The "60 Minutes" segment on insider poker cheating scandals ended with one of the folks who uncovered the scam suggesting that the same thing may be happening at other online poker rooms. That didn't sit too well with the rest of the online poker community, many of whom are extremely loyal to Full Tilt Poker and Poker Stars among others.
"Yeah it wasn't great for online poker but it could've been way, way worse. The final piece was far from the outright "hatchet job" we were told it would be," expressed the folks from WickedChopsPoker.com.
But one man has stood in the line of fire since the segment aired. That would be Todd "Dan Druff" Witteles, the same man who made the remark about potential cheating scandals about to occur elsewhere.
WickedChops has observed the amount of heat Witteles is taking for his closing comments:
"The people who did this were very greedy and very blatant. But the scary thing is there may be other accounts out there like this, maybe even on other sites that are not being done with the same sort of recklessness. And maybe this has been going on on more than Absolute Poker and UltimateBet, maybe it's going on in several other places, and maybe it's still going on on these sites."
He's getting slammed more than Gambling911.com and WickedChopsPoker.com combined over at TwoPlusTwo.com.
"The funny thing about this is Druff was one of the guy's who helped unearth the Absolute mess, doing the poker community a big service," point out the folks at WCP. "Dude is getting no slip-up equity for that. And in the 2+2 podcast, it was also revealed that Druff even clarified his ‘controversial' statement that he did feel safe on other sites, but 60 Minutes didn't air it."
What a surprise, huh?
"Anyway, more high school drama is sure to ensue," WCP added.
Thursday, December 04, 2008
Cliff ‘JohnnyBax’ Josephy Leaves UltimateBet
According to numerous reports out this week, online casino UltimateBet.com has reportedly axed its promotional relationship with successful American professional poker player Cliff ‘JohnnyBax’ Josephy.
Kahnawake-licensed UltimateBet.com announced in late-May that 42-year-old Josephy had been added to its roster of online poker professionals and would be the first member of its Star Players team. However, the former stockbroker from Syosset, New York, posted on an online forum at TwoPlusTwo.com this week that this relationship was now at an end.
“Just wanted you guys to know that you will no longer see me as a redlined pro in their lobbies nor will you see me wearing their patches at live events anymore,” wrote Josephy.
UltimateBet.com was the subject of a report last weekend on a cheating scandal by the long-running American television investigative news programme 60 Minutes alongside AbsolutePoker.com.
Josephy has been quoted in numerous sources as stating that he was contacted by Paul Leggett, Chief Operating Officer for the owners of UltimateBet.com, Tokwiro Enterprises, about the possibility of setting up a meeting between the two. However, he stated that when he responded, Leggett told him that someone else would speak with him instead.
“We set up a conference call last Friday and the other gentleman said ‘Before the others get on the line, I wanted to tell you that we’re no longer paying you starting next month’,” said Josephy.
The online casino then went on to offer the poker pro and lead instructor for PokerXFactor.com a ‘standard deal’, which he subsequently declined.
“It was as out of the blue as anything can be,” said Josephy.
“I thought it was surprising. I still haven’t heard from the people who were in favour of having me originally. Maybe they just wanted to use my name through their rough times to add credibility to the site.”
Wednesday, December 03, 2008
Kahnawake Gaming Commission And Excapsa Speak Out Over "60 Minutes" Online Poker Cheat Segment
KGC and Excapsa React to 60 Minutes Poker Scandal Show
Clarifications have been flying left and right after the airing of this past Sunday's CBS '60 minutes' show titled "The Cheaters" covering the Ultimatebet and Absolute Poker scandals. On Monday, the Kahnawake Gaming Commission (KGC) issued a public statement to clarify several important points they felt were left out of the show which reflected badly on them. Then Tuesday Dec.2, XMT Liquidations Inc. (XMT), the court-appointed liquidator for former Excapsa Software Inc., issued a press release correcting points that KGC brought up in their statement concerning Excapsa's ownership of Ultimatebet.
KGC POINTS RAISED:
1. The Ultimate Bet (UB) cheating was initiated while UB was owned and operated by Excapa (a public company whose Board of Directors included several high-profile Canadians). Pursant to a settlement agreement finalized in November, 2008, Excapsa agreed to pay Tokwiro ENRG US $15,000,000.
2. All players that were adversely affected by cheating (both AP and UB) were fully reimbursed. In the case of UB, these refunds amounted to over US $20,000,000. The reimbursement of UB players was affected within days after the Excapsa settlement. The KGC played a key role in facilitating and monitoring reimbursements.
3. The KGC and its agents have reviewed AP/UB operations and systems and have confirmed that all necessary steps have been implemented to prevent against cheating in future. Migration to the CEREUS software platform was approved and closely monitored by KGC.
4. Contrary to claims made in the 60 Minutes story, in addition to significant penalties levied under its Regulations (eg. fines totaling US $2,000,000), the KGC has initiated a criminal complaint against at least one cheater (Russ Hamilton) and is cooperating with law enforcement authorities. Other such complaints may follow.
FOLLOWUP on BEHALF of EXCAPSA, CLARIFYING THE CLARIFICATION:
The press release dated December 2 by XMT Liquidations Inc. on behalf of Excapsa Software Inc says that KGC's clarifying comments, in response to the CBS' 60 Minutes show, erroneously stated that: "...the Ultimate Bet ("UB") cheating was initiated while UB was owned and operated by Excapsa."
The XMT release stated that: "Excapsa never owned UB. UB was a licensee of Excapsa's gaming software and was owned and operated by an arm's-length third party. Moreover, it is a matter of public record and well-known to the KGC that Excapsa acquired the software code from a third party in July 2005, more than a year after the cheating on the Ultimatebet sites began."
It points out that KGC's own statement supports this timing:
"The Commission found clear and convincing evidence to support the conclusion that between the approximate dates of May 2004 (emphasis added) to January 2008, Russell Hamilton, an individual associated with Ultimatebet's affiliate program, was the main person responsible for and benefitting from the multiple cheating incidents."
The president of XMT, Sheldon Krakower, commented:
"It is disappointing that, without any prior consultation, the KGC chose to hastily issue a press release containing inaccurate and contradictory information. As we previously disclosed, XMT does not believe that management of Excapsa had any knowledge of the cheating tool and, importantly, there was absolutely no admission of liability or wrongdoing pursuant to the recent settlement with Blast Off. The settlement was an important step in Excapsa's liquidation process, avoiding costly litigation and reinstating payments under Blast Off's promissory note. Excapa obtained security for the $15 million settlement payment and the balance of the note payments, and also acquired an ownership interest in Blast Off's gaming software to hopefully generate further value for shareholders."
Mr. Krakower went on to say: "The KGC asked us to work with them to ensure that the $15 million settlement payment was used exclusively for player refunds. We took the lead in monitoring the disbursement process and gave the KGC full access to our files and records."
Clarifications have been flying left and right after the airing of this past Sunday's CBS '60 minutes' show titled "The Cheaters" covering the Ultimatebet and Absolute Poker scandals. On Monday, the Kahnawake Gaming Commission (KGC) issued a public statement to clarify several important points they felt were left out of the show which reflected badly on them. Then Tuesday Dec.2, XMT Liquidations Inc. (XMT), the court-appointed liquidator for former Excapsa Software Inc., issued a press release correcting points that KGC brought up in their statement concerning Excapsa's ownership of Ultimatebet.
KGC POINTS RAISED:
1. The Ultimate Bet (UB) cheating was initiated while UB was owned and operated by Excapa (a public company whose Board of Directors included several high-profile Canadians). Pursant to a settlement agreement finalized in November, 2008, Excapsa agreed to pay Tokwiro ENRG US $15,000,000.
2. All players that were adversely affected by cheating (both AP and UB) were fully reimbursed. In the case of UB, these refunds amounted to over US $20,000,000. The reimbursement of UB players was affected within days after the Excapsa settlement. The KGC played a key role in facilitating and monitoring reimbursements.
