Opinion: The Bad Actor Clause
Editor's note: The following article by Barry Greenstein and the sentiments that follow represent only Greenstein's opinion and not necessarily that of PokerStars or Team PokerStars.
The Bad Actor Clause is a provision written into the legislation in several states that are considering the legalization of online poker. Basically it says that any company that was offering online poker in the United States after the UIGEA (Unlawful Internet Gambling Enforcement Act) was passed in 2006 should not be allowed to operate in the U.S. now, or, should at least have to face some sort of waiting period. Everybody knows this provision is specifically written into these laws to exclude PokerStars, which did operate in the U.S. post-UIGEA. The reasoning given is that in 2011, the CEO of PokerStars was indicted on charges of running an illegal gambling operation in the United States and violating the UIGEA, which states that it's illegal for financial institutions to fund money to online gambling operations.
The first question I asked upper management when the UIGEA was passed was "Is all the players' money safe?" There was concern at the time, as PokerStars continued to operate in the United States, that the government could try to seize money that was being transferred from players to the site. I was guaranteed that the players' money, dollar for dollar, was being kept in segregated bank accounts and that PokerStars' regulator, the Isle of Man Gaming Commission, required them to do that. Representatives of other online poker companies operating in the United States were asking their upper management the same questions and they were given the same answers. As we now know, I was told the truth and they were told lies.
As I continued to represent PokerStars over the next several years, I discussed the legality of a number of issues with upper management. In every case, in every decision that was made, I was told PokerStars had lawyers who closely examine every detail because they know that at some point PokerStars will have to go to court, whether it's to defend against an indictment or to be licensed in the United States. Therefore, the lawyers were making sure that in their judgment, everything was being done legally. One example is when problems arose processing payments on the east coast of the United States. PokerStars' lawyers informed management there was no legal way to solve the problem and they would have to give up taking money from many east coast players. And that's what PokerStars did. At the same time, Full Tilt's decision to continue accepting deposits from these players ended up contributing greatly to their bankruptcy.
I was told this in 2009 or 2010, and everybody knows what happened on Black Friday, April 15, 2011. The U.S. Department of Justice shut the sites down and when the lights came on, we found out that Full Tilt was in a bad hole from their illegal activity, whereas PokerStars was right where they told me they were. They pulled out of the United States as the DOJ demanded, and as soon as they were allowed, PokerStars refunded the players' money. However, PokerStars' lawyers were still claiming the company had not been funding illegal gambling and that online poker was not illegal in the United States. At the time, the DOJ was saying it was illegal under the Wire Act of 1961, even though, as with a lot of things that happen online, the laws were written before the internet existed. Well, a funny thing happened at the end of 2011 when the DOJ finally made a ruling on whether online poker was legal or not. The verdict came back that while sports betting falls under the Wire Act, online poker does not.
You would think that after this judgment was handed down all the charges would be dropped, PokerStars would be viewed in the right, and state by state, online poker would become legal. Well, it just doesn't work that way. Due to the indictment, PokerStars is worth too much money to the Department of Justice. Part of the Black Friday case had already settled for hundreds of millions of dollars, and PokerStars bought Full Tilt in the process, saving the DOJ a big headache by paying Full Tilt's $186 million debt to non-U.S. players.
Let's return to the Bad Actor Clause. From a legal standpoint, it doesn't look like PokerStars did anything wrong. So now other gaming companies argue that you can't let PokerStars into the market because their CEO is still under indictment. Until that's resolved, PokerStars cannot be allowed to operate in the United States. These companies are spending an incredible amount of time and money lobbying at the state level and we've seen the politicians buy into their argument-- with the emphasis on the word "buy" because these decisions are bought, not based on logic. Well, in June of this year, the past and current CEOs of PokerStars sold the company to Amaya, a Canadian gaming entity, and will no longer be involved in PokerStars' operation in any capacity. The proponents of the Bad Actor Clause lose their argument again, and you would think that now PokerStars is free to enter the markets in New Jersey, Nevada, California, and wherever else online poker may be legalized. As of this writing nothing's been said, but again, it just doesn't work that way.
I'm friends with a lot of people in management at other top gaming companies and they've told me the truth behind their argument. Of course they don't want PokerStars in the market because not only is PokerStars the biggest online poker company in the world, it has proven itself to be the best. It has the best service. It has the best security. You can argue whether or not it has the best software, but you can't argue that they try to meet the offerings and features of any of the competition. As big as PokerStars is, it has a family culture with the idea impressed on everyone that it is trying to be the best and will spare no expense to do it. Other companies don't feel they can compete against PokerStars, because PokerStars gained deep respect from the poker community for quickly repaying U.S. customers after Black Friday and bailing out Full Tilt. Among poker players, PokerStars has incredible credibility. They run the biggest and best tournaments and other providers feel that if PokerStars comes to the market, they will continue to dominate as they have been for the last several years in Europe and as they were doing in the United States before they got shut down.
As Amaya takes over, I expect the proponents of the Bad Actor Clause to come up with a new argument. Now that PokerStars is under new ownership, they're going to have to drop their main sticking point, the Black Friday indictment. They could come back and say, "Oh, that didn't matter. It's not about ownership or management, it's just the mere fact that they were operating in the U.S. after 2006." They could even try arguing that PokerStars would quickly become a monopoly. Normally when a company is accused of monopolizing a market, what's pointed to is the manner in which they've been anti-competitive. The only thing PokerStars has ever done is strive to provide the best possible product.
I don't expect any of these arguments for the Bad Actor Clause to hold up in court, not that this issue will ever be resolved in a court of law. The future of online poker in the U.S. will most likely be resolved at the political level after a whole lot of lobbying on both sides. I'm still hopeful that at the end of 2014 I'll be able to play poker on PokerStars from my home in California. But it's going to be a fight to get there.
To more accurately reflect what is going on, the Bad Actor Clause should be renamed the Good Actor Clause. The other gaming companies want PokerStars out because it provides a great product and treat its customers so well it makes it difficult for other companies to compete.
Barry Greenstein is a member of Team PokerStars Pro