Unites States v. Pokerstars, et al

Filing 226

MEMORANDUM OF LAW in Support re: 225 MOTION to (1) Conduct Expedited Discovery Relating to Fugitive Disentitlement and (2) Stay Consideration of the Pokerstars Claimants' Motion to Dismiss the Verified First Amended Complaint. MOTION to (1) Conduct Expedited Discovery Relating to Fugitive Disentitlement and (2) Stay Consideration of the Pokerstars Claimants' Motion to Dismiss the Verified First Amended Complaint.. Document filed by United States Of America. (Attachments: # 1 Text of Proposed Order)(Cowley, Jason)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - -x
:
UNITED STATES OF AMERICA,
:
Plaintiff,
:
- v. :
POKERSTARS, et al.
:
Defendants;
:
ALL RIGHT, TITLE AND INTEREST IN
THE ASSETS OF POKERSTARS, et al.; :

11 Civ. 2564 (LBS)

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

MEMORANDUM OF LAW IN SUPPORT OF THE GOVERNMENT’S MOTION
FOR EXPEDITED DISCOVERY RELATING TO FUGITIVE DISENTITLEMENT
AND TO STAY CONSIDERATION OF POKERSTARS’ MOTION TO DISMISS

PREET BHARARA,
United States Attorney for the
Southern District of New York

Sharon Cohen Levin
Michael D. Lockard
Jason H. Cowley
Assistant United States Attorneys
- of counsel -

Table of Contents
TABLE OF AUTHORITIES..........................................iii
PRELIMINARY STATEMENT...........................................1
BACKGROUND......................................................3
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.

The PokerStars Motion to Dismiss......................7

ARGUMENT
A.

......................................................7
RELEVANT LAW..........................................7
1. The Fugitive Disentitlement Doctrine...............7
2. The Doctrine’s Applicability to Corporate
Claimants.........................................12
3. Fugitive Disentitlement is a Threshold Issue That
Should Be Addressed Prior to the PokerStars Motion
to Dismiss........................................12
4. Expedited Discovery May Be Granted to Explore the
Applicability of Fugitive Disentitlement..........14

B.

DISCUSSION...........................................16
1. The Fugitive Disentitlement Doctrine
Likely Applies ..................................16
2. Fugitive Disentitlement Should Be Addressed Prior
to the PokerStars Motion to Dismiss ..............17
3. The Court Should Allow the Government to Take
Expedited, Limited Discovery .....................19

i

CONCLUSION.....................................................20

ii

TABLE OF AUTHORITIES
CASES
Armentero v. I.N.S.
412 F.3d 1088 (9th Cir. 2005) ............................... 12
Collazos v. United States
368 F.3d 190 (2d Cir. 2004) ............................. passim
Criales v. Am. Airlines, Inc.
105 F.3d 93 (2d Cir. 1997) .................................. 13
Degen v. United States
517 U.S. 820 (1996) .......................................... 8
Federated Dept. Stores, Inc. v. Moitie
452 U.S. 394 (1981) ......................................... 13
Molinaro v. New Jersey
396 U.S. 365 (1970) .......................................... 7
Nowak v. Ironworkers Local 6 Pension Fund
81 F.3d 1182 (2d Cir. 1996) ................................. 13
Sinochem Int'l Co. Ltd. v. Malaysia Int'l Shipping Corp.
549 U.S. 422 (2007) ......................................... 12
Steel Co. v. Citizens for a Better Environment
523 U.S. 83 (1998) .......................................... 12