3. The KGC and its agents have reviewed AP/UB operations and systems and have confirmed that all necessary steps have been implemented to prevent against cheating in future. Migration to the CEREUS software platform was approved and closely monitored by KGC.
4. Contrary to claims made in the 60 Minutes story, in addition to significant penalties levied under its Regulations (eg. fines totaling US $2,000,000), the KGC has initiated a criminal complaint against at least one cheater (Russ Hamilton) and is cooperating with law enforcement authorities. Other such complaints may follow.
FOLLOWUP on BEHALF of EXCAPSA, CLARIFYING THE CLARIFICATION:
The press release dated December 2 by XMT Liquidations Inc. on behalf of Excapsa Software Inc says that KGC's clarifying comments, in response to the CBS' 60 Minutes show, erroneously stated that: "...the Ultimate Bet ("UB") cheating was initiated while UB was owned and operated by Excapsa."
The XMT release stated that: "Excapsa never owned UB. UB was a licensee of Excapsa's gaming software and was owned and operated by an arm's-length third party. Moreover, it is a matter of public record and well-known to the KGC that Excapsa acquired the software code from a third party in July 2005, more than a year after the cheating on the Ultimatebet sites began."
It points out that KGC's own statement supports this timing:
"The Commission found clear and convincing evidence to support the conclusion that between the approximate dates of May 2004 (emphasis added) to January 2008, Russell Hamilton, an individual associated with Ultimatebet's affiliate program, was the main person responsible for and benefitting from the multiple cheating incidents."
The president of XMT, Sheldon Krakower, commented:
"It is disappointing that, without any prior consultation, the KGC chose to hastily issue a press release containing inaccurate and contradictory information. As we previously disclosed, XMT does not believe that management of Excapsa had any knowledge of the cheating tool and, importantly, there was absolutely no admission of liability or wrongdoing pursuant to the recent settlement with Blast Off. The settlement was an important step in Excapsa's liquidation process, avoiding costly litigation and reinstating payments under Blast Off's promissory note. Excapa obtained security for the $15 million settlement payment and the balance of the note payments, and also acquired an ownership interest in Blast Off's gaming software to hopefully generate further value for shareholders."
Mr. Krakower went on to say: "The KGC asked us to work with them to ensure that the $15 million settlement payment was used exclusively for player refunds. We took the lead in monitoring the disbursement process and gave the KGC full access to our files and records."
Fallout From UltimateBet Cheat Scam Focuses Attention On Phil Ivey And Other Top Pros!
The UltimateBet Scandal and CBS' "60 Minutes" coverage of it has now led to some negative speculation about some of today's big name poker pros, besides the alleged UltimateBet Scam mastermind Russ Hamilton. The scrutiny spotlight seems to have hit top pro Phil Ivey square in the face.
The question: Is it a conflict of interest for a part-owner in an online poker room the likes of Full Tilt Poker to rack up over $8 million in cash games over an 18 month span there? Last week, Phil Ivey's impressive statistics for his winning ways on Full Tilt Poker were published on the Internet for the entire world to see. In a span of about 18 months, Ivey is up more than $8 million in cash games ranging from Omaha to Stud to Hold em. You can name any game and Ivey has been beating it impressively. While his accomplishments were mind-boggling on so many levels, some people have brought forth some question as to the ethics behind the numbers as some people of players have called those results into question. While no one has come out and questioned the validity nor method in which Ivey has won what he has, some people do cite concerns of a bit of a conflict of interest in Ivey winning so much money on a site in which he has legitimate business interests.
Phil Ivey is largely regarded as one of the best, if not, the best poker player in the world. The man wins, consistently, no matter the game, stakes or venue. However, as a program which aired on 60 Minutes on November 30th shows, there were ways that people with inside knowledge of a large poker site's operations were able to profit from their standing with the site. With all the talk about superusers being able to see other players' hole cards, it was just a matter of time before other players looked at winning players with suspicion. Naturally, since players can now point to a real dollar figure to see how well Ivey has been doing, the inevitable marriage of paranoia was just a matter of time. However, most people have been quick to defend Ivey and do not believe for a moment that he has done anything wrong.
In fact, many of the people coming to Ivey's defense cite very obvious reasons as to why they are not at all suspicious of Ivey. For starters, as one of the world's best poker players, it is expected that Ivey is a big winner. Secondly, as Full Tilt Poker's moniker is "play with the pros", part of the allure of the site is having the opportunity to play with professional players whom most would never be able to play against otherwise. So he is not deceiving anyone into playing with him. If one decides to face him on the virtual felt, they do so at their own risk. To further this fact is that Ivey does not try to hide his identity at all as his screenname is "Phil Ivey" and his avatar is in his likeness. Lastly, those who know Ivey view him as a person of high character and one who does not need any unfair advantages at a poker table.
In being a part owner of Full Tilt, Ivey stands to make more money should Full Tilt Poker's success continue to thrive, not if he unwittingly brings it down in some type of cheating scandal. To jeopardize a consistent personal revenue stream would be an unnecessary risk. So if he is doing nothing wrong the question becomes, is it ethical for a person who is part owner of a poker site to take his clients money? Those chiming in online answer with a resounding yes. After all, the whole point of a game of poker is to take away another players money. So when one sits down to play, they understand the inherent risk and should they choose to play, that is completely on them.
Tuesday, December 02, 2008
Analysis Of "60 Minutes" Online Poker Cheating Segment
Regular viewers of "60 Minutes" may not have been aware of a major scandal in the online gambling industry before Sunday night's broadcast, but Internet poker enthusiasts already knew the score and were waiting for reporters to show their cards.
The report, a joint effort involving CBS's Steve Kroft and the Washington Post's Pulitzer-winning investigative journalist Gil Gaul, told the story of the insider cheating that went on at the Ultimate Bet and Absolute Poker Web sites in 2007. Kroft and Gaul interviewed online poker players who grew suspicious when they saw competitors making amateur, newbie-style moves, but were still racking up big wins at the virtual tables. Complaints on poker-related message boards -- and to the Web sites' management -- went unanswered, so players did their own detective work with the help of software.
The honest players recreated the offending players' hands and posted those videos on the Web, going public with their suspicions. They finally got the company that owns both Web sites to admit that an employee was able to hack software code that enabled him to see all the cards played in a game. But the company granted anonymity to the employee in exchange for a full confession.
In the meantime, those who lost money to cheaters are still out tens of thousands -- and in some cases, hundreds of thousands of dollars. The "60 Minutes" piece painted a picture of an largely unregulated, offshore-based industry whose only governing body is a three-member commission that has suspicious ties to the business; hence no punishments. No charges have been filed in the cheating scandals, even though the TV report turned up the name of a former real-world poker champion that the commission said had conspired with five others over a four-year period to cheat players out of more than US$20 million.
The Players' Reaction:
Web sites and online forums dedicated to Internet poker had plenty to say about the CBS program's report. From a story on PartTimePoker.com: "Mostly, the story portrays online poker as an unregulated industry where cheating is possible and has occurred -- namely in the AP/UB scandal -- but stops short of saying online poker as a whole is entirely crooked and filled with cheaters."
But a poster on the TwoPlusTwo message board wasn't bluffing with this comment: "The general public is not going to differentiate between UB, Absolute or any other poker site. This will just make everything look crooked to the public eye. This is NOT good news and will not help internet poker imo [in my opinion]."
The report made it clear that there's not much clarity in the world of online gaming, thanks to the fact that most of the Web sites involved are based in the Caribbean or Europe. Online gambling is illegal in the U.S. and there have been several futile attempts by federal and state officials to take on the offshore sites.
