoked his license." Perhaps the easiest way to think of the setup at Kahnawake is the way one would observe any city in North America. The city has a mayor and a council made up of individuals who oversee their perspective wards. If anyone on the council, including the mayor, is found to have committed a crime then the police force has the right and duty to arrest them just like anyone else in society. Their standing does not make them immune. Barnett also pointed out that when Norton gave up his position as Grand Chief he became an ordinary citizen just like anyone else at Kahnawake. The KGC investigated Norton very closely and basically found that he was just a poor sucker who acquired a company with a shady background. The real culprits in the case were the original designers of the software (exactly who they are is murky, although the name eWorld Holdings came up in a thorough MSNBC investigative report). eWorld Holdings appeared to be the original company that operated Absolute Poker and Ultimate Bet in Costa Rica prior to Excapsa taking the company public. The "60 minutes" piece identified Russ Hamilton as the man Kahnawake has offered up as the main suspect in the cheating from his time at eWorld Holdings and as a consultant to Excapsa, although he has vehemently denied any wrongdoing. Excapsa has also made it clear that they had no idea that the phoney accounts existed. Poker forums, especially 2plus2, identified Scott Tom as the mastermind in the cheating at Absolute Poker, although he also denied any wrongdoing. It appears neither Hamilton nor Tom can be found to answer any questions more thoroughly.

That brings us to a third area that was misleading in the "60 minutes" report, i.e. the power Kahnawake has over Russ Hamilton or any other cheaters. The segment suggested that Kahnawake was not performing a real criminal investigation into Hamilton, and that the Mohawk Police should have arrested him. After all, "60 minutes" easily found his phone number in Nevada. That may be true, but the Mohawk Nation doesn't have an extradition treaty with the United States. And in fact I don't believe Canada and the U.S. would have an extradition treaty for internet fraud. Nevertheless, both Barnett and Frank Catania pointed out to me that the KGC has initiated a full investigation and is working with external policing agencies and is offering full cooperation in any external investigations. Furthermore, because of the very nature of the internet it isn't even certain who should be pursuing Hamilton or any others involved in the cheating. Excapsa was a Canadian company that was eventually sold to an entity in Malta where Norton purchased the companies. Excapsa was listed on the British stock exchange before being sold to Malta. The original company that ran Absolute Poker where the cheating was suspected to have begun was operating from Costa Rica, and in fact the main offices of Absolute Poker and Ultimate Bet are still in Costa Rica. Furthermore, eWorld Holdings was listed as eWorld Holdings (Antigua). And pretty much all the people named as suspects are Americans, and the main suspect, Russ Hamilton, is holed up in Nevada. So is this a case for Canada, the United States, Malta, Antigua, Costa Rica, Britain or the Mohawks? Or, as is currently happening, is it an area where various forces should do their own investigations and determine jurisdiction before proceeding. To blame Kahnawake for not going to Nevada and arresting this guy, however, is just ludicrous. Besides that, as Catania stated to me, "this case isn't over by a longshot."

A fourth area where the report seemed to be a bit misleading was with the safety of poker software. To date it is estimated that several quadrillion hands of poker have been played on the internet. There are numerous poker sites, including Full Tilt, Party Poker, PokerStars, World Poker Exchange, Bodog Poker not to mention the many networks like iPoker in Europe, which encompasses numerous sportsbooks. There are thousands of poker web sites, and to date this has been the only scandal. It appears that Kahnawake was just unfortunate to have the rogue site fall into its jurisdiction at the time the cheating was identified. By anyone's admission in the industry this could have just as easily happened in Britain, Antigua or any other jurisdiction that is regulated. The nature of the cheating was pretty much undetectable and was only found out when players started inquiring. As Jay Lakin from pokersourceonline.com told me, "it's due diligence by players that help weed out cheating." Furthermore, cheating also happens at brick and mortar casinos. Catania mentioned to me about instances in Atlantic City where he would see people with cards up their sleeves, throwing the dice in ways where they didn't roll, vans with computer programs outside the casino capturing cards as they came out of the shoe etc. "In gambling there is always someone that will try to find a way to cheat. We just have to make sure that when it does happen we put safeguards in place so that type of cheating doesn't happen again." Poker software isn't perfect, but it is constantly tested and games are closely monitored for any unusual play or collusion. Online gaming is still in its infancy. Poker software will become even better at catching cheaters, but unfortunately cheaters will learn new methods, too. In a way it's very much like the Olympics. Athletes use banned substances to improve performance. Testing is good at catching the steroids. but athletes and trainers just look for something else that isn't being caught by the current testing methods. Consequently, sometimes cheaters aren't caught until the new steroid is identified. Nevertheless, few suggest the Olympics should be abandoned because a few athletes cheat, or because every possible future steroid hasn't been identified.