iii

U.S. ex rel. Bailey v. U.S. Commanding Officer of Office of
Provost Marshal, U.S. Army
496 F.2d 324 (1st Cir. 1974) ................................ 13
United States v. $45,940 in U.S. Currency
739 F.2d 792 (2d Cir. 1984) .................................. 8
United States v. $6,976,934.65 Plus Interest
478 F. Supp. 2d 30 (D.D.C. 2007) ........................ passim
United States v. $6,976,934.65 Plus Interest
486 F. Supp. 2d 37 (D.D.C. 2007) ..................... 8, 12, 13
United States v. $6,976,934.65 Plus Interest
554 F.3d 123 (D.C. Cir. 2009) ............................... 10
United States v. Approximately $658,830.00 in U.S. Currency
2:11-CV-00967 MCE, 2011 WL 5241311 (E.D. Cal. Oct. 31, 2011) 15
United States v. Eng
951 F.2d 461 (2d Cir. 1991) .................................. 8
United States v. One Parcel of Real Estate at 7707 S.W. 74th
Lane, Miami, Dade County, Fla.
868 F.2d 1214 (11th Cir. 1989) ........................... 8, 12
United States v. Real Property Known as 479 Tamarind Dr.
98 Civ. 2279 (RLC), 2005 WL 2649001 (S.D.N.Y. October 14, 2005)
........................................................ 14, 19
United States v. Up to $6,100,000 on Deposit
07 Civ. 4430(RJS), 2009 WL 1809992 (S.D.N.Y. June 24, 2009) . 11
iv

STATUTES
18 U.S.C. § 2.................................................. 3
18 U.S.C. § 371................................................ 3
18 U.S.C. § 981............................................. 5, 6
18 U.S.C. § 1349............................................... 3
18 U.S.C. § 1955............................................ 3, 5
18 U.S.C. § 1956............................................... 6
18 U.S.C. § 1957............................................... 6
28 U.S.C. § 2466.......................................... passim
31 U.S.C. § 5363............................................... 2
RULES
Fed. R. Civ. Proc. 9........................................... 6
Fed. R. Civ. Proc. 12...................................... 6, 13
Supp. R. Fed. R. Civ. Proc. E.................................. 6
Supp. R. Fed. R. Civ. Proc. G.......................... 6, 17, 18

v

PRELIMINARY STATEMENT
The Government respectfully submits this memorandum of
law in support of its motion to take limited, expedited
discovery relating to the application of the fugitive
disentitlement statute to claims filed by PokerStars and for an
interim stay of consideration of the PokerStars motion to
dismiss. 1

Isai Scheinberg, a founder, owner, and principal

decision-maker of PokerStars, was charged last year with
gambling offenses, bank and wire fraud offenses, and money
laundering in a related indictment and has chosen not to return
to the United States to face those charges.

Accordingly, as

explained below, the fugitive disentitlement statute likely
applies to PokerStars’ claims.
The defendants-in-rem in this matter include, among
others, all right, title and interest in the assets of several
online gambling businesses, including the assets of the

1

The Government also notes that on today’s date it
served special interrogatories and document requests pursuant to
Rule G(6) of the Supplemental Rules on the PokerStars Claimants
relating to their claimed interest in funds held in a variety of
third-party payment processing accounts. Pursuant to that Rule,
the Government “need not respond to a claimant’s motion to
dismiss the action under Rule G(8)(b) until 21 days after the
claimant has answered these interrogatories.” Rule G(6)(c) of
the Supplemental Rules. Thus, the present response deadline of
July 30, 2012 would be moved in any event.

corporate entities identified as the PokerStars Claimants 2 and
funds held in account by various third-party payment processors
(collectively, “the Defendant Property”).

Civil money

laundering claims have also been brought against the PokerStars
Claimants and others.

As alleged in a pending related

Indictment, United States v. Isai Scheinberg et al., S3 10 Cr.
336 (LAK), the PokerStars Claimants are ultimately controlled by
Isai Scheinberg, who is a fugitive for purposes of the fugitive
disentitlement statute.

Under the fugitive disentitlement

statute, Title 28, United States Code, Section 2466, a court may
bar a corporation from asserting a claim if a majority
shareholder or person asserting the claim on behalf of that
corporation is a fugitive.

Because fugitive disentitlement is a

threshold issue that should be resolved before a potential
fugitive claimant is permitted to litigate a forfeiture action
while at the same time avoiding the court’s jurisdiction in the
related criminal matter, the Court should stay consideration of
the PokerStars Motion to Dismiss until issues relating to
fugitive disentitlement are resolved.