So is Internet poker yet another example of 20th century law colliding with 21st century technologies? "I think that's a fair assessment," attorney Michael Fleming of the Mineapolis firm Larkin-Hoffman Daly and Lindgren, told the E-Commerce Times. Online gambling has become an $18 billion-a-year industry because of the murkiness of the legal situation, said Fleming, currently chairman of the American Bar Association's cyberspace law committee. "The federal government has not stepped up at all to create a federal gambling law to override the Internet specifics, and I don't see any interest in it doing that anytime soon."
Antigua, a host country to some Internet poker sites, has actually sought World Trade Organization action against the U.S. for its anti-gambling stance and wants $20 million in tariffs. "This is hardly an easy issue when you get to the international laws," Fleming said. "That money is going to come out of some importer-exporter's pocket, instead of the U.S. government's. This gets into all sorts of legal fun we haven't seen yet."
Some states have tried unique methods to enforce regulation on the industry, Fleming said. Kentucky's state attorney general tried to have the domain names of gambling Web sites declared "gambling devices," but an appellate court has brought that effort to a halt. The Missouri AG even went so far as to arrest the CEO of a UK-based gambling Web site while he was passing through the St. Louis airport during a layover.
"It's a good demonstration of the attempts to be creative because the states are so frustrated," Fleming said. And for those who say online gambling should be legal to make it easier to tax and regulate, decades of history are against that argument. "To some degree, this case shows why regulations would be important. But if you're a country who believed gambling shouldn't ever be done, it can be difficult to reconcile these desires: one, that regulation would be a good thing, but two, that gambling is a bad thing and should never be allowed."
Gambler Beware
The fact that that the Absolute Poker/Ultimate Bet scandal was the product of an inside job -- and that both Web sites are still dealing out hands to anyone willing to set up an account with a credit card -- hasn't escaped the notice of security experts like Ivan Macalintal, research manager at Trend Micro (Nasdaq: TMIC) .
"Even though it can be tempting, when you're involved in these (gambling) Web sites, you're not sure where they're coming from, or what the modus operandi is behind it," Macalintal told the E-Commerce Times. "If you're going to risk yourself in going to these sites, make sure you're properly well-informed of what's happening on your computer.
Unlike a casino in Atlantic City or Las Vegas, there's no reading of faces or eyes in online poker. In exchange for playing in the privacy of one's home, there's no looking for "tells," tics or player routines that might indicate a player's next move. And there are no pit bosses or security cameras to help enforce the rules. "You don't see who you're dealing with, who you're playing with," Macalintal said. "You have to be really careful. If you go to these sites, you have to be prepared for the risk that you're getting into."
The report, a joint effort involving CBS's Steve Kroft and the Washington Post's Pulitzer-winning investigative journalist Gil Gaul, told the story of the insider cheating that went on at the Ultimate Bet and Absolute Poker Web sites in 2007. Kroft and Gaul interviewed online poker players who grew suspicious when they saw competitors making amateur, newbie-style moves, but were still racking up big wins at the virtual tables. Complaints on poker-related message boards -- and to the Web sites' management -- went unanswered, so players did their own detective work with the help of software.
The honest players recreated the offending players' hands and posted those videos on the Web, going public with their suspicions. They finally got the company that owns both Web sites to admit that an employee was able to hack software code that enabled him to see all the cards played in a game. But the company granted anonymity to the employee in exchange for a full confession.
In the meantime, those who lost money to cheaters are still out tens of thousands -- and in some cases, hundreds of thousands of dollars. The "60 Minutes" piece painted a picture of an largely unregulated, offshore-based industry whose only governing body is a three-member commission that has suspicious ties to the business; hence no punishments. No charges have been filed in the cheating scandals, even though the TV report turned up the name of a former real-world poker champion that the commission said had conspired with five others over a four-year period to cheat players out of more than US$20 million.
The Players' Reaction:
Web sites and online forums dedicated to Internet poker had plenty to say about the CBS program's report. From a story on PartTimePoker.com: "Mostly, the story portrays online poker as an unregulated industry where cheating is possible and has occurred -- namely in the AP/UB scandal -- but stops short of saying online poker as a whole is entirely crooked and filled with cheaters."
But a poster on the TwoPlusTwo message board wasn't bluffing with this comment: "The general public is not going to differentiate between UB, Absolute or any other poker site. This will just make everything look crooked to the public eye. This is NOT good news and will not help internet poker imo [in my opinion]."
The report made it clear that there's not much clarity in the world of online gaming, thanks to the fact that most of the Web sites involved are based in the Caribbean or Europe. Online gambling is illegal in the U.S. and there have been several futile attempts by federal and state officials to take on the offshore sites.
So is Internet poker yet another example of 20th century law colliding with 21st century technologies? "I think that's a fair assessment," attorney Michael Fleming of the Mineapolis firm Larkin-Hoffman Daly and Lindgren, told the E-Commerce Times. Online gambling has become an $18 billion-a-year industry because of the murkiness of the legal situation, said Fleming, currently chairman of the American Bar Association's cyberspace law committee. "The federal government has not stepped up at all to create a federal gambling law to override the Internet specifics, and I don't see any interest in it doing that anytime soon."
Antigua, a host country to some Internet poker sites, has actually sought World Trade Organization action against the U.S. for its anti-gambling stance and wants $20 million in tariffs. "This is hardly an easy issue when you get to the international laws," Fleming said. "That money is going to come out of some importer-exporter's pocket, instead of the U.S. government's. This gets into all sorts of legal fun we haven't seen yet."
Some states have tried unique methods to enforce regulation on the industry, Fleming said. Kentucky's state attorney general tried to have the domain names of gambling Web sites declared "gambling devices," but an appellate court has brought that effort to a halt. The Missouri AG even went so far as to arrest the CEO of a UK-based gambling Web site while he was passing through the St. Louis airport during a layover.
"It's a good demonstration of the attempts to be creative because the states are so frustrated," Fleming said. And for those who say online gambling should be legal to make it easier to tax and regulate, decades of history are against that argument. "To some degree, this case shows why regulations would be important. But if you're a country who believed gambling shouldn't ever be done, it can be difficult to reconcile these desires: one, that regulation would be a good thing, but two, that gambling is a bad thing and should never be allowed."
Gambler Beware
The fact that that the Absolute Poker/Ultimate Bet scandal was the product of an inside job -- and that both Web sites are still dealing out hands to anyone willing to set up an account with a credit card -- hasn't escaped the notice of security experts like Ivan Macalintal, research manager at Trend Micro (Nasdaq: TMIC) .
"Even though it can be tempting, when you're involved in these (gambling) Web sites, you're not sure where they're coming from, or what the modus operandi is behind it," Macalintal told the E-Commerce Times. "If you're going to risk yourself in going to these sites, make sure you're properly well-informed of what's happening on your computer.
Unlike a casino in Atlantic City or Las Vegas, there's no reading of faces or eyes in online poker. In exchange for playing in the privacy of one's home, there's no looking for "tells," tics or player routines that might indicate a player's next move. And there are no pit bosses or security cameras to help enforce the rules. "You don't see who you're dealing with, who you're playing with," Macalintal said. "You have to be really careful. If you go to these sites, you have to be prepared for the risk that you're getting into."
Should Online Casino Players Worry About Cheating Like Online Poker Players Do?
60 Minutes today revealed a large scale cheating scandal that saw more than twenty million dollars unfairly taken from players by other players. This has not only cast a dark shadow on the industry, but it also has put fear into the online poker player's heart.
This is not the case when it comes to playing at online casinos. Online casinos are set to the same standards as Las Vegas and Atlantic City casinos as far as their mechanical games are concerned. In Las Vegas slot machines are set to payout an average of 83-88 percent of the time, while online casinos have much higher standards.
Some online casinos even set their slot machine payout percentages to as high as
97%. What this means is that for every dollar spent a slot machine will pay back 97 cents. In Las Vegas, for every dollar spent a machine will pay back 83 cents. The reason for this is because online casinos have no other form of entertainment to keep their players coming back. Therefore, they let players win more often, hoping this form of excitement will replace the excitement generated by live shows, restaurants, and socializing.
