NBC News and news services
updated 8/1/2012 6:59:12 AM ET 2012-08-01T10:59:12

The world's largest poker company and its rival have settled federal money laundering and fraud charges, agreeing to pay hundreds of millions of dollars, most of which will be used to reimburse online gamblers, authorities said.

PokerStars, which is based on the Isle of Man, off the coast of Ireland, agreed to forfeit $731 million, including $547 million that will be available to reimburse U.S. customers of the rival, Full Tilt Poker. Full Tilt also agreed to settle and will cease independent operations.

The settlement also sets the stage for PokerStars to re-enter the burgeoning U.S. market.

PokerStars and Full Tilt, which did not admit wrongdoing in the settlement, became the dominant sites for Web gamblers in the United States after Congress explicitly banned real-money gambling on online card games in 2006 and other companies withdrew from the market.

While Full Tilt claimed to be based in the Channel Islands, many of its owners were in the United States, including poker pro Chris "Jesus" Ferguson, who authorities said owned 19 percent of the company. The Full Tilt player-owners were prominent figures in the poker world, sporting "Full Tilt" hats as they competed in televised tournaments after networks rejected poker commercials.

Preet Bharara, the U.S. attorney for the Southern District of New York, described the bettors as victims, according to The New York Times. He said that the settlement would "allow us to quickly get significant compensation into the victim players' hands," according to the newspaper.

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"This is another shoe dropping in a longstanding effort by the federal government to try and freeze these companies out of the American market," Daniel C. Richman, a professor of law at Columbia and a former federal prosecutor, told The New York Times.

"As some state governments reconsider their gambling laws, we may see more of these cases against foreign gambling companies," the Times quoted Richman as saying.

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Prosecutors blast 'global Ponzi scheme'
On April 15 of last year -- a day known as Black Friday in the industry -- federal prosecutors in Manhattan filed a civil bank fraud and money-laundering suit against Full Tilt and PokerStars and brought criminal charges against their founders.

Prosecutors said both companies had used false billing codes to deceive banks that would not process gambling transactions, and they said Full Tilt had devolved into a "global Ponzi scheme," with the big-name players and other owners pocketing hundreds of millions of dollars that were owed to players.

Prosecutors accused Full Tilt of lying when it told customers that their accounts were "segregated and held separately" from the company's operating funds. In the end, it owed more than it could repay without a sale.

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Prosecutors said the amount of money being forfeited would more than cover the amount that Full Tilt had owed its players. An attorney for the company, Jeff Ifrah, said it only owed $330 million worldwide.

"Today’s settlements demonstrate that if you engage in conduct that violates the laws of the United States, as we alleged in this case," The New York Times quoted Bharara as saying, "then even if you are doing so from across the ocean, you will have to answer for that conduct and turn over your ill-gotten gains."

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PokerStars will be barred from employing Full Tilt Chief Executive Raymond Bitar, who faces criminal fraud charges and is now out on bail, as well as part-owners and famous players Ferguson and Howard "The Professor" Lederer, who remain defendants in the civil case.

PokerStars also agreed that its founder Isai Scheinberg, who also faces criminal gambling, fraud and money laundering charges, would no longer serve as an executive or director. Scheinberg remains at large, according to prosecutors.

Wire Act
The settlement sets the stage for PokerStars to re-enter the online card games market in the United States. The Justice Department in Washington decided last year that the Wire Act, one of the key laws used in prosecuting gambling operations, should not apply to state-approved games -- opening the door to the legalization of online poker.

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Four weeks ago, Delaware joined Nevada in legalizing online poker among state residents, and California and several other states are considering similar measures as they seek new tax revenue and technology jobs.

Mark Scheinberg, PokerStars' chairman and the son of its founder, said in a statement that the company was "delighted" to resolve the case and that the it hoped to join its rivals in seeking state licenses.

"The agreement explicitly permits PokerStars to apply to relevant U.S. gaming authorities, under both PokerStars and Full Tilt Poker brands, to offer real money online poker when state or federal governments introduce a framework to regulate such activity," Scheinberg said.

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Nevada has already begun reviewing applications from some of the online sites that pulled out in 2006, including Bwin.Party Digital Entertainment and 888 Holdings Plc.

Those two companies declined to comment on the long-expected PokerStars settlement, but people close to both previously told Reuters that executives were angry that PokerStars was set to cash in on the customer loyalty built up in violation of the law.

The sites 888 and Bwin.Party, owner of the former top U.S. site PartyPoker, "left the country and lost their business, and now they may be the ones that are really hurt out of this," said Robert "Chipburner" Turner, a poker champion who advises other casinos.

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Several companies besides PokerStars considered making bids for Full Tilt, including San Francisco-based social gaming company Zynga Inc., Bwin.Party and land-based casinos, according to a person involved in the process. The asset sale includes software, patents and 10,000 Web addresses. Zynga had no comment.

"For PokerStars, it's smart business to try to remove a number of the clouds which obviously were preventing them from operating in the U.S.," said Jon Richmond, chief executive of U.S. Digital Gaming, which is also seeking online licenses.

Reuters contributed to this report.

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