2

The Pokerstars Claimants are Oldford Group Ltd., Rational
Entertainment Enterprises Ltd., Pyr Software Ltd., Stelekram
Ltd., and Sphene International Ltd.
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”) (attached as Ex. A to the
Declaration of A.U.S.A. Jason H. Cowley), 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 John
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).

It

was unsealed on or about April 15, 2011.
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).

In regard to PokerStars specifically,

the Indictment alleges:

3

At all times relevant to this Indictment,
ISAI SCHEINBERG, the defendant, was a
founder, owner, and principal decision-maker
for PokerStars, an internet poker company
founded in or about 2001 with headquarters
in the Isle of Mann. Through its website,
pokerstars.com, PokerStars provided realmoney gambling on internet poker games to
United States customers. At various times
relevant to this Indictment, PokerStars did
business through several privately-held
corporations and other entities, including
but not limited to Oldford Group Ltd.,
Rational Entertainment Enterprises Ltd., Pyr
Software Ltd., Stelekram Ltd. and Sphene
International Ltd. (collectively,
“Pokerstars”).
(Ind. ¶ 4).
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 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
4

process the payments.

(Ind. ¶¶ 17-18).

These deceptive and

fraudulent practices included, for example, creating phony nongambling 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 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 e-check processing.

(Ind. ¶ 21).

The Poker

Companies used poker 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.
(Ind. ¶¶ 22-26).
B.

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
5

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
pursuant to (1) Title 18, United States Code, Section 1955(d),
as properties used in violation of the provisions of Section
1955; (2) Title 18, United States Code, Section 981(a)(1)(C), as
properties constituting or derived from proceeds traceable to
violations of Section 1955; (3) 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) 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 set forth above.
On or about September 21, 2011, 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, and naming certain of their assets as
defendants-in-rem.
6

On or about October 31, 2011, the PokerStars Claimants
filed claims 3 to certain of the Defendant Property in this
action.
C.

The PokerStars Motion to Dismiss
On or about July 9, 2012, the PokerStars Claimants

filed a Motion to Dismiss the Complaint (D.E. 201) pursuant to
Rules 9 and 12(b) of the Federal Rules of Civil Procedure and
Rules E and G of the Supplemental Rules for Admiralty and
Maritime Claims and Asset Forfeiture Actions (the “Supplemental
Rules”).

The PokerStars motion to dismiss (the “PokerStars

Motion”) seeks to have the claims asserted in the Complaint
dismissed on a number of grounds, almost all of which involve
the merits of the claims set forth in the Complaint.
ARGUMENT
A.

Relevant Law
1.

The Fugitive Disentitlement Doctrine
The doctrine of fugitive disentitlement states that

courts may disregard the forfeiture claims of a fugitive from a
criminal action.

At common law, the fugitive disentitlement

doctrine arises from the concept that, while “an escape does not
strip the case of its character as an adjudicable case or

3

The Oldford Group Ltd., Rational Entertainment
Enterprises Ltd., Stelekram Ltd., and Sphene International Ltd.
submitted a claim jointly. Pyr Software submitted a separate
claim.
7

controversy . . . it disentitles the defendant to call upon the
resources of the Court for determination of his claims.”
Molinaro v. New Jersey, 396 U.S. 365, 366 (1970).

As one court

has explained:
The doctrine’s emphasis on the use of
judicial powers and the propriety of a
party’s attempt to invoke those powers is
reminiscent of the other threshold
inquiries. It bars a claimant from invoking
judicial process and waives all of his
defenses-and improper venue is a waivable
defense-such that if disentitlement applies
here, this case will be, “by operation of
the fugitive from justice doctrine,
essentially an uncontested action.”
Disentitlement is thus a “threshold” issue,
as envisioned by these cases, albeit one
that is likely to produce a different
prevailing party.
United States v. $6,976,934.65 Plus Interest, 486 F. Supp. 2d
37, 38 (D.D.C. 2007) rev’d on other grounds, 554 F.3d 123 (D.C.
Cir. 2009) (quoting United States v. One Parcel of Real Estate
at 7707 S.W. 74th Lane, 868 F.2d 1214, 1217 (11th Cir. 1989))
(“Soulbury Ltd. II”).
Prior to the 2000 statutory change described below,
some courts applied this doctrine to civil forfeiture
proceedings.