This is not something the online poker world has to its advantage. The house also benefits the more a person plays, but they only can hope that players win against other players so that they come back to play more. With cheaters now dominating the industry, or at least scaring the majority of the industry, poker players are less likely to come back for more. After all, who wants to come back to a game where they always lose?
So with the online poker cheating scandal breaking to the mainstream public on 60 Minutes, online poker sites might see a great decline in game play. However, the online casino industry, which offers slots, blackjack, video poker, and other online casino games, does not have to fear the same type situation occurring with them.
This is not the case when it comes to playing at online casinos. Online casinos are set to the same standards as Las Vegas and Atlantic City casinos as far as their mechanical games are concerned. In Las Vegas slot machines are set to payout an average of 83-88 percent of the time, while online casinos have much higher standards.
Some online casinos even set their slot machine payout percentages to as high as
97%. What this means is that for every dollar spent a slot machine will pay back 97 cents. In Las Vegas, for every dollar spent a machine will pay back 83 cents. The reason for this is because online casinos have no other form of entertainment to keep their players coming back. Therefore, they let players win more often, hoping this form of excitement will replace the excitement generated by live shows, restaurants, and socializing.
This is not something the online poker world has to its advantage. The house also benefits the more a person plays, but they only can hope that players win against other players so that they come back to play more. With cheaters now dominating the industry, or at least scaring the majority of the industry, poker players are less likely to come back for more. After all, who wants to come back to a game where they always lose?
So with the online poker cheating scandal breaking to the mainstream public on 60 Minutes, online poker sites might see a great decline in game play. However, the online casino industry, which offers slots, blackjack, video poker, and other online casino games, does not have to fear the same type situation occurring with them.
Monday, December 01, 2008
Kahnawake Mohawks Online Gambling Chief Norton Thrust By "60 Minutes" Cheating Segment Into Bad Light
An online poker cheating scandal has thrust the most unlikeliest of men into the spotlight. By most accounts, Grand Chief of the Kahnawake Mohawks Joe Norton is a good honest man and he is also industrious.
A Washington Post article explains just how industrious:
While in his twenties, Norton worked as an ironworker helping to build the World Trade Center in New York City. At the age of 28 he was elected to the Mohawk Council of Kahnawake, the governing body for the 8,000-member tribe located minutes from Montreal. Two years later, Norton took over as grand chief, a position he held for more than two decades.
For years, the Kahnawake had relied on cigarette sales and payments from the federal government to get by. Under Norton, they began to look at gambling as a way to lift up the tribe's economic fortunes. In the mid-1990s, Norton promoted an effort to open a land-based casino on the reservation, but the tribe voted it down. A second referendum was also rejected.
Norton and the Kahnawake shifted their focus to Internet gambling. Internet gambling may be great for the Mohawks, but this week's big revenue generator is turning into a massive headache for Norton. He's at the center of a firestorm involving a high profile insider cheating scandal at two of the online poker rooms he's in charge of overseeing. And Norton found himself profiled on CBS' 60 Minutes Sunday night. By the looks of things, the segment wasn't entirely flattering.
From the 60 Minutes promo:
"He was raising, just really, really bad hands against very good hands. He seemed to play crazy," says Todd Witteles, a computer scientist turned poker player who believed he was losing too much to the same person. "It seemed like he was giving his money away. Except the only thing was, he wasn't losing. He was playing in a style that was sure to lose, but he was killing the game day after day," Witteles, who played a key detective role, remembers.
Michael Josem, a player and a computer security expert, plotted the odds of such consistent success. "We did the mathematical analysis to find that they were winning at about 15 standard deviations above the mean...approximately equivalent to winning a one-in-a-million jackpot six consecutive times." The cheating netted more than $20 million.
According to the Washington Post, Norton played an instrumental role in helping to set up Mohawk Internet Technologies (MIT), which collects millions in fees annually online gambling licensees who must maintain their sites on the Kahnawake servers for a minimum of three years. In 2006, he bought Absolute Poker and UltimateBet, though he didn't announce the purchases until a year later. These were the two firms that are profiled on 60 Minutes Sunday night. And his purchase of the company occurred prior to the "cheating scandal" that took place at those two sites.
Paul Liggett, COO of Absolute Poker and Ultimate Bet, insists that Norton is in no way the bad guy in all of this. "Joe Norton completely restructured the management team as soon he became aware that cheating had occurred on the AP site," said Liggett, who was appointed by Norton. "The new team brought in a Compliance Officer and two Security Managers, and it established risk assessment procedures and ongoing internal audits."
Norton and his crew have been working effortlessly to ensure Absolute Poker and UltimateBet ridded all past improprieties. They've even taken a chapter from the old ValuJet handbook - changing the company's name.
ValuJet was forced to do so following a series of incidents involving its commercial aircrafts that culminated in a deadly crash in 1996 over the Florida Everglades. They too embraced a new management team and later changed their name to AirTran, which has enjoyed great success over the past 10 plus years. And Norton hopes to the same will happen with his revamped company, now calling itself Cereus.
Norton might be wanting to change his name following the 60 Minutes airing. The irony in all of this being that Norton and the Kahnawakes have helped legitimize the online gambling industry. Unfortunately, they've also been thrust into the role of cleaning up the messes caused by others.
"60 Minutes" Segment Seemed To Promote Online Gaming Regulation:
Although one falsehood was reported in the 60 Minutes story of the online poker cheating scandal, in general, it should lead speculators to desire regulation in the United States. Currently, online poker is not illegal in the United States, although the 60 Minutes story said it was on three separate occasions.
The story has been highly anticipated by the online gaming industry since it was revealed that they would be airing the story after Sunday's NFL football games. Many were worried that it would lead the public to view online gambling as an evil that should be banned, but the story did not bend that way. Nor did it bend necessarily towards the need for legalization and regulation.
Sunday, November 30, 2008
Cheating Continues To Plague Online Gambling
Cheating plagues online gambling sites
Whenever Todd Witteles signed on to an Internet poker site, the first thing he did was look around for inexperienced players. One day in August 2007, the Las Vegas poker pro thought he had found an easy mark on AbsolutePoker.com.
A newcomer using the name "Greycat" was making unusually big bets off weak hands. "He seemed like a bad player who had just been getting incredibly lucky," Witteles recalled. "When you see someone like Greycat, you stop everything you're doing to play."
But in a series of one-on-one games, Witteles quickly found himself down $15,000. Worse, Greycat began taunting him. Soon, some of Witteles' online poker friends began wondering publicly whether Greycat was cheating. It was almost as though he could see Witteles' hole cards.
It turned out that was exactly what Greycat was doing. After months of pressure from a small group of players who took it upon themselves to investigate the claims, AbsolutePoker was forced to admit that a cheater had cracked its software, and it refunded $1.6 million to Witteles and dozens of other players.
It appeared to be a huge victory for the players and the self-policing nature of the Internet. Yet just weeks later, rumors of a new scandal rocked the world of online poker, this time at AbsolutePoker's sister site, UltimateBet.com. The stakes were dramatically higher: more than $20 million cheated from players over four years. The alleged culprits included a former world poker champion and UltimateBet employees who had hacked into the site.
Even as Internet gambling grows in popularity and profits, with millions of players and billions of bets, the two biggest cheating scandals in online gambling are raising fresh questions about the honesty and security of a freewheeling industry that operates outside of U.S. law.
Unlike brick-and-mortar casinos that undergo rigorous security checks, many Internet gambling sites operate in a shadowy world of little regulation and even less enforcement, a joint investigation by The Washington Post and CBS's "60 Minutes" has found. Dozens of these sites are located in countries with no reporting requirements. The licensing agencies there essentially operate as pay-as-you-go boutiques, generating millions of dollars in fees while showing little interest in policing rogue sites.
As it has given birth to Amazon.com, eBay and scores of other 21st-century businesses, the Internet has also spawned its own gambling boom, with estimated revenue more than tripling over five years, to $18 billion annually, including about $4 billion from virtual poker.
