Unites States v. Pokerstars, et al

Filing 66

MEMORANDUM OF LAW in Support re: 65 MOTION to Strike Document No. 37 (Claim) and Dismiss Counter Claim.. Document filed by United States Of America. (Cowley, Jason)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - x
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 AND DISMISS THE COUNTER CLAIM OF ADAM WEBB

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.

Webb’s Claim, Answer and Counter Claim .. . . . . . . 6

ARGUMENT
I.

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

WEBB LACKS STANDING TO FILE A CLAIM. . . . . . . . . . . . 7
A.
B.

II.

Relevant Law. . . . . . . . . . . . . . . . . . . . . 7
Discussion. . . . . . . . . . . . . . . . . . . . . . 9

THE COUNTER CLAIM SHOULD BE DISMISSED .. . . . . . . . .

14

A.

Relevant Law. . . . . . . . . . . . . . . . . . . .

14

B.

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

16

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

17

PRELIMINARY STATEMENT
The Government respectfully submits this memorandum of
law in support of its motion, pursuant to Rule 12(b) 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 and to dismiss the counter claim filed in this in rem
forfeiture action by Adam Webb (“Webb” 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 Absolute Poker (collectively, “the
Defendant Property”).
Webb filed a claim on July 15, 2011, contesting the
forfeiture of certain funds he alleges to be part of the
Defendant Property and asserting an interest in “$58,917.90 in
the possession of Full Tilt Poker and of $36,531.73 in the
possession of Absolute Poker.”

Claim at 1.

On August 4, 2011,

Webb filed an answer to the in rem portion of the Complaint in
this matter as well as a counter claim for costs, pre- and
post-judgment interest and attorneys’ fees.
Webb’s claim should be stricken because Webb lacks
standing to assert a claim for the defendants-in-rem in this
action.

Webb has no legal interest in any assets of Full Tilt

Poker and Absolute Poker, nor the third-party payment processors
involved.

Webb also has no interest in, or authority over, the

bank accounts controlled by these poker companies or their thirdparty payment processors.

While Webb may have a claim against

the poker companies for the payment of the amount of money
credited to his online gambling account, this does not confer
standing on Webb in this in rem forfeiture action to file a claim
for any of the specific assets of Full Tilt Poker or Absolute
Poker or their payment processors.

In his claim, Webb does

little more than assert a debt allegedly owed to him by Full Tilt
Poker and Absolute Poker, rather than any specific or cognizable
interest in the specific property sought to be forfeited.
Additionally, even assuming that Webb did somehow have standing
to file a claim in this matter, his counter claim has no basis in
law and is barred by sovereign immunity.
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
2

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 Mann, 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, provides 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

3

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 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 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

4

Companies’ internet gambling transactions through fraudulent echeck 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.
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

5

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, after Webb filed his
claim, answer and counter claim, 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.
C.

Webb’s Claim, Answer and Counter Claim
On or about July 15, 2011, Webb filed a claim with

respect to the Defendant Property (the “Claim”).
37).

(Docket Entry

The Claim asserts that Webb has “an interest in the

defendant funds as the owner of $58,917.90 in the possession of
Full Tilt Poker and of $36,531.73 in the possession of Absolute
Poker.”1

The Claim fails to identify any specific accounts or

specific funds in which Webb allegedly has an ownership interest.
Instead, it does little more than allege a general debt owed by
these poker companies to Webb.
On or about August 4, 2011, Webb filed an answer to the

1

Claimant does not identify whether these amounts
represent the value of funds that he transferred to the poker
companies (through third-party payment processors), the value of
winnings from online gambling transactions, or both.
6

Complaint, which included allegations that he labels as
affirmative defenses, and a counter claim for costs, pre- and
post-judgment interest and attorneys’ fees.

(Docket Entry 41).

ARGUMENT
I.

WEBB 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”).
7

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 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, *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.

8

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

Discussion
Under these established legal principles, Claimant’s

allegations are insufficient to demonstrate standing in this
matter.

By Claimant’s own allegations, Full Tilt Poker and

Absolute Poker have possession of the funds he refers to in his
Claim, and the Claimant does not allege that he retained any
security interest in the deposits made to Full Tilt Poker and
Absolute Poker.

Even accepting allegations put forth in the

Claim as true, any ownership interest the Claimant had in any
particular funds transferred to the poker companies was lost, as
a matter of law for purposes of this action, once he allowed his
monies to be withdrawn from his account by a payment processor,
deposited into processor accounts, and then possibly transferred
to overseas accounts belonging to Full Tilt Poker and Absolute
Poker.
It is well settled under the law of New York and other

9

states2 that once someone deposits funds in a bank or investment
account –- or an account held by another -– they then lack a
particularized interest in those funds.

