Unites States v. Pokerstars, et al

Filing 198

MEMORANDUM OF LAW in Support re: 197 MOTION to Strike Document No. 150 (Claim of Avoine).. Document filed by United States Of America. (Cowley, Jason)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - x
:
UNITED STATES OF AMERICA,
:
Plaintiff,
:
- v. -

:
:

POKERSTARS, et al.

11 Civ. 2564 (LBS)
:

Defendants;
:
ALL RIGHT, TITLE AND INTEREST IN THE
ASSETS OF POKERSTARS, et al.;

:
:

Defendants-in-rem.
:
- - - - - - - - - - - - - - - - - - - x

MEMORANDUM OF LAW IN SUPPORT OF
THE GOVERNMENT’S MOTION TO STRIKE THE CLAIM OF
AVOINE - SERVICIO DE CONSULTADORIA E MARKETING, LDA

PREET BHARARA,
United States Attorney for the
Southern District of New York
Sharon Cohen Levin
Jason H. Cowley
Michael D. Lockard
Assistant United States Attorneys
- of counsel -

Table of Contents
PRELIMINARY STATEMENT.. . . . . . . . . . . . . . . . . . . . . 1
BACKGROUND. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
A.

The Criminal Indictment of Isai Scheinberg and
Others for various gambling, fraud, and money
laundering offenses . . . . . . . . . . . . . . . . . 3

B.

The In Rem Forfeiture and Civil Money Laundering
Complaint.. . . . . . . . . . . . . . . . . . . . . . 5

ARGUMENT
I.

. . . . . . . . . . . . . . . . . . . . . . . . . . . 7

AVOINE LACKS STANDING TO FILE A CLAIM. . . . . . . . . . . 7
A.

Relevant Law. . . . . . . . . . . . . . . . . . . . . 7

B.

Discussion. . . . . . . . . . . . . . . . . . . . .

10

CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . .

11

PRELIMINARY STATEMENT
The Government respectfully submits this memorandum of
law in support of its motion, pursuant to Rule 12(b) and (c) of
the Federal Rules of Civil Procedure and Rule G(8)(c) of the
Supplemental Rules for Admiralty and Maritime Claims, to strike
the claim filed in this in rem forfeiture action by Avoine Servicio De Consultadoria E Marketing, LDA (“Avoine” or
“Claimant”).

The defendants-in-rem in this matter include, among

others, all right title and interest in the assets of several
online gambling businesses (collectively, “the Defendant
Property”).
Avoine filed a claim on January 5, 2012, contesting the
forfeiture of the following:
1.

The domain name AbsolutePoker.com and
any other domain names that include the
word “absolutepoker” or any variation
thereof (the “Domain Names”) and

2.

All property and other assets claimed to
have been assigned to Avoine by SGS
(BVI) Inc. (“SGS”) in or about 2007,
including without limitation: (a) all
tangible and intangible property,
including computer hardware and
software, developed and/or used in the
operation of the Absolute Poker online
poker business as of the date of such
assignment (the “AP Intellectual
Property”); and (b) stock and/or other
equity interests in (i) Fiducia Exchange
Ltd.; (ii) Momentum Technologies, Inc.;
and (iii) Panora Tech Belize Inc. (the
“Subsidiaries”).

In its answer, filed on March 9, 2012, Avoine asserts
that:
In or about 2006 or early 2007, in a
reorganization of its affairs, SGS assigned
and transferred the AP Assets, along with all
of SGS’s equity in the Subsidiaries, to
Avoine and, at substantially the same time
SGS’s shareholders became shareholders in
Avoine’s parent company, a Norwegian company
called Madeira Fjord AS (“MFAS”).
Avoine Answer ¶ 27(b).
Avoine then states that a subsequent retransfer of the
AP Assets to Absolute Entertainment S.A. was voided.
Answer ¶ 27(c)-(d).

Avoine

According to Avoine: “From and after the

2007 Avoine-Absolute Sale, all operation of the Absolute Poker
online poker business has been carried out by employees and/or
agents of Absolute Entertainment or its contractors and/or
assignees (e.g., Blanca Games), as express or implied licensees,
and not by Avoine.”