Millions of the bets originate in the United States, where online poker and gambling sites are banned, forcing players to reach out across the Internet like modern-day bootleggers. Yet players have little way of knowing who is watching their bets or where their money is going. Often, owners hide behind multiple layers of limited partnerships, making it difficult to determine who controls the sites or to lodge complaints about cheating.
In the AbsolutePoker and UltimateBet cheating scandals, players decided to investigate the matter themselves after managers and regulators did not respond to their complaints. "No one would listen to us," said Serge Ravitch, a 28-year-old lawyer-turned-poker pro who played a key detective role.
AbsolutePoker and UltimateBet operate out of a shopping mall in Costa Rica, run their games on computer servers housed on an Indian reservation near Montreal, and are licensed by a Mohawk tribe that has no background in casino gambling and does not answer to federal or provincial regulators.
Joseph Tokwiro Norton, who owns both Web sites, is the former grand chief of the Mohawk tribe. He was instrumental in setting up the licensing agency and a highly profitable companion business that owns the server farm. Yet until he issued a news release in October 2007, even some of the most powerful members of his tribe had no idea Norton owned the poker sites.
"I was as surprised as anyone else," said Michael Delisle, the current grand chief of the Mohawk Council of Kahnawake. He added that he had not spoken with Norton about the cheating. "I have had no opportunity," he said in an interview, "and honestly I don't think it's any of my business."
The Kahnawake collect millions in fees each year by licensing Internet gambling companies and hosting the Web sites on servers inside a high-tech building converted from a mattress factory. Recently, they took a 40 percent stake in another Internet server firm on the Isle of Man, in the Irish Sea. They collect more than $1 million a year from that investment, which aims to expand and protect their Internet gambling footprint.
Norton, a former ironworker, purchased AbsolutePoker and UltimateBet in 2006 and folded them into a newly created holding company, Tokwiro Enterprises ENRG. The company says it is "properly registered as a proprietorship in Canada." He declined repeated requests to be interviewed for this article, but has denied he knew about the cheating. Managers at AbsolutePoker and UltimateBet also declined interviews, as did the Kahnawake's licensing and regulatory body, the Kahnawake Gaming Commission.
In January, the commission fined Norton's company $500,000 for the AbsolutePoker scandal. But the apparent victory by the player-detectives quickly soured when the Kahnawake declined to name the cheater or turn his name over to prosecutors.
In September, the panel slapped UltimateBet with a $1.5 million fine. But it stopped short of following through on a recommendation by an outside investigator to suspend or close the site.
The three-member commission largely operates in secret, and it would not disclose the size of its staff. It outsources background checks to a security firm in Horsham, Pa., and uses a small company in Australia to audit its licensee's software. It called on Frank Catania, former head of the New Jersey Division of Gaming Enforcement, to investigate UltimateBet and reopen the AbsolutePoker probe.
In an interview, Catania said there was no comparison between New Jersey and the Kahnawake when it came to oversight. "I don't think they have -- they don't have the staff, first of all," he said. "With the New Jersey Gaming Commission, I had about 400 people there. I had CPAs. I had our big budget."
AbsolutePoker's origins are sketchy. Records and interviews point to a poker aficionado named Scott Tom, who attended the University of Montana in the late 1990s. After graduating, Tom and several partners headed to Costa Rica and started the business.
A number of online gambling sites already existed. But it was not until a few years later that Internet poker exploded. The impetus was a former Tennessee accountant and aptly named player, Chris Moneymaker. In 2003, Moneymaker came from nowhere to win the main event at the World Series of Poker in Las Vegas. His $2.5 million victory was televised on ESPN and is widely credited with igniting a worldwide surge.
"When I am being glib, I refer to it as the Moneymaker effect," said David Schwartz, director of the Center for Gaming Research at the University of Nevada at Las Vegas.
Soon, scores of sites began popping up in Antigua, Costa Rica, Malta, the Isle of Man and other exotic locations. The Kahnawake alone license 450 sites run by 60 permit holders. By 2007, Internet gambling sites had revenue of $18.4 billion, up from $5.9 billion in 2003, according to Christiansen Capital Advisors, a New York firm that tracks online gambling.
Thousands of those players found their way to AbsolutePoker, which boasts on its Web site that it has handled more than 300 million hands since it started accepting bets and that at its peak accounted for as much as 5 percent of the multibillion-dollar online poker market.
"It was probably pulling in between $150,000 and $250,000 a day," estimated Bobby Mamudi of the Gaming Intelligence Group, which tracks worldwide gambling issues from England. Hundreds of customer service employees worked at its office in a mall in San Jose, Costa Rica, and at a smaller office in Panama.
Generally, Internet poker is divided into two types of games: cash games in which winners collect the money on the table, just as in a live casino game, and tournaments in which players put up an entry fee and the winning pots are divided based on play. A key difference is that games are played on computers, not face to face. Players cannot see one another to gauge expressions or tics. The online style of play is also faster and more aggressive than that of live games. Some players may have four or five games going at once. Poker sites use a variety of payment methods, including prepaid debit cards, electronic transfers and bank wires.
In addition to tournament fees, Internet poker sites make money from advertising and by taking a small percentage of the pot, called a rake. The rake can be as little as pennies but adds up over millions of pots, industry analysts say.
One of the regulars at AbsolutePoker was Witteles, a former computer scientist whose screen name is "Dan Druff." At 36, he jokes that he is often the oldest player in Internet games. "It's a very young crowd," he said. "Most of them are in their early 20s."
Witteles said he plays almost exclusively in cash games. When he squared off against Greycat in 2007, it was to play Texas hold 'em, currently the most popular poker game, in which bluffing is critical. "So if the other guy can see your cards," Witteles said, "it's a real disaster. I quickly got slammed for $6,000."
Witteles waited for Greycat's luck to run out. But he continued to make one unlikely winning bet after another. Witteles' losses mounted to $15,000. Although frustrated, he didn't yet suspect cheating. And had Greycat not taunted him -- ridiculing his skills in the game's instant-message box -- Witteles said he might have gone undetected. "There was a real arrogance and vindictiveness to the thing," he said.
It is not uncommon in Internet poker for other players to follow the games. Some started to post comments on a popular poker forum about Greycat's improbable winning streak and several other suspicious accounts on AbsolutePoker. Witteles wondered whether Greycat somehow had access to a "superuser" account, which would allow him to use the site's software to spy on his cards. But when he complained to AbsolutePoker, Witteles said, "I got a different story every time."
A few weeks later, in September 2007, a 21-year-old player named Marco Johnson paid $1,000 to enter a tournament sponsored by AbsolutePoker. Johnson, who uses the screen name "Crazy Marco," reached the final against a player called "Potripper." They played 20 hands and Potripper won them all, collecting $428,520.
At first, Johnson shrugged off the loss. But others watching the final games online insisted that he, too, had been cheated. Johnson requested his hand histories for the games. Poker sites generally promise to keep players' archives for as many as five years.
A few days later, Johnson received a confusing Microsoft Excel spreadsheet containing 65,000 lines. At first, he set it aside.
While players heatedly debated Potripper's play in poker forums, the management at AbsolutePoker released the first of several statements denying the cheating allegations. "While we are continuing with our investigation, we have yet to find any evidence of wrong doing," the first statement said. "A super-user account does not exist in our software," stated the second. "Absolute Poker remains a 100% secure place to play."
Players continued to attack AbsolutePoker in online forums, complaining that they could not get answers to their questions or tell who owned the site. A few frustrated players decided it was time to start their own investigation.
Although players can be fiercely competitive during a match, it is not unusual for them to share information afterward. "Most of the top players know one another," said Ravitch, who plays on his laptop from his home in Queens. "If I don't know someone in the seat next to me, chances are I know his friends."