See Peoples Westchester

Sav. Bank v. FDIC, 961 F.2d 327, 330 (2d Cir. 1992) (as soon as
money is deposited, it is deemed to be the property of the bank,
and the relationship between the bank and the depositor is that
of debtor and creditor); United States v. All Fund On Deposit In
the Name of Khan, 955 F. Supp. 23, 26-27 (E.D.N.Y. 1997)
(abbreviated title) (under New York Law, an individual loses
title to funds once the funds are deposited into an account held
in the name of a third person); United States v. $79,000 at Bank
of New York, No. 96 Civ. 3493 (MBM), 1996 WL 648934, *5 (S.D.N.Y.
Nov. 7, 1996) (abbreviated title) (same).

Webb fails to allege

in his Claim that he has any secured interest in the funds he
seeks.
Once Webb voluntarily transferred his funds to a thirdparty payment processor, who in turn, possibly transferred those
funds to Full Tilt Poker and Absolute Poker, he became simply an
unsecured creditor of these entities and lacks sufficient
standing to file a Claim in this matter.

2

As soon as the money

In analyzing the question of standing in a forfeiture
action, it is appropriate to look to state law to determine the
nature of the property interest involved. United States v.
Contents of Account Number 11671-8 in the Name of Latino
Americana Express, 90 Civ. 8154 (MBM), 1992 WL 98840, *3
(S.D.N.Y. May 6, 1992).
10

was removed from Webb’s account, and deposited into accounts
controlled by Full Tilt Poker or Absolute Poker or their payment
processors, it is deemed to be the property of the bank, and the
relationship between the bank and the depositor is that of debtor
and creditor, with the depositor having a contractual right to
repayment of his debt on demand.

Peoples Westchester Sav. Bank,

961 F.2d at 330; Swan Brewery Co. Ltd. v. U.S. Trust Co. of New
York, 832 F. Supp. 714, 718 (S.D.N.Y. 1993); 1 W. Schlichting, T.
Rice and J. Cooper, Banking Law § 9.05 (1983).

But this

contractual right belongs to the account holder; it is the
account holder who has the power to exercise dominion and control
over the funds in his account.

See N.Y. Banking Law § 134(5);

New York Trust Co. v. Braham, 126 Misc. 462, 213 N.Y.S. 678, 679
(Sup. Ct. N.Y. Co. 1926); see also 9 C.J.S., Banks and Banking §
293 (1996) (“Ordinarily, where a deposit is made by one person in
the name of another, the rights with respect to such deposit
belong to the person in whose name the deposit is made, even
though the latter is unaware of the deposit, and the bank may not
dispute his or her title or rights”).
The Claimant here does not allege that he was an
authorized signatory for any bank accounts of payment processors
or Full Tilt Poker or Absolute Poker.

Nor does he allege that he

had any contractual relationship with any deposit banks of third
party payment processors or the overseas deposit banks of Full

11

Tilt Poker or Absolute Poker in which the funds at issue were
possibly held.

He fails to allege with any specificity any

particular accounts over which he allegedly has an ownership
interest.

Ultimately, he does little more than allege a general,

unsecured debt allegedly owed to him by Full Tilt Poker and
Absolute Poker.
The Claimant may very well have a claim against Full
Tilt Poker and Absolute Poker for breach of an agreement he had
with those entities for the payment of the amount of money
identified in his claim.

This, however, is simply a general

unsecured debt -- not a claim to the specific res before the
Court.

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
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

12

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.) (“a
general creditor can never have an interest in specific forfeited
property”); United States v. Schwimmer, 968 F.2d 1570, 1581 (2d
Cir. 1992).
In analogous circumstances, courts have dismissed
claims to funds in a bank account asserted by persons other than
the account holder, even though the funds had been promised to
the claimant or had been given to the account holder by the
claimant.

In United States v. Contents of Account Number 11671-8

in the Name of Latino Americana Express, 90 Civ. 8154 (MBM), 1992
WL 98840 (S.D.N.Y. May 6, 1992), for example, the Government
seized two bank accounts controlled by Pedro Lora on the ground
that they were property involved in illegal structuring in
violation of 31 U.S.C. § 5324.

Claimants had purchased from

Lora, with Dominican pesos, checks drawn on these accounts as a
way of acquiring U.S. dollars.

The checks, however, had not been

accepted at the time the accounts were seized.

This Court

rejected the claimants’ argument that they had a possessory
interest in the bank accounts on which the checks were drawn.
“[C]laimants simply held promises by the drawer, Pedro Lora, to
pay the amount for which the checks were drawn; they did not own
portions of the defendant accounts in the amounts for which the

13

checks were drawn.

Therefore, claimants are not owners and have

no standing to assert the innocent owner defense.”

Id. at *4.