The last area I wanted to address was the depiction of Kahnawake itself. The segment suggested that MIT was very non descript and almost didn't deserve to be an operation as large as it is. When I was at the Clarion Gaming conference in Montreal in September, Chuck Barnett took me on a tour of Kahnawake and Mohawk Internet Technologies at my request. I felt it was important that I understood the ins and outs of the operation and the Kahnawake Gaming Commission since I have written about it on occasion. All people involved with the operation answered my questions without any reservations and talked to me at great length about the history of the operation, including the scandals. They also showed me the papers that companies had to sign, including all assets and liabilities, before setting up shop on the reserve. It is true that Kahnawake isn't New York City or even Montreal, but it is quite similar to many small towns one would see throughout the United States. More importantly, MIT has a security staff on site 24 hours a day with numerous levels of security before one can gain access to the servers. It has the latest server technology and has all the safeguards to ensure immediate action when there is a threat of power supply interruption or fire. MIT is proud to make it known on its web site that it has never had any downtime from its servers. Yes, it's true that MIT is located in an old mattress factory and it is non descript. But, after all, it is a data center. I asked Chuck Barnett about the accusation on the segment that MIT was in a building that had no signage out front. He laughed and replied, "show me a data center anywhere in the world that has big neon signs outside or that has a big neon smoking cowboy pointing at the center with a sign that reads 'servers inside'." The point is that MIT has been successful at hosting gambling servers for a decade, which is about the time gambling really started on the internet, and there have never been any security breaches at the facility or downtime. That is indeed quite an achievement. The type of building it is housed in is irrelevant.

In a way it is fortunate that "60 minutes" and the "Washington Post" chose to highlight the scandals. With any luck it will make cheaters think twice before trying it again online, and it also highlighted that online poker in the United States is huge and isn't going away just because some politicians don't like it. It's ironic that in spite of the cheating none of those featured on the segment have stopped playing poker online. If indeed they truly believed online poker can't be trusted they would have given it up. More importantly it showed the average American that those who gamble online aren't the degenerates the government has been stating they are. Many Americans have been force fed the rhetoric by their government and the DOJ that online gambling is related to underage gambling, compulsive gambling, terrorism and the mob. However, that just isn't generally true. None of those identified in the report were underage, and they all certainly seemed to play within their means. The segment showed that a large percentage of the players are university graduates who know the percentages attached to betting and are simply trying to use their skills to their advantage. Barney Frank, Robert Wexler and others have been arguing for years that for the majority of people online betting is just done for fun and the government has nothing to worry about in the areas they highlighted. The "60 minutes" report also went a long way to show why regulation is the only answer. As mentioned, Americans will continue to play online and if the real concern is cheating and taxes which was briefly mentioned, then what better way to ensure they are addressed than with U.S. regulation. As Catania mentioned to me, online regulation wouldn't even stop all cheating (it happens now in highly regulated brick and mortar U.S. casinos), but at least the states would have more control over it if the servers were in their own backyards. And let's face it, the United States has nothing to lose. because if poker players are willing to still play online despite being cheated by the website, they certainly aren't going to be swayed away from it because the government passed a law that holds banks responsible for doing due diligence before processing a payment.