Ravitch is a graduate of the University of Michigan Law School who realized he enjoyed playing poker more than filing legal briefs. "Sunday is my work day," he said. "That's when all the big tournaments are."
Each week, Ravitch said, he averages about 20 hours of play while spending an additional 10 hours studying a large database of hand histories he has compiled, searching for competitors' tendencies. "Poker has become mathematically much more sophisticated," he said. Among the successful participants, he added, "there are no dumb players."
Ravitch offered to help analyze the suspect hand histories. He was joined by Nat Arem, a former auditor in the Philadelphia office of the consulting firm Deloitte & Touche. Like Ravitch, the 26-year-old Arem is good at math and with computers. In 2006, he attended Emory Law School in Atlanta for a semester but dropped out after selling a software program that players use to track the results of poker tournaments. He now lives in Costa Rica, where he develops poker-related businesses.
In the fall of 2007, Arem and Ravitch obtained copies of Marco Johnson's spreadsheet file and started analyzing the data. Arem wrote a software program to decode the information. Joined by a handful of other poker detectives, they quickly identified improbable betting patterns for Potripper and several other suspect accounts. The patterns suggested that the players with improbable win rates could somehow see their opponents' face-down, or hole, cards.
"Obviously, if you can see your opponents' hole cards, you have a huge advantage," Ravitch said. "That helped to explain how the suspect accounts never seemed to lose."
One of the first things the poker detectives noticed was that Potripper was playing exclusively in "nosebleed stakes," games with the biggest pots. "He got caught because it was easy to catch," Ravitch said. "There are only a handful of other players playing those stakes, and everyone knows one another."
Instead of losing a few hands to deflect attention, Potripper continued to win every time. "It would have been so easy if he had just lost a few hands. No one would have ever suspected a thing," Ravitch said.
In addition to hand histories, the poker detectives said, Johnson's spreadsheet contained e-mail and Internet addresses that appeared to connect one of the suspicious accounts to Costa Rica, to a home owned by Scott Tom, the founder of AbsolutePoker who sold the business to Joe Norton in October 2006. When the poker detectives posted their findings on a popular poker forum called Two Plus Two, bloggers pounced on the information as proof that Tom must have known about the cheating, if not have cheated himself.
It was not clear from the information, however, whether Tom used the account or whether someone else may have had access to it. AbsolutePoker officials did not address the bloggers' charges. Instead, they released a statement saying that Tom had not worked at the site for more than a year -- a claim that they would later be forced to retract. In fact, Tom continued to manage day-to-day operations at AbsolutePoker until October 2007, when he resigned as the cheating scandal was heating up.
Norton was "aware of the press releases but did not (initially) realize they were false," the company said in response to written questions from The Post. "The fact that they were misleading, if not outright false, contributed to Joe's decision to change the management" in October 2007. AbsolutePoker officials have said that Tom was not involved in the cheating, but they have declined to say who was. Tom declined requests for comment.
Tom's father, Phil, defended his son in interviews and via e-mail, saying Scott was "attacked viciously and unfairly by bloggers" who tried to link him to the cheating. "I couldn't believe some of the things they were saying, how he was the cheater," he said.
According to his father, Scott Tom is still living in Costa Rica but is hard to contact. "Even I have trouble reaching him," Phil Tom said. "I don't call him. He calls me."
If Scott Tom wasn't the cheater, who was?
The poker detectives kept pushing. By mid-October 2007, they were focusing on an employee at AbsolutePoker's Costa Rica office. They posted their findings online, setting off a new wave of charges and increasing pressure on AbsolutePoker's management and the Kahnawake Gaming Commission to address the cheating.
Shortly thereafter, the commission announced that it had hired Gaming Associates, a small Australian computer security firm, to audit the poker site's software. Two days later, AbsolutePoker released an e-mail acknowledging that it had identified "an internal security breach that compromised our systems for a limited period of time." It added: "The cause of the breach has been determined and completely resolved."
The company's statement did not detail how the breach occurred, how many players were cheated or how the cheater was able to spy on cards without being noticed.
Unbeknown to the players, AbsolutePoker had already cut a secret deal with the cheater, whom it characterized as a "consultant with managerial responsibilities." The company agreed not to release his name in return for a "full and detailed explanation" of how he cheated, according to company officials and other interviews. AbsolutePoker also agreed not to sue the cheater or turn him over to Costa Rican authorities, company officials told The Post.
"Of course we considered going to the police, but we decided that it was in the best interest of our cheated players and of AP to get the perpetrator to tell us how the cheating was done," company officials wrote in response to questions from The Post. "We also recognized that prosecutions for white collar crimes in Costa Rica can be time-consuming and sometimes unsuccessful."
(The name of the alleged cheater has circulated widely among poker players on the Internet. The Post is not publishing his name because, even though he purportedly confessed to AbsolutePoker, the company did not release its records and would not discuss the matter. The alleged cheater declined requests to be interviewed.)
Witteles and other players said they were appalled by AbsolutePoker's decision not to seek prosecution of the cheater. "Yeah, we were paid back," he said. "But they made absolutely no attempt to bring any of the people to justice. If someone stole that amount of money from a casino, they would be thrown in jail."
AbsolutePoker said it fired the cheater on Oct. 20, 2007, the day before it started sending $1.6 million in refunds to the cheated players. "Our previous business culture was entrepreneurial, decentralized and individualistic," company officials wrote The Post. "In retrospect, this decentralized approach was not conducive to strict oversight and accountability." The company says it "installed a completely new management team" in order to "build a solid security foundation."
In January 2008, the Kahnawake Gaming Commission released a four-page report on the AbsolutePoker scandal. It said a single cheater using several screen names had taken advantage of a flaw in the software to spy on players' cards during a six-week period starting in August 2007.
It fined Norton's firm $500,000. But it also declined to name the cheater, contending that there "would be no material benefit to the affected players."
"I don't know about that," said Frank Catania, the former New Jersey gambling official who helped the Kahnawake write their Internet gambling regulations, and who was hired by the commission last summer to investigate Norton and his poker sites. "Maybe what they should have done is named the person."
A day after the Kahnawake commission released its report about AbsolutePoker, managers at UltimateBet were alerted to new allegations of cheating involving a player using the screen name "NioNio."
One of those who had played against NioNio was David Paredes, 29, a Harvard graduate and lawyer-turned-hedge fund employee. As a childhood math whiz, Paredes had been good enough at chess to travel to national tournaments. In high school, he and his friends played poker for as much as $100 a game. During breaks from law school at New York University, he played at the Foxwoods Resort Casino in Connecticut and in the city's network of underground clubs.
Paredes started playing online around 2005. "I made money almost from the start," he said. Over time, he said, he used his winnings to pay off his law school bill, rent a Manhattan apartment and pay private tuition for a high school student he mentors.
In July 2007, Paredes lost $70,000 to NioNio in a series of games. NioNio had played recklessly, Paredes recalled, making one improbable bet after another, yet winning most hands.
Paredes said he did not suspect cheating until he discussed his hands with another player who also had lost to NioNio. They did a statistical analysis of hand histories, and what they found shocked them: During one brief stretch, NioNio had managed to win $300,000 while rarely losing. Another poker detective calculated that his win rate was about equal to winning the Powerball jackpot three days in a row.
Moreover, it appeared that NioNio was not the only unusually lucky player. Their investigation turned up seven other suspicious accounts that had won a total of $1.5 million on UltimateBet. Later, UltimateBet officials determined that the cheaters had used as many as 88 screen names to avoid detection.
It was as though the cheaters were playing against a "bunch of blind men," Catania recalled. "I mean ... you're the only one that can see. Everyone else is blind."
In news releases, UltimateBet said that former employees had secretly installed a back door in the software allowing them to spy on players' cards. They stressed the gaming commission's finding that the breach took place before Norton bought UltimateBet in 2006 through a limited partnership in Malta called Blast Off Ltd.