See United States v. Eng, 951 F.2d 461, 466 (2d

Cir. 1991); 7707 S.W. 74th Lane, 868 F.2d at 1217; United States
v. $45,940 in U.S. Currency, 739 F.2d 792, 798 (2d Cir. 1984).
The Supreme Court declined to uphold the extension of the
doctrine to civil forfeiture cases in Degen v. United States,
8

517 U.S. 820, 823 (1996).

In response, Congress codified the

doctrine at Title 28, United States Code, Section 2466 as part
of the Civil Asset Forfeiture Reform Act of 2000.

Section 2466

provides:
(a) A judicial officer may disallow a
person from using the resources of the
courts of the United States in furtherance
of a claim in any related civil forfeiture
action or a claim in third party proceedings
in any related criminal forfeiture action
upon a finding that such person-(1) after notice or knowledge of the
fact that a warrant or process has been
issued for his apprehension, in order
to avoid criminal prosecution-(A) purposely leaves the
jurisdiction of the United States;
(B) declines to enter or reenter
the United States to submit to its
jurisdiction; or
(C) otherwise evades the
jurisdiction of the court in which
a criminal case is pending against
the person; and
(2) is not confined or held in custody
in any other jurisdiction for
commission of criminal conduct in that
jurisdiction.
(b) Subsection (a) may be applied to a
claim filed by a corporation if any majority
shareholder, or individual filing the claim
on behalf of the corporation is a person to
whom subsection (a) applies.
Title 28, United States Code, Section 2466.

9

The disentitlement provision addresses the “unseemly
spectacle” of “a criminal defendant who, facing both
incarceration and forfeiture for his misdeeds, attempts to
invoke from a safe distance only so much of a United States
court’s jurisdiction as might secure him the return of alleged
criminal proceeds while carefully shielding himself from the
possibility of a penal sanction.”

Collazos v. United States,

368 F.3d 190, 200 (2d Cir. 2004).

In Collazos, the Second

Circuit identified the following five elements that must be met
for the fugitive disentitlement doctrine to apply under Section
2466:
(1)

a warrant or similar process must have
been issued in a criminal case for the
claimant’s apprehension;

(2)

the claimant must have had notice or
knowledge of the warrant;

(3)

the criminal case must be related to
the forfeiture action;

(4)

the claimant must not be confined or
otherwise held in custody in another
jurisdiction; and

(5)

the claimant must have deliberately
avoided prosecution by
(A)

purposefully leaving the
United States,

(B)

declining to enter or reenter
the United States, or

10

(C)

otherwise evading the
jurisdiction of a court in the
United States in which a
criminal case is pending
against the claimant

Collazos v. United States, 368 F.3d 190, 198 (2d Cir. 2004); see
also United States v. $6,976,934.65 Plus Interest, 554 F.3d 123,
128 (D.C. Cir. 2009) (adopting and discussing the five Collazos
elements). If these five elements are met, the decision of
whether to order disentitlement is within the discretion of the
court. Collazos, 368 F.3d at 198.
Section 2466 includes both “leav[ing]” or “declin[ing]
to enter or reenter the United States” as grounds for invoking
the disentitlement doctrine.

While the common-law doctrine

applied to defendants who committed crimes in the United States
and then fled and refused to reenter, Section 2466 applies also
to claimants who commit crimes while outside the United States
and refuse to enter the country to face charges.

See Collazos,

268 F.3d at 197-99 (“the text of § 2466 makes plain that
statutory disentitlement extends beyond common-law fugitives to
encompass persons who may never previously have been in the
United States”).

