Isai Scheinberg Voluntarily Surrenders to Federal Prosecutors

The founder of PokerStars, Isai Scheinberg, finally appeared before US prosecutors nearly a decade after he was indicted on illegal gambling, bank fraud, and money laundering, among other charges, the Forbes reported.

A couple of months ago, federal prosecutors issued an extradition request during a trip Mr. Scheinberg took to Switzerland. The Israeli-Canadian businessman initially tried to fight the extradition but then decided to voluntarily travel to New York to face the charges leveled against him.

In a hearing that took place earlier this month in Manhattan’s federal court, Mr. Scheinberg pleaded not guilty and was released on $1 million bail. It is understood that he has surrendered his passports and promised not to move anywhere beyond the New York and Washington D.C. areas.

Federal prosecutor Olga Zverovich said earlier this week that the government and Mr. Scheinberg have engaged in negotiations over a deal and that talks on the matter were “far along.” Ms. Zverovich explained that they “have an agreement in principle on the basic terms.”

What Went Wrong?

The charges against Mr. Scheinberg stemmed from what is known in the online poker community as Black Friday. On Friday, April 15, 2011, former US Attorney in Manhattan, Preet Bharara, unsealed the indictment of 11 top online poker executives, including the PokerStars founder, other employees of the online poker giant, as well as employees at poker rooms Full Tilt Poker and Absolute Poker.

Mr. Scheinberg was charged with violation of the Illegal Gambling Business Act of 1970, the Unlawful Internet Gambling Enforcement Act of 2006, and conspiracy to commit bank fraud and money laundering. Isai Scheinberg’s son, Mark, who co-founded PokerStars with his father, never faced charges from the US government.

Mr. Scheinberg and the other indicted poker industry representatives appeared on the government’s radar screen after their poker rooms kept servicing online poker players by accepting deposits and paying out winnings to players. According to prosecutors, online poker was an illegal gambling activity under the UIGEA law.

Unlike the other indicted individuals, Mr. Scheinberg pleaded not guilty, arguing that poker was not a gambling activity, but a game of skill.

PokerStars’ Departure from the US

Isai and Mark Scheinberg founded PokerStars in 2001. They originally ran the company from Costa Rica, but then moved its headquarters to the Isle of Man in 2005. In 2003, Tennessee accountant and occasional poker player Chris Moneymaker took down the World Series of Poker Main Event after securing a seat into the tournament by winning an online tourney on PokerStars.

After news about Moneymaker’s win spread, online poker took off and its popularity rocketed to its highest levels. PokerStars quickly became the world’s largest online poker room, hosting thousands of tournaments and cash games every day.

It continued its operations in the US, its biggest market, even after the implementation of the UIGEA law in 2006, and so did other, smaller, poker rooms… until April 15, 2011 when they were all shut down as part of the US government’s crackdown on unauthorized online gambling.

Full Tilt Poker, which was PokerStars’ most serious competition at the time, collapsed after what online poker players dubbed Black Friday. The poker room was unable to repay $330 million of player deposits. Its founders, Ray Bitar, Howard Lederer, and Chris “Jesus” Ferguson were accused of running a Ponzi scheme and using player deposits to help Full Tilt’s owners and board members more than $440 million of dividends.

PokerStars avoided such trouble as its founders were clever enough to keep players’ funds separate from the company’s other funds. The poker operator managed to quickly pay US players all $150 million in deposits with the company.

PokerStars then entered into a civil lawsuit settlement with US prosecutors to acquire Full Tilt for $731 million and repay what the poker room owed to its players.

While Mr. Scheinberg maintained his and his company’s innocence, he agreed to no longer occupy a formal management position at the poker company he founded. In 2014, Mr. Scheinberg’s son, Mark, sold PokerStars to fellow Israeli-Canadian businessman David Baazov and his company Amaya Gaming (now The Stars Group) in a $4.9 billion deal that was backed by the credit division of the Blackstone Group, the world’s biggest private equity firm.

The deal made it possible for PokerStars to return to the regulated US poker space. The operator currently provides its poker services in New Jersey and Pennsylvania, and is part of an enormous gambling group that owns some of the world’s largest gambling brands, including PokerStars itself as well as Sky Betting & Gaming and Australia’s BetEasy. The Stars Group is also on the cusp of merging with Flutter Entertainment in a deal that will create a gambling behemoth with solid presence across all big regulated markets and millions of active players.

As for Mr. Scheinberg’s choice to travel to New York and finally appear before prosecutors, it put an end to one of the longest and most intricate sagas in the history of Internet.

Source: The Incredible Rise Of PokerStars Cofounder Isai Scheinberg—And His Surrender To Federal Agents

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