Avoine Answer ¶ 27(e).

Avoine also pleads

that: “During the period 2007 to the present, neither Avoine nor
its management knew of the allegedly wrongful conduct upon which
the plaintiff’s forfeiture claim is predicated.”

Avoine Answer ¶

27(f).
Avoine, by its own pleadings, has established itself as
essentially a straw owner of the assets in question that
exercised no dominion or control of the assets for which it now
seeks to assert a claim.

Accordingly, Avoine lacks standing and

its claim should be dismissed.

2

BACKGROUND
A.

The Criminal Indictment of Isai Scheinberg and Others for
various gambling, fraud, and money laundering offenses
On or about March 10, 2011, a superseding indictment,

S3 10 Cr. 336 (LAK) (the “Indictment”) was filed under seal in
the Southern District of New York, charging Isai Scheinberg,
Raymond Bitar, Scott Tom, Brent Beckley, Nelson Burtnick, Paul
Tate, Ryan Lang, Bradley Franzen, Ira Rubin, Chad Elie, and Jason
Campos with conspiring to violate the Unlawful Internet Gambling
Enforcement Act (“UIGEA”), 31 U.S.C. § 5363, in violation of
Title 18, United States Code, 371; violating the UIGEA; operating
illegal gambling businesses, in violation of Title 18, United
States Code, Sections 1955 and 2; conspiring to commit wire fraud
and bank fraud, in violation of Title 18, United States Code,
Section 1349; and conspiring to launder money, in violation of
Title 18, United States Code, Section 1956(h).
As set forth in the Indictment, from at least in or
about November 2006, the three leading internet poker companies
doing business in the United States were PokerStars, Full Tilt
Poker, and Absolute Poker/Ultimate Bet (collectively, “the Poker
Companies”).

(Ind. ¶ 1).

PokerStars, headquartered in the Isle

of Man, provided real-money gambling through its website,
pokerstars.com, to United States customers.

PokerStars did

business through several privately held corporations and other
entities.

(Ind. ¶ 4).

Full Tilt Poker, headquartered in
3

Ireland, provided real-money gambling through its website,
fulltiltpoker.com, to United States customers.

Full Tilt Poker

did business through several privately held corporations and
other entities.

(Ind. ¶ 5).

Absolute Poker, headquartered in

Costa Rica, provided real-money gambling through its websites,
absolutepoker.com and ultimatebet.com, to United States
customers.

Absolute Poker did business through several privately

held corporations and other entities.

(Ind. ¶ 6).

As described in the Indictment, because internet
gambling businesses such as those operated by the Poker Companies
were illegal under United States law, internet gambling
companies, including the Poker Companies, were not permitted by
United States banks to open bank accounts in the United States to
receive proceeds from United States gamblers.

Instead, the

principals of the Poker Companies operated through various
deceptive means designed to trick United States banks and
financial institutions into processing gambling transactions on
the Poker Companies’ behalf.

(Ind. ¶ 16).

For example, as described more fully in the Indictment,
the charged defendants and others worked with and directed others
to deceive credit card issuers and to disguise poker payments
made using credit cards so that the issuing banks would process
the payments.

(Ind. ¶¶ 17-18).

These deceptive and fraudulent

practices included, for example, creating phony non-gambling

4

companies that the Poker Companies used to initiate the credit
card charges (Ind. ¶ 19), and creating pre-paid cards designed
for United States gamblers to use to transfer funds to the Poker
Companies and other gambling companies, with the purpose of the
cards disguised by fake internet web sites and phony consumer
“reviews” of the cards making it appear that the cards had some
other, legitimate, purpose.

(Ind. ¶ 20).

In addition, as described more fully in the Indictment,
the charged defendants and others worked with and directed others
to develop another method of deceiving United States banks and
financial institutions into processing their respective Poker
Companies’ internet gambling transactions through fraudulent echeck processing.