For example, in United States v. Up to

$6,100,000 on Deposit, 07 Civ. 4430 (RJS), 2009 WL 1809992, *4
(S.D.N.Y. June 24, 2009), the court held that Section 2466
applies to a claimant who had never been to the United States
11

but refused to enter the United States to answer criminal
charges.
2.

The Doctrine’s Applicability to Corporate Claimants
Section 2466 also applies the fugitive disentitlement

doctrine to corporations.

Subsection (b) of the statute states

that the statute “may be applied to a claim filed by a
corporation if any majority shareholder, or individual filing
the claim on behalf of the corporation is a person to whom” the
statute applies.

Courts have held that even without a finding

that a fugitive is a “majority shareholder,” Section 2466(b) can
still apply if a fugitive controls the corporate claimant or the
corporate claimant essentially operates as the fugitive’s alter
ego.

See United States v. $6,976,934.65 Plus Interest, 478 F.

Supp. 2d 30, 43 (D.D.C. 2007), rev’d on other grounds, 554 F.3d
123 (D.C. Cir. 2009) (“Soulbury Ltd. I”).
3.

Fugitive Disentitlement is a Threshold Issue That
Should Be Addressed Prior to the PokerStars Motion to
Dismiss
Because the fugitive disentitlement doctrine is rooted

in the notion that a fugitive “should not be able to exploit
judicial processes to his advantage in one matter while scoffing
at them in another,” courts have considered the application to
be a threshold issue, “most similar to a subject matter
jurisdiction or standing inquiry, not a merits inquiry.”

12

Soulbury, Ltd. I, 478 F. Supp. 2d at 35; Soulbury Ltd. II, 486
F. Supp. 2d at 38.
Threshold issues like fugitive disentitlement should
be addressed before reaching the merits of a case.

See Soulbury

Ltd. II, 486 F. Supp. 2d at 38 (citing Steel Co. v. Citizens for
a Better Environment, 523 U.S. 83, 118 (1998)). This applies
even when the threshold issue is discretionary.

See, e.g.,

Sinochem Int’l Co. Ltd. v. Malaysia Int’l Shipping Corp., 549
U.S. 422 (2007) (holding that court could dismiss action under
forum non conveniens doctrine even before determining court’s
own jurisdiction); Steel Co., 523 U.S. at 100-01 (declining
jurisdiction of state law claim on discretionary grounds before
determining issue of pendant jurisdiction); Armentero v. I.N.S.,
412 F.3d 1088, 1088 (9th Cir. 2005) (invoking common-law
fugitive disentitlement before considering merits); 7707 S.W.
74th Lane, 868 F.2d at 1217 (allowing court to apply fugitive
disentitlement doctrine without “tak[ing] testimony” or
“mak[ing] a finding of probable cause that the allegations in
the forfeiture complaint were true”); United States ex rel.
Bailey v. U.S. Commanding Officer of Office of Provost Marshal,
U.S. Army, 496 F.2d 324, 325 (1st Cir. 1974) (invoking commonlaw fugitive disentitlement before considering mootness).
A motion to dismiss for failure to state a claim
submitted under Federal Rule of Civil Procedure 12(b)(6), for
13

example, is a “judgment on the merits.” Federated Dept. Stores,
Inc. v. Moitie, 452 U.S. 394, 399 (1981) (citation omitted); see
also Criales v. Am. Airlines, Inc., 105 F.3d 93, 97 (2d Cir.
1997) (“dismissals under Rule 12(b)(6) are generally considered
judgments on the merits, unless the court specifies otherwise”);
Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1187
(2d Cir. 1996) (“dismissal under Rule 12(b)(6) is a dismissal on
the merits of the action-a determination that the facts alleged
in the complaint fail to state a claim upon which relief can be
granted”).

Likewise, fugitive disentitlement would preclude a

claimant from asserting any defenses, not just defenses related
to the merits.

Soulbury Ltd. II, 486 F. Supp. 2d at 38.

