Unites States v. Pokerstars, et al

Filing 205

MEMORANDUM OF LAW in Support re: 203 MOTION to Strike Document No. 62 (Claim of Cardroom International).. Document filed by United States Of America. (Cowley, Jason)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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UNITED STATES OF AMERICA,
:
Plaintiff,

:
11 Civ. 2564 (LBS)

- v. -

:

POKERSTARS, et al.

:

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 CARDROOM INTERNATIONAL, LLC

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. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
A.

The Criminal Indictment of Isai Scheinberg and
Others for Various Gambling, Fraud, and Money
Laundering Offenses . . . . . . . . . . . . . . . . . 2

B.

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

C.

Cardroom’s Claim and Answer and
the California Action.. . . . . . . . . . . . . . . . 6

ARGUMENT
I.

. . . . . . . . . . . . . . . . . . . . . . . . . . . 8

CARDROOM LACKS STANDING TO FILE A CLAIM
A.

Relevant Law. . . . . . . . . . . . . . . . . . . . . 8

B.

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

10

1. Cardroom Has No Interest in
Any Particular Funds. . . . . . . . . . . . . . . .

10

2. The California Action Does Not Create Standing
in This Matter. . . . . . . . . . . . . . . . . . .

12

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

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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 Cardroom
International LLC (“Cardroom” 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,
including numerous overseas bank accounts controlled by Full Tilt
Poker and PokerStars, as well as certain assets of directors of
Full Tilt Poker-related entities (collectively, “the Defendant
Property”).
Cardroom filed a claim on September 30, 2011, asserting
an interest in up to $30,000,000 in Defendant Property based on
alleged damages Cardroom sustained by virtue of the conduct of
PokerStars and Full Tilt Poker, as set forth in a lawsuit that
Cardroom filed that same day in California state court.
Claim 1-2.

Cardroom

Cardroom states that it will have an ownership

interest in $30,000,000 in funds based its expectation of an
“inevitable judgment” in its favor in the state court action.
Cardroom Claim 3.

On October 21, 2011, Cardroom filed an answer

expounded upon the theory underlying its claim.

Cardroom states

that it is filing a “contingent claim” for certain of the
defendant property and concedes its claim is “not at this time

enforceable.”

Cardroom Answer at ¶ 3.

Cardroom’s claim should be stricken because Cardroom
lacks standing to assert a claim for the defendants-in-rem in
this action.

Cardroom has no legal interest in any assets of

Full Tilt Poker and PokerStars, nor any other res named as a
defendant in this action.

Cardroom does little more than assert

that these companies and their principles owe Cardroom damages
based on the allegations set forth in its state court action.
Cardroom may, of course, continue to pursue its action in state
court, but it has no standing to maintain its claim against the
Defendant Property in this action.
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,
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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

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

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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
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 poker

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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
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

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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, the United States filed
an Amended Complaint in this action, adding additional
allegations against Full Tilt Poker and the members of its Board
of Directors, and naming certain assets of the these Full Tilt
insiders as defendant property.
C.

Cardroom’s Claim and Answer, and the California Action
On or about September 30, 2011, Cardroom filed a claim

with respect to the Defendant Property (the “Claim”).
Entry 62).

(Docket

In the Claim, Cardroom asserted an interest in an

unspecified $30,000,000 worth of Defendant Property relating to
PokerStars, Full Tilt Poker, or the Full Tilt Poker insiders
named in the amended complaint.

(Claim, p. 2).

Cardroom makes its claim to the above-referenced funds:
based on damages suffered as a result of
defendants’ [in the California Action]
violation of, inter alia, the Racketeer
Influenced and Corrupt Organization Act,
which has caused damage to CARDROOM
INTERNATIONAL, LLC, in an amount of no less
than thirty million dollars ($30,000,000). A
lawsuit is being filed today, September 30,
2011, simultaneously herewith in the Santa
Monica Division of the Superior Court of
California, and Claimant desires to satisfy
the inevitable judgment out of the Defendant
Funds.
(Claim, p. 2-3).

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The Claim does not allege any actual ownership interest
or control of accounts or assets it mentions.

Instead, it does

little more than allege damages owed by PokerStars and Full
Tilt.1
On September 30, 2011, the same date as its claim in
this action, Cardroom filed a civil RICO action in California
state court, Cardroom International LLC v. Mark Scheinberg, et
al., No. SC114330 (Super. Ct. Cal. L.A. County, Sept. 30, 2011)
(the “California Complaint”), alleging violations of the
(1) Racketeer-Influenced Corrupt Organizations Act (“RICO”), 18
U.S.C. § 1964 et seq.; (2) Florida Anti-Trust Act, Fla. Stat.
542; and (3) Cartwright Act, Cal. Bus. & Prof. Code § 16700 et
seq. (the “California Action”).2

As alleged in the California

Complaint:
34.

Cardroom owns a mature and proven internet
poker peer-to-peer system. It has sought to
license its technology both for the real
money and play money areas. However, the
efforts of the company to conduct business

1

Cardroom also alleges that certain accounts are subject to
a one-year statute of limitations under 18 U.S.C. § 1984, and
that the proceeds of gambling offenses related to this action
were inextricably commingled with other fraudulent proceeds, thus
limiting their forfeitability. (Claim, pp. 3-4). Regardless of
these additional arguments and allegations, Cardroom fails to
establish the threshold requirement of standing to support its
Claim. Accordingly, the Government need not address these
arguments here.
2

A copy of the California Complaint was attached to
Cardroom’s Answer in this matter. (Docket No. 79). Cardroom
refers to the California Action in its Claim, p. 3.
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were repeatedly stymied by the illegal
conduct of the Defendants, arising from their
illegal and anti-competitive servicing of
United States poker players to play online.
35.