The company told The Post that it performed full financial and operational due diligence before the sale but that it did not find the unauthorized software. Catania, the outside investigator, said that UltimateBet officials did "no due diligence on the technical part. None." At the same time, he said he did not think Norton was aware of the cheating.
UltimateBet officials acknowledged to The Post that the "winning-hand statistics were certainly suspicious and should have been flagged for investigation." They said the accounts belonged to professional players who had been designated as VIP players by the prior owners, and as such were not subject to the same level of scrutiny as other accounts. They added that they did not review the VIP accounts until after the cheating allegations surfaced.
Citing what they said were UltimateBet player logs and real estate records, some of the poker detectives this summer linked former World Series of Poker champion Russ Hamilton to the scandal. In online posts, they alleged that several of the suspect accounts were traced back to property Hamilton owns in Las Vegas, where he is based.
Hamilton did not respond to the accusations. In September, the Kahnawake Gaming Commission announced that there was "clear and convincing evidence" that Hamilton "was the main person responsible for and benefiting from the multiple cheating incidents" at UltimateBet.
The commission did not disclose its evidence allegedly linking Hamilton to the cheating. But Catania said the player accounts "point directly to Russ Hamilton." He added that six to eight accounts were involved in the cheating. "And we know Russ Hamilton was ... part of those accounts."
Hamilton's lawyer, David Chesnoff, scoffed at the accusations. "Have I heard these allegations? Yes," he said. "We deny them." He added: "Without having an opportunity to review what is alleged to exist, we can't answer the questions and don't think we should dignify it with answers."
In a statement, UltimateBet's owner, Tokwiro Enterprises, cited the commission's finding that Hamilton was responsible for the cheating. The company noted that Hamilton "was never employed by Tokwiro or any of its companies," though he briefly had a "relationship" with the company in which he referred players from his Web site to UltimateBet.
To date, UltimateBet has issued $6.1 million in refunds. Catania said the poker site has promised to reimburse players an additional $15 million, at which point he expects UltimateBet to lose its license or be sold.
The gaming commission fined UltimateBet $1.5 million "for its failure to implement and enforce measures to prohibit and detect fraudulent activities." It defended its handling of the case but said its actions "were not well communicated to the poker industry or public at large, creating an incorrect perception that the (commission) was doing nothing."
The Kahnawake now say they operate one of the most secure Internet gambling operations in the world. Tokwiro says it has "established cutting-edge security systems that make us the safest site in the industry." But Catania said he does not expect cheating to stop: "I'm sure there are people out there right now figuring out, let's say, 'Here's a way we can do it again.'"
Whenever Todd Witteles signed on to an Internet poker site, the first thing he did was look around for inexperienced players. One day in August 2007, the Las Vegas poker pro thought he had found an easy mark on AbsolutePoker.com.
A newcomer using the name "Greycat" was making unusually big bets off weak hands. "He seemed like a bad player who had just been getting incredibly lucky," Witteles recalled. "When you see someone like Greycat, you stop everything you're doing to play."
But in a series of one-on-one games, Witteles quickly found himself down $15,000. Worse, Greycat began taunting him. Soon, some of Witteles' online poker friends began wondering publicly whether Greycat was cheating. It was almost as though he could see Witteles' hole cards.
It turned out that was exactly what Greycat was doing. After months of pressure from a small group of players who took it upon themselves to investigate the claims, AbsolutePoker was forced to admit that a cheater had cracked its software, and it refunded $1.6 million to Witteles and dozens of other players.
It appeared to be a huge victory for the players and the self-policing nature of the Internet. Yet just weeks later, rumors of a new scandal rocked the world of online poker, this time at AbsolutePoker's sister site, UltimateBet.com. The stakes were dramatically higher: more than $20 million cheated from players over four years. The alleged culprits included a former world poker champion and UltimateBet employees who had hacked into the site.
Even as Internet gambling grows in popularity and profits, with millions of players and billions of bets, the two biggest cheating scandals in online gambling are raising fresh questions about the honesty and security of a freewheeling industry that operates outside of U.S. law.
Unlike brick-and-mortar casinos that undergo rigorous security checks, many Internet gambling sites operate in a shadowy world of little regulation and even less enforcement, a joint investigation by The Washington Post and CBS's "60 Minutes" has found. Dozens of these sites are located in countries with no reporting requirements. The licensing agencies there essentially operate as pay-as-you-go boutiques, generating millions of dollars in fees while showing little interest in policing rogue sites.
As it has given birth to Amazon.com, eBay and scores of other 21st-century businesses, the Internet has also spawned its own gambling boom, with estimated revenue more than tripling over five years, to $18 billion annually, including about $4 billion from virtual poker.
Millions of the bets originate in the United States, where online poker and gambling sites are banned, forcing players to reach out across the Internet like modern-day bootleggers. Yet players have little way of knowing who is watching their bets or where their money is going. Often, owners hide behind multiple layers of limited partnerships, making it difficult to determine who controls the sites or to lodge complaints about cheating.
In the AbsolutePoker and UltimateBet cheating scandals, players decided to investigate the matter themselves after managers and regulators did not respond to their complaints. "No one would listen to us," said Serge Ravitch, a 28-year-old lawyer-turned-poker pro who played a key detective role.
AbsolutePoker and UltimateBet operate out of a shopping mall in Costa Rica, run their games on computer servers housed on an Indian reservation near Montreal, and are licensed by a Mohawk tribe that has no background in casino gambling and does not answer to federal or provincial regulators.
Joseph Tokwiro Norton, who owns both Web sites, is the former grand chief of the Mohawk tribe. He was instrumental in setting up the licensing agency and a highly profitable companion business that owns the server farm. Yet until he issued a news release in October 2007, even some of the most powerful members of his tribe had no idea Norton owned the poker sites.
"I was as surprised as anyone else," said Michael Delisle, the current grand chief of the Mohawk Council of Kahnawake. He added that he had not spoken with Norton about the cheating. "I have had no opportunity," he said in an interview, "and honestly I don't think it's any of my business."
The Kahnawake collect millions in fees each year by licensing Internet gambling companies and hosting the Web sites on servers inside a high-tech building converted from a mattress factory. Recently, they took a 40 percent stake in another Internet server firm on the Isle of Man, in the Irish Sea. They collect more than $1 million a year from that investment, which aims to expand and protect their Internet gambling footprint.
Norton, a former ironworker, purchased AbsolutePoker and UltimateBet in 2006 and folded them into a newly created holding company, Tokwiro Enterprises ENRG. The company says it is "properly registered as a proprietorship in Canada." He declined repeated requests to be interviewed for this article, but has denied he knew about the cheating. Managers at AbsolutePoker and UltimateBet also declined interviews, as did the Kahnawake's licensing and regulatory body, the Kahnawake Gaming Commission.
In January, the commission fined Norton's company $500,000 for the AbsolutePoker scandal. But the apparent victory by the player-detectives quickly soured when the Kahnawake declined to name the cheater or turn his name over to prosecutors.
In September, the panel slapped UltimateBet with a $1.5 million fine. But it stopped short of following through on a recommendation by an outside investigator to suspend or close the site.
The three-member commission largely operates in secret, and it would not disclose the size of its staff. It outsources background checks to a security firm in Horsham, Pa., and uses a small company in Australia to audit its licensee's software. It called on Frank Catania, former head of the New Jersey Division of Gaming Enforcement, to investigate UltimateBet and reopen the AbsolutePoker probe.
In an interview, Catania said there was no comparison between New Jersey and the Kahnawake when it came to oversight. "I don't think they have -- they don't have the staff, first of all," he said. "With the New Jersey Gaming Commission, I had about 400 people there. I had CPAs. I had our big budget."
AbsolutePoker's origins are sketchy. Records and interviews point to a poker aficionado named Scott Tom, who attended the University of Montana in the late 1990s. After graduating, Tom and several partners headed to Costa Rica and started the business.