(Ind. ¶ 21).

The Poker Companies used payment

processors to establish payment processing accounts at various
United States banks and disguised from the banks the fact that
the accounts would be used to process payments for internet poker
transactions by making the transactions appear to relate to phony
internet merchants.
B.

(Ind. ¶¶ 22-26).

The In Rem Forfeiture and Civil Money Laundering Complaint
On or about April 14, 2011, this action was commenced

by the filing of a sealed in rem forfeiture and civil money
laundering complaint (the “Complaint”).

The Complaint sought the

forfeiture of all right, title and interest in the assets of the
Poker Companies, including but not limited to certain specific

5

properties set forth in the Complaint.

As alleged in the

Complaint, the defendants-in-rem are subject to forfeiture
(1) pursuant to Title 18, United States Code, Section 1955(d), as
properties used in violation of the provisions of Section 1955;
(2) pursuant to Title 18, United States Code, Section
981(a)(1)(C), as properties constituting or derived from proceeds
traceable to violations of Section 1955; (3) pursuant to Title
18, United States Code, Section 981(a)(1)(C), as properties
constituting or derived from proceeds traceable to a conspiracy
to commit wire fraud and bank fraud; and (4) pursuant to Title
18, United States Code, Section 981(a)(1)(A), as properties
involved in transactions and attempted transactions in violation
of Sections 1956 and 1957, or property traceable to such
property.

The Complaint also sought civil monetary penalties for

money laundering against the Poker Companies and the entities
that operated those companies for the conduct laid out above.
On or about September 21, 2011, before Avoine filed
their claim and answer, the United States filed an Amended
Complaint in this action, adding additional fraud allegations
against Full Tilt Poker and the members of its Board of
Directors.

6

ARGUMENT
I.

AVOINE LACKS STANDING TO FILE A CLAIM
A.

The Law
“In order to contest a governmental forfeiture action,

claimants must have both standing under the statute or statutes
governing their claims and standing under Article III of the
Constitution as required for any action brought in federal court.”
United States v. Cambio Exacto, S.A., 166 F.3d 522, 526 (2d Cir.
1999).

Standing is a threshold issue.

If the claimant lacks

standing, the court lacks jurisdiction to consider his challenge of
the forfeiture.

The burden of proof to establish sufficient

standing rests with the claimant.

Mercado v. U.S. Customs Service,

873 F.2d 641, 644 (2d Cir. 1989); United States v. One 1986 Volvo
750T, 765 F. Supp. 90, 91 (S.D.N.Y. 1991); United States v. One
1982 Porsche 928, 732 F. Supp. 447, 451 (S.D.N.Y. 1990)
(abbreviated title).

Where the claimant’s own allegations are

insufficient to demonstrate standing, a motion to strike his claim
should be granted.

See United States v. $38,570 U.S. Currency, 950

F.2d 1108, 1111-13 (5th Cir. 1992) (“Unless claimant can first
establish his standing he has no right to put the government to its
proof”).
To have statutory standing, a claimant in a civil
forfeiture proceeding must comply with the procedures laid out in
Supplemental Rule G.

To have constitutional standing, however, a

claimant must demonstrate an adequate “interest” in the forfeitable
7

property.

“If the claimant cannot show a sufficient interest in

the property to give him Article III standing there is no case or
controversy, in the constitutional sense, capable of adjudication
in the federal courts.”

United States v. New Silver Palace

Restaurant, Inc., 810 F. Supp. 440, 442 (E.D.N.Y. 1992) (internal
quotation marks, alterations, and citations omitted).

See also

United States v. U.S. Currency, $81,000.00, 189 F.3d 28, 35 (1st
Cir. 1999); United States v. $9,041,598.68, 163 F.3d 238, 244-45
(5th Cir. 1998); United States v. Contents of Accounts (Friko
Corporation), 971 F.2d 974, 985 (3d Cir. 1992).
Thus, “[t]o establish standing, ‘the claimant must
demonstrate that he has a colorable ownership, possessory or
security interest in at least a portion of the defendant
property.’”