. . . Because the Full Tilt Defendants and
the Pokerstars Defendants successfully
cooperated in finding mechanisms for
illegally transferring money to and from
United States players after the passage of
the UIGEA, they obtained a dominant position
in the world market. The activities of Full
Title and Pokerstars injured Cardroom as
described in the following paragraphs 36 to
38.

(California Complaint, ¶¶ 34-35).

Cardroom further alleges a

conspiracy involving PokerStars and Full Tilt that interfered
with Cardroom’s ability to license its software to sports-related
web sites (Id., ¶ 36); Cardroom’s being “stymied in seeking
relationships with major casino companies” because of PokerStars
and Full Tilt’s dominant positions in the market (Id., ¶ 37); and
PokerStars and Full Tilt’s dominance as discouraging “new
entrants from the international, regulated markets, thus leaving
only a small number of potential clients for Cardroom and other
competing software companies” (Id., ¶ 38).
On or about October 21, 2011, Cardroom filed an answer
to the Complaint (the “Answer”). (Docket Entry 79).
ARGUMENT
I.

CARDROOM LACKS STANDING TO FILE A CLAIM
A.

The Law
“In order to contest a governmental forfeiture action,
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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 “ownership or possessory interest in
the seized or forfeited property.”

United States v. PokerStars,

No. 11 Civ. 2564 (LBS), 2012 WL 1659177, at *2 (S.D.N.Y. May 9,
2012) (citing Cambio Exacto, S.A., 166 F.3d at 527). “If the

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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.

An

unsecured creditor does not have a legal interest in any
particular property owned by the debtor, and does not have
standing to contest the forfeiture of the debtor’s property.
Cambio Exacto, S.A., 166 F.3d at 529 (person to whom a money
transmitter owes money lacks standing as a general creditor to

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contest forfeiture of money transmitter’s account).
B.

Discussion
1.

Cardroom Has No Interest in Any Particular Funds

Under these established legal principles, Cardroom’s
allegations are insufficient to establish Article III standing.
Cardroom does not allege any possessory or ownership interest in
any Defendant Property.

Rather, it grounds its claim on a

hypothetical future judgment against Full Tilt Poker and
PokerStars in the California Action.
Cardroom may have in personam claims against
PokerStars, Full Tilt Poker, or their principals or agents for
the conduct alleged in the California Action.

But even assuming

the validity of such claims, Cardroom lacks standing to assert a
colorable interest to any defendant property in this action.

As

the Second Circuit noted, “an interest ‘in’ property must be an
interest in a particular, specific asset, as opposed to a general
interest in an entire forfeited estate or account.”

United

States v. Ribadeneira, 105 F.3d 833, 836 (2d Cir. 1997) (per
curiam).

“It is well-established that general unsecured

creditors do not have standing to contest the forfeiture of their
debtor’s property.”

United States v. 105,800 Shares of Common

Stock of FirstRock Bancorp, Inc., 830 F. Supp. 1101, 1117 (N.D.
Ill. 1993); see also DSI Associates, LLC v. United States, 496
F.3d 175, 184 (2d Cir. 2007)(a general creditor does not possess

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a “legal right, title, or interest in the property that was
forfeited as required for standing under § 853(n)(6)(A)”); Cambio
Exacto, S.A., 166 F.3d at 529 (person to whom a money transmitter
owes money lacks standing as a general creditor to contest
forfeiture of money transmitter’s account); United States v. BCCI
Holdings (Luxembourg), S.A., 46 F.3d 1185, 1191 (D.C. Cir. 1995)
(“a general creditor can never have an interest in specific
forfeited property”); United States v. Schwimmer, 968 F.2d 1570,
1581 (2d Cir. 1992).
2.

The California Action Does Not Create Standing in
This Matter

Even assuming arguendo that Cardroom were to prevail in
the California Action and obtain a $30,000,000 judgment against
Full Tilt Poker and PokerStars, such a judgment still would not
confer standing in this matter.

It is well established that even

holding an in personam judgment against a party does not confer
an interest sufficient to assert a claim against that party’s
assets in a forfeiture action.

See United States v. All Assets

Held at Bank Julius Baer & Co., 772 F. Supp. 2d. 191, 199 (D.D.C.
2011) (holding that corporate holder of in personam judgment
against participant company in criminal enterprise did not give
judgment holder ownership interest in specific property, as
required to establish standing in forfeiture action).

See also

United States v. One-Sixth Share of James Bulger, 326 F.3d 36, 44
(1st Cir. 2001) (stating that even if claimants had secured
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personal judgment against defendant who owned shares of lottery
winnings forfeited to Government, such judgment would not be a
secured interest against any particular asset that defendant
owned, and would be outside the scope of “owner or lienholder”
required for standing) (citations omitted).
Claimant Cardroom does not hold a lien or judgment
against any property in this matter.

It does hold the hope of a

possible future in personam judgment against certain defendants
in the California Action, but such hope, even if it realized,
does not suffice to confer standing here.
CONCLUSION
For the foregoing reasons, the Government respectfully
requests that the Court enter an order striking the claim of
Cardroom International LLC for lack of standing.
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

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