Accord United States v. Ribadeneira, 920 F. Supp. 553, 554-55
(S.D.N.Y. 1996) (Sand, J.) aff’d (per curiam), 105 F.3d 833 (2d
Cir. 1997) (as holders of checks drawn on seized account, as
opposed to security interests, claimants were unable to assert
rights to a particular asset or specified funds and hence lacked
standing).
For these reasons, Webb’s claim should be stricken.
II.

The COUNTER CLAIM SHOULD BE DISMISSED
A.

The Law
Because Webb lacks standing to file a claim in this

matter, he is not a party to this action and his counter claim
should also be dismissed.

Additionally, and most basically,

Webb’s “counter claim” fundamentally misapprehends the nature of
this in rem proceeding.

It is the property of the Poker

Companies, among others, that constitutes the defendants-in-rem
in this action.

Webb is not a defendant.3

“A counterclaim is an

action brought by a defendant against the plaintiff. Whatever the
claimants’ pleading is, it is not properly a counterclaim.”
United States v. $10,000.00 in U.S. Funds, 863 F. Supp. 812, 816
(S.D. Il. 1994); see also United States v. “Lady with a Parrot”

3

While certain persons and entities have been named as in
personam defendants in regard to civil money allegations, Webb is
not among them.

14

by Nahl, 92-C-6427, 1992 WL 293287, *1 (N.D. Ill. Oct. 13, 1992)
(striking counter claim in forfeiture action as improper).
Finally, the doctrine of sovereign immunity bars Webb’s
“counter claim.”

As this court explained in United States v. All

Right, Title and Interest in the Real Property and Buildings
Known as 228 Blair Avenue, Bronx, New York:
It is well established that the United States
Government has sovereign immunity and,
consequently, can be sued only to the extent
it consents to be sued, and only in the
manner established by law. Thus,
counterclaims against the United States can
be maintained only where the Government has
consented or waived its immunity from suit on
that claim. . . . Initiation of a
forfeiture action does not constitute a
waiver of sovereign immunity.
821 F. Supp. 893, 899 (S.D.N.Y. 1993) (citing United States v.
Mitchell, 445 U.S. 535, 538 (1980)).

See also United States v.

Lockheed L-188 Aircraft, 656 F.2d 390 (9th Cir. 1979) (government
did not waive sovereign immunity in filing an in rem forfeiture
action so the district court’s dismissal of counterclaim asserted
under Tucker Act affirmed); United States v. 8,800 Pounds of
Powdered Egg White, 04 Civ. 76 (RWS), 2007 WL 2955571, *7 (E.D.
Mo. Oct. 5, 2007) (same); United States v. $10,000.00 in U.S.
Funds, 863 F. Supp. at 816 (S.D. Il. 1994) (court barred FTCA
counter claim stating “that the mere fact that the government is
the plaintiff and has brought the forfeiture action does not
constitute a waiver of sovereign immunity and authorize the

15

bringing of a counterclaim”).
Webb’s citation to the Civil Asset Forfeiture Reform
Act (“CAFRA”) and the Equal Access to Justice Act, 28 U.S.C. §
2412 (“EAJA”) also do not provide a valid basis for Webb to
assert any sort of counter claim.

CAFRA does provide for

attorneys’ fees and interest in cases in which a claimant is
successful.

See 28 U.S.C. § 2465(b)(1).

That provision,

however, does not authorize the filing of a counter claim against
the United States.

See United States v. 662 Boxes of Ephedrine,

590 F. Supp. 2d 703, 705 (D.N.J. 2008) (dismissing counter claims
for attorneys’ fees and litigation costs “as superfluous because
the CAFRA specifically provides that a prevailing party may
recover those expenses by post-judgment motion”).

Additionally,

due to the presence of CAFRA’s fee-shifting provision, the Second
Circuit has explicitly held that “the EAJA and CAFRA are
irreconcilably at odds” and that “CAFRA is exclusive of all other
remedies.”

United States v. Khan, 497 F.3d 204, 211 (2d Cir.

2007).
Finally, neither 18 U.S.C. § 983 nor the Supplemental
Rules for Certain Admiralty and Maritime Claims, Rule (G),
provide for counterclaims in civil forfeiture proceedings.
B.

Discussion
Because Webb lacks Article III standing to file a claim

in this matter, he is not validly a party in this action and his

16

counter claim, along with his Claim, should be dismissed.
Relatedly, because Webb is not a defendant in this matter, he
lacks the ability to file a counter claim.

Finally, Webb’s

counter-claim should also be dismissed on the basis of sovereign
immunity, which has not been waived in this context.

Neither

CAFRA, the EAJA or any other statutory provision provide Webb
with a legal basis to assert a counter claim in this matter.
CONCLUSION
For the foregoing reasons, the Government respectfully
requests that the Court enter an order striking the claim and
counter claim of Adam Webb for lack of standing and also strike
his counter claim as barred by sovereign immunity and
unauthorized by statute.
Dated:

New York, New York
October 3, 2011
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 Attorney
[phone]/2193/2479

17