United States v. One Silicon Valley Bank Account, 05

Civ. 295, 2007 WL 1594484, at *2 (W.D. Mich. June 1, 2007) (quoting
United States v. $38,852.00, 328 F. Supp. 2d 768, 769 (N.D. Ohio
2004)); see also United States v. Contents of Account Numbers
208-06070 and 208-06068-1-2, 847 F. Supp. 329, 333 (S.D.N.Y. 1994);
One 1982 Porsche 928, 732 F. Supp. at 451.
Courts have refused to find standing in claims brought
by owners with title but without actual dominion or control of the
in rem property. “Possession of mere legal title by one who does
not exercise dominion and control over the property is insufficient
even to establish standing to challenge a forfeiture.”
States v. Nava, 404 F.3d 1119, 1130 n.6 (9th Cir. 2005)

8

United
See also

United States v. Premises and Real Property With Buildings,
Appurtenance and Improvements at Delaware Street, Towanda, New
York, 113 F.3d 310, 312 (2d Cir. 1997) (a father who acquired the
title to real property from his son for $1 in admitted attempt to
avoid forfeiture was mere straw who exercised no dominion or
control over the property and therefore lacked standing to assert
an innocent owner defense); United States v. Contents of Accounts
Nos. 3034504504 & 144-07143 at Merrill Lynch, Pierce, Fenner &
Smith, Inc., 971 F.2d 974, 985 (3d Cir. 1992) (“Courts have
uniformly rejected standing claims put forward by nominal or straw
owners. Thus, even possession of legal title to the res may be
insufficient to establish standing to contest the forfeiture.”);
United States v. Premises Known as 526 Liscum Drive, Dayton,
Montgomery County, Ohio, 866 F.2d 213, 215 (6th Cir. 1989)
(daughter who held title to house where parents trafficked drugs
was merely straw who exercised no dominion or control and therefore
lacked standing to challenge forfeiture) (citing United States v.
Single Family Residence and Real Property Located at 900 Rio Vista
Blvd., Ft. Lauderdale, 803 F.2d 625 (11th Cir. 1986)); United
States v. One 1981 Datsun 280ZX, 563 F. Supp. 470, 476 (E.D. Pa.
1983) (father did not have standing to contest forfeiture of
wrongdoer’s car even though the father held legal title to the car
and kept it at his house because the son was the only one who
exercised dominion and control over the car).

9

B.

Discussion
Under these established legal principles, Avoine lacks

standing in this matter.

By its own pleadings, Avoine did not

exercise dominion or control of the assets in question.

Avoine

expressly pleads that: “From and after the 2007 Avoine-Absolute
Sale, all operation of the Absolute Poker online poker business
has been carried out by employees and/or agents of Absolute
Entertainment or its contractors and/or assignees (e.g., Blanca
Games), as express or implied licensees, and not by Avoine.”
Avoine Answer ¶ 27(e).

Avoine even pleads that, during that same

time period, “neither Avoine nor its management knew of the
allegedly wrongful conduct upon which the plaintiff’s forfeiture
claim is predicated.”

Avoine Answer ¶ 27(f).

Although it

appears unlikely that Avoine was in fact unaware that Absolute
Poker was offering online poker in the United States appears
highly dubious, Avoine’s own verified assertion must be factored
into a standing analysis.

Based on the facts alleged by Avoine,

that entity was nothing more than the titular owner of the assets
in question and Absolute Poker continued to exercise all dominion
and control over those assets from 2007 on to conduct illegal
activity.

This relationship to the assets in question is

insufficient to confer standing.

10

CONCLUSION
For the foregoing reasons, the Government respectfully
requests that the Court enter an order striking the claim of
Avoine in this action.
Dated:

New York, New York
July 9, 2012
Respectfully submitted,
PREET BHARARA
United States Attorney for the
Southern District of New York
By: :

/s/
Sharon Cohen Levin
Jason H. Cowley
Michael D. Lockard
Assistant United States Attorney
[phone]/2479/2193

11