Accordingly, a motion to dismiss should be considered only after
the threshold issue of fugitive disentitlement has been
resolved.
4.

Expedited Discovery May Be Granted to Confirm the
Applicability of Fugitive Disentitlement
Any proper consideration of the application of Section

2466 will involve reference to documents outside the four
corners of the Complaint and the PokerStars Claimants’ claims in
this action.

As the district court explained in Soulbury Ltd.

I:

14

It is especially appropriate for a court to
look at matters outside the pleadings when
fugitive disentitlement is at issue, for
several reasons. First, this inquiry is
concerned, at heart, with a person’s
eligibility to invoke the authority of a
court, and with the court’s deployment of
judicial resources. In that sense, it
resembles a court’s inquiry into its subject
matter jurisdiction, in which courts
routinely look beyond the pleadings. . .
Second, while the disentitlement decision
generally will be made at an early stage of
the proceedings, a court should consider as
much information as is available before
deciding whether to invoke the significant
measure of disallowing a claim.
Soulbury Ltd. I, 478 F. Supp. 2d at 38 (citing Lipsman v.
Secretary of the Army, 257 F. Supp. 2d 3, 5-6 (D.D.C. 2003)).
See also United States v. Real Property Known as 479 Tamarind
Dr., 98 Civ. 2279 (DLC), 2005 WL 2649001, at *4 (S.D.N.Y.
October 14, 2005) (granting Government’s request for discovery
to determine relationship between fugitive and corporate
claimants; if fugitive is a majority shareholder of either
corporation, that corporation’s claim will be dismissed under §
2466(b)). 4

4

Rule G(6) of the Supplemental Rules provides an analogous
framework for expedited discovery to resolve threshold standing
issues. That rule permits the Government to serve special
interrogatories and document requests related specifically to a
claimant’s standing to assert an interest in the defendant res
before responding to motions to dismiss. See United States v.
Approximately $658,830.00 in U.S. Currency, 2011 WL 5241311, *3
(E.D. Cal. Oct. 31, 2011) (claimant could submit motion to
15

B.

Discussion
In order for the Court to ensure that a fugitive is

not “exploit[ing] judicial processes to his advantage in one
matter while scoffing at them in another” (Soulbury Ltd. I, 478
F. Supp. 2d at 35), the Court should stay consideration of the
PokerStars Motion and permit the government to take limited,
expedited discovery for all facts relevant to the application of
the fugitive disentitlement doctrine.

After the close of such

expedited discovery, the Government will likely move for summary
judgment on this issue, with both parties being able to submit
whatever facts they wish the Court to consider.
1.

The Fugitive Disentitlement Statute Likely Applies
A preliminary review of the facts relevant to the

Collazos elements and Section 2466(b) strongly indicates that
the fugitive disentitlement statute applies to the PokerStars
Claimants.

As alleged in the Complaint and the Indictment, Isai

Scheinberg “was a founder, owner, and principal decision-maker
for PokerStars.”

(Ind. ¶ 4; Compl. ¶ 21).

According to public

source reporting, Isai Scheinberg and his family have a majority
stake in PokerStars.

See, e.g., Isai Scheinberg biographical

page on the website gamblingsites.com, screenshot attached as
Ex. C to Cowley Declaration.

dismiss only after responding to Government’s special
interrogatories).
16

Scheinberg is a defendant in the related criminal case
and a warrant for his arrest has been issued.

See Arrest

Warrant, attached as Ex. B to Cowley Declaration.

He is

undoubtedly aware of the pending charges against him, having
engaged U.S. counsel to represent him in regard to the criminal
action and civil forfeiture action.

The illegal activity

alleged in the Complaint is essentially parallel to that alleged
in the Indictment.

Finally, upon information and belief,

Scheinberg resides in the Isle of Man and has intentionally
refused to enter the United States in order to avoid criminal
prosecution.
2.