12-04-2008
Hartley Henderson
MajorWager.com
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http://www.majorwager.com/frontline-714.html
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Old 12-04-2008, 12:55 PM
Rogthedodger Rogthedodger is offline
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Very thorough analysis, Hartley. Nice job.
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Old 12-04-2008, 01:32 PM
j j is offline
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Quote:
Also, the UIGEA doesn't apply to bettors. The law only makes it illegal for banks to process transactions that are used for the purpose of online gambling.
This is the part I don't understand. I've read that the UIGEA "only" prohibits checks, EFT's, and credit cards--but doesn't touch bank wires. Does anyone know if this is true? If so, why would they leave open the bank wire option?
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Old 12-04-2008, 01:36 PM
stevo stevo is offline
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Great analysis Hartley. Thanks.
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Old 12-04-2008, 01:38 PM
Myron Myron is offline
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great article. j i think it's because foreign bank wires are always investigated before being processed whereas other methods don't require the same amount of investigation. i had a bank wire come to me from a friend in china and the bank wanted to know everything about it before they put it in my account. i never had that kind of scrutiny for an eft or check.
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Old 12-04-2008, 02:48 PM
Chillin-the-Most Chillin-the-Most is offline
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Quote:
Originally Posted by j View Post
This is the part I don't understand. I've read that the UIGEA "only" prohibits checks, EFT's, and credit cards--but doesn't touch bank wires. Does anyone know if this is true? If so, why would they leave open the bank wire option?
I think you got that backwards. I believe it applies to wires but not checks. Well, I know it does not apply to checks. I assume it applies to wires.
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Old 12-04-2008, 04:32 PM
j j is offline
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Originally Posted by Chillin-the-Most View Post
I think you got that backwards. I believe it applies to wires but not checks. Well, I know it does not apply to checks. I assume it applies to wires.
Hey Chillin...you still in CR?

My sense that wires were exempt came from Nelson Rose article posted by StarNet Gypsy:

Quote:
Federal Reserve smartens up

Why not require banks to see if their patrons are wiring money to illegal overseas gaming operators? The agencies admitted “there are no reasonably practical steps that a U.S. participant [financial institution] could take to prevent their consumer customers from sending restricted transactions cross-border.” They thought about requiring banks to ask their customers, “Are you sending money for illegal Internet gambling?” But someone at Treasury or the Federal Reserve had the brains to realize that the answer the banks were going to get would always be “No.”
An Analysis of the Finalized UIGEA

If checks are ok, then why has the industry had such a hard time getting them out in a timely way?
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Old 12-04-2008, 05:31 PM
Hartley Hartley is offline
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Old 12-04-2008, 06:59 PM
j j is offline
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Originally Posted by Hartley View Post
Volume
Huh?
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Old 12-05-2008, 11:37 AM
Rogthedodger Rogthedodger is offline
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j, I think Hartley was answering this question:

If checks are ok, then why has the industry had such a hard time getting them out in a timely way?
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Old 12-05-2008, 01:03 PM
j j is offline
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Originally Posted by Rogthedodger View Post
j, I think Hartley was answering this question:

If checks are ok, then why has the industry had such a hard time getting them out in a timely way?
I guess I'm being dense here. But I still don't understand the answer. It's because they have to send too many checks? Well, if checks aren't prohibited by the UIGEA as Chillin claims, then what's the problem? (Remember my understanding is that they are prohibited, only bankwires are exempt.)
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Old 12-14-2008, 06:43 PM
Chuck@Mohawk Chuck@Mohawk is offline
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Well thought out and written piece, Hartley. You managed to take something fairly complex and lay it out so that even "I" could get it. Now, if only 99% of other writers would read your stuff first, before going after the "big story".
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