Feds follow digital money trail to halt online poker

Federal investigators obtained a trove of digital evidence, including emails, wire transfers and even a jump drive, to make the case that poker websites allegedly conned U.S. banks into processing $3 billion worth of illegal gambling proceeds.

Justice Department attorneys on Friday unsealed charges of bank fraud, money laundering and illegal gambling against the founders of PokerStars, Full Tilt Poker and Absolute Poker, the largest online poker operators doing business in the United States, along with their middlemen. Officials also announced restraining orders against more than 75 bank accounts used by the companies and their intermediary payment processors.

Online financial transactions played a pivotal role in enabling the co-conspirators to orchestrate the alleged illegal gambling. But the transactions also provided investigators with evidence of those activities and are enabling customers to get refunds.

After seizing the companies' domain names, U.S. officials on Wednesday announced an agreement that allows PokerStars and Full Tilt Poker limited access to their websites to help players withdraw their stored cash. U.S. gamblers still are barred from depositing funds with the sites, but the deal allows foreign customers to play for money.

To differentiate between foreign and American users, the sites now must use geographic blocking technology that checks the IP address -- or network location -- of visitors.

The poker outfits, all based offshore, allegedly duped American banks into processing payments from U.S. online players by masking the fees as proceeds from phony Internet businesses, according to the U.S. government's 80-page civil complaint.

The United States outlawed Internet gambling in 2006 by making it a crime for businesses to knowingly take money associated with online gambling. U.S. banks refused to accept gambling proceeds and attached a certain credit card transaction code to online gaming activities so they could deny credit to online poker players.

In response, the accused allegedly applied incorrect codes to their gambling transactions, thus creating the illusion that the transfers had nothing to do with gambling. The codes specified made-up companies, including Web-based flower and pet supply shops.

Another circumvention involved issuing players prepaid cards disguised as debit or phone cards from bogus online retailers.

"To avoid detection, [the defendants] arranged for fake Internet websites and phony consumer reviews of the stored value cards so that it would appear that the stored value cards had some other legitimate purpose," Preet Bharara, U.S. attorney for the Southern District of New York, wrote in the government's civil complaint.

Whenever a credit card company would become suspicious, the poker operators resorted to e-checks. E-checks transfer electronic funds through a network administered by the Federal Reserve that require users to open accounts at U.S.-based financial institutions. The defendants again fabricated e-commerce sites to open accounts for their deposits.

"For a time PokerStars used 'oneshopcenter' and 'mygolflocations' to appear as the party initiating the charges on gamblers' bank statements," Bharara explained. "At the time, 'oneshopcenter.com' and 'mygolflocation.com' were purported Internet merchants that falsely claimed to sell clothing and jewelry (for oneshopcenter.com) and golf clubs."

Another ruse entailed telling banks, including Citibank, that the so-called Green2YourGreen site operated a direct sales business that offered customers the opportunity to buy eco-friendly household products for selling to other consumers at a commission.

When gamblers became confused by the fake merchant names on their checking account statements and tried contacting the customer service centers on the fictitious websites, players "received responses not from these websites but from individuals identifying themselves as customer service employees of PokerStars replying from email addresses associated with PokerStars," Bharara wrote.

Among the many pieces of electronic evidence law enforcement officials obtained is a thumb drive from a close associate of an Absolute Poker defendant.

"The thumb drive included numerous wire transaction instructions," wrote FBI Special Agent Rosemary Karaka in a 77-page exhibit attached to the civil complaint. "Among these was an instruction to transfer $200,000 to account number 61-12-9436-6 held at Banco Panameno De La Vivienda SA, Panama, in the name of Disora Investment, Inc."

Justice officials on Wednesday declined to disclose the databases, search tools and other technology they used to uncover many of the suspects' schemes, beyond the information contained in the criminal indictment and civil complaint.

Paul Wormeli, executive director emeritus at the Integrated Justice Information Systems Institute, said there is no simple method to prevent or detect fraud like that alleged in the online poker case.

"It is very easy to create phony company websites by just paying the registration fee and using some of the thousands of preformed templates to create a site," he said. "Such sites can look very real to banking officials who generally would not have any reason to doubt a payment made for goods purchased. It would not be until someone traced ownership and checked Secretary of State filings to ensure the company was real that it would be discovered."