Fugitive Disentitlement Should Be Addressed Prior to
the PokerStars Motion to Dismiss
The Court should stay consideration of the PokerStars

Motion until the applicability of fugitive disentitlement is
resolved. 5

As explained above, fugitive disentitlement is a

“threshold question” that is akin to standing.

As the Supreme

Court has made clear, threshold issues, such as fugitive
disentitlement, should be decided prior to any substantive

5

Once again, Rule G of the Supplemental Rules provides
an apt comparative framework in the context of a motion to
strike in relation to standing. Rule G(8)(c) provides that any
motions to strike a claim must be considered before a claimant’s
motion to dismiss.

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consideration of the merits of the case, including motions to
dismiss. 6
A stay in this case is particularly appropriate here,
where the PokerStars’ Motion to Dismiss attempts to raise many
of the arguments that other criminal defendants have raised and
that Isai Scheinberg presumably seeks to litigate in the context
of civil forfeiture rather than his criminal case.

For example,

in the criminal case, defendants Elie and Campos each moved to
dismiss the Indictment on the grounds that online poker is not a
“gambling business” under UIGEA, that their activities took
place solely overseas and therefore did not violate any state
laws, and that UIGEA has no extraterritorial application.

On

February 7, 2012, Judge Kaplan issued an order denying those
arguments as a basis to dismiss the Indictment.

See Kaplan

Order at 5 (attached as Ex. D to Cowley Declaration).

The

PokerStars Claimants seek to re-litigate the same issues in an
effort to create conflicting decisions that may inure to the
benefit of Isai Scheinberg in the criminal case.
This actually goes beyond the “unseemly spectacle” of
“a criminal defendant who, facing both incarceration and
forfeiture for his misdeeds, attempts to invoke from a safe
6

In order to promote judicial efficiency and have all
related issues resolved at the same time, the Government
requests a stay of consideration of the motion to dismiss as it
relates to the in personam claims against PokerStars.
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distance only so much of a United States court’s jurisdiction as
might secure him the return of alleged criminal proceeds while
carefully shielding himself from the possibility of a penal
sanction,” (Collazos, 368 F.3d at 200) that animates the
fugitive disentitlement doctrine.

In this case, the fugitive is

attempting to invoke the Court’s powers in ways that could
benefit him in the criminal action while at the same time
refusing to consent to the Court’s jurisdiction.
3.

The Court Should Allow the Government to Take
Expedited, Limited Discovery
The Court should allow the Government to take limited

and expedited discovery on this issue so that the Court may
consider the issue with all relevant facts before it.

Courts

have routinely allowed such targeted discovery in regard to
fugitive disentitlement.

See Soulbury Ltd. I, 478 F. Supp. 2d

at 45 (allowing claimant opportunity to supplement record
regarding application of fugitive disentitlement and attempt to
prove it was not a fugitive). See also 479 Tamarind Dr., 2005 WL
2649001 at *4-5 (allowing Government to investigate relationship
of fugitive to corporate claimants to determine whether Section
2466(b) applies).

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CONCLUSION
For the foregoing reasons, the Government respectfully
requests that the Court enter the Proposed Order, attached as
Ex. 1, ordering:
(1)

That consideration of the motion to dismiss filed

by the PokerStars Claimants shall be stayed pending expedited
discovery by the Government and the Court’s consideration
regarding the applicability of the fugitive disentitlement
statute to the PokerStars claimants, and terminating the present
response and reply deadlines related to that motion to dismiss;
(2)

That the Government shall be permitted to serve

document requests and interrogatories, take depositions, and
serve requests for admissions relating to the applicability of
the fugitive disentitlement statute to the PokerStars Claimants.
Such discovery period shall close ninety days from the date of
the entry of Proposed Order unless otherwise ordered by the
Court; and

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(3)

That the Government shall have 30 days from the

close of discovery on this issue to file a motion for summary
judgment on the issue of fugitive disentitlement.

Dated:

New York, New York
July 18, 2012

Respectfully submitted,
PREET BHARARA
United States Attorney for the
Southern District of New York

By:

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

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