A number of online gambling sites already existed. But it was not until a few years later that Internet poker exploded. The impetus was a former Tennessee accountant and aptly named player, Chris Moneymaker. In 2003, Moneymaker came from nowhere to win the main event at the World Series of Poker in Las Vegas. His $2.5 million victory was televised on ESPN and is widely credited with igniting a worldwide surge.
"When I am being glib, I refer to it as the Moneymaker effect," said David Schwartz, director of the Center for Gaming Research at the University of Nevada at Las Vegas.
Soon, scores of sites began popping up in Antigua, Costa Rica, Malta, the Isle of Man and other exotic locations. The Kahnawake alone license 450 sites run by 60 permit holders. By 2007, Internet gambling sites had revenue of $18.4 billion, up from $5.9 billion in 2003, according to Christiansen Capital Advisors, a New York firm that tracks online gambling.
Thousands of those players found their way to AbsolutePoker, which boasts on its Web site that it has handled more than 300 million hands since it started accepting bets and that at its peak accounted for as much as 5 percent of the multibillion-dollar online poker market.
"It was probably pulling in between $150,000 and $250,000 a day," estimated Bobby Mamudi of the Gaming Intelligence Group, which tracks worldwide gambling issues from England. Hundreds of customer service employees worked at its office in a mall in San Jose, Costa Rica, and at a smaller office in Panama.
Generally, Internet poker is divided into two types of games: cash games in which winners collect the money on the table, just as in a live casino game, and tournaments in which players put up an entry fee and the winning pots are divided based on play. A key difference is that games are played on computers, not face to face. Players cannot see one another to gauge expressions or tics. The online style of play is also faster and more aggressive than that of live games. Some players may have four or five games going at once. Poker sites use a variety of payment methods, including prepaid debit cards, electronic transfers and bank wires.
In addition to tournament fees, Internet poker sites make money from advertising and by taking a small percentage of the pot, called a rake. The rake can be as little as pennies but adds up over millions of pots, industry analysts say.
One of the regulars at AbsolutePoker was Witteles, a former computer scientist whose screen name is "Dan Druff." At 36, he jokes that he is often the oldest player in Internet games. "It's a very young crowd," he said. "Most of them are in their early 20s."
Witteles said he plays almost exclusively in cash games. When he squared off against Greycat in 2007, it was to play Texas hold 'em, currently the most popular poker game, in which bluffing is critical. "So if the other guy can see your cards," Witteles said, "it's a real disaster. I quickly got slammed for $6,000."
Witteles waited for Greycat's luck to run out. But he continued to make one unlikely winning bet after another. Witteles' losses mounted to $15,000. Although frustrated, he didn't yet suspect cheating. And had Greycat not taunted him -- ridiculing his skills in the game's instant-message box -- Witteles said he might have gone undetected. "There was a real arrogance and vindictiveness to the thing," he said.
It is not uncommon in Internet poker for other players to follow the games. Some started to post comments on a popular poker forum about Greycat's improbable winning streak and several other suspicious accounts on AbsolutePoker. Witteles wondered whether Greycat somehow had access to a "superuser" account, which would allow him to use the site's software to spy on his cards. But when he complained to AbsolutePoker, Witteles said, "I got a different story every time."
A few weeks later, in September 2007, a 21-year-old player named Marco Johnson paid $1,000 to enter a tournament sponsored by AbsolutePoker. Johnson, who uses the screen name "Crazy Marco," reached the final against a player called "Potripper." They played 20 hands and Potripper won them all, collecting $428,520.
At first, Johnson shrugged off the loss. But others watching the final games online insisted that he, too, had been cheated. Johnson requested his hand histories for the games. Poker sites generally promise to keep players' archives for as many as five years.
A few days later, Johnson received a confusing Microsoft Excel spreadsheet containing 65,000 lines. At first, he set it aside.
While players heatedly debated Potripper's play in poker forums, the management at AbsolutePoker released the first of several statements denying the cheating allegations. "While we are continuing with our investigation, we have yet to find any evidence of wrong doing," the first statement said. "A super-user account does not exist in our software," stated the second. "Absolute Poker remains a 100% secure place to play."
Players continued to attack AbsolutePoker in online forums, complaining that they could not get answers to their questions or tell who owned the site. A few frustrated players decided it was time to start their own investigation.
Although players can be fiercely competitive during a match, it is not unusual for them to share information afterward. "Most of the top players know one another," said Ravitch, who plays on his laptop from his home in Queens. "If I don't know someone in the seat next to me, chances are I know his friends."
Ravitch is a graduate of the University of Michigan Law School who realized he enjoyed playing poker more than filing legal briefs. "Sunday is my work day," he said. "That's when all the big tournaments are."
Each week, Ravitch said, he averages about 20 hours of play while spending an additional 10 hours studying a large database of hand histories he has compiled, searching for competitors' tendencies. "Poker has become mathematically much more sophisticated," he said. Among the successful participants, he added, "there are no dumb players."
Ravitch offered to help analyze the suspect hand histories. He was joined by Nat Arem, a former auditor in the Philadelphia office of the consulting firm Deloitte & Touche. Like Ravitch, the 26-year-old Arem is good at math and with computers. In 2006, he attended Emory Law School in Atlanta for a semester but dropped out after selling a software program that players use to track the results of poker tournaments. He now lives in Costa Rica, where he develops poker-related businesses.
In the fall of 2007, Arem and Ravitch obtained copies of Marco Johnson's spreadsheet file and started analyzing the data. Arem wrote a software program to decode the information. Joined by a handful of other poker detectives, they quickly identified improbable betting patterns for Potripper and several other suspect accounts. The patterns suggested that the players with improbable win rates could somehow see their opponents' face-down, or hole, cards.
"Obviously, if you can see your opponents' hole cards, you have a huge advantage," Ravitch said. "That helped to explain how the suspect accounts never seemed to lose."
One of the first things the poker detectives noticed was that Potripper was playing exclusively in "nosebleed stakes," games with the biggest pots. "He got caught because it was easy to catch," Ravitch said. "There are only a handful of other players playing those stakes, and everyone knows one another."
Instead of losing a few hands to deflect attention, Potripper continued to win every time. "It would have been so easy if he had just lost a few hands. No one would have ever suspected a thing," Ravitch said.
In addition to hand histories, the poker detectives said, Johnson's spreadsheet contained e-mail and Internet addresses that appeared to connect one of the suspicious accounts to Costa Rica, to a home owned by Scott Tom, the founder of AbsolutePoker who sold the business to Joe Norton in October 2006. When the poker detectives posted their findings on a popular poker forum called Two Plus Two, bloggers pounced on the information as proof that Tom must have known about the cheating, if not have cheated himself.
It was not clear from the information, however, whether Tom used the account or whether someone else may have had access to it. AbsolutePoker officials did not address the bloggers' charges. Instead, they released a statement saying that Tom had not worked at the site for more than a year -- a claim that they would later be forced to retract. In fact, Tom continued to manage day-to-day operations at AbsolutePoker until October 2007, when he resigned as the cheating scandal was heating up.
Norton was "aware of the press releases but did not (initially) realize they were false," the company said in response to written questions from The Post. "The fact that they were misleading, if not outright false, contributed to Joe's decision to change the management" in October 2007. AbsolutePoker officials have said that Tom was not involved in the cheating, but they have declined to say who was. Tom declined requests for comment.
Tom's father, Phil, defended his son in interviews and via e-mail, saying Scott was "attacked viciously and unfairly by bloggers" who tried to link him to the cheating. "I couldn't believe some of the things they were saying, how he was the cheater," he said.
According to his father, Scott Tom is still living in Costa Rica but is hard to contact. "Even I have trouble reaching him," Phil Tom said. "I don't call him. He calls me."
If Scott Tom wasn't the cheater, who was?
The poker detectives kept pushing. By mid-October 2007, they were focusing on an employee at AbsolutePoker's Costa Rica office. They posted their findings online, setting off a new wave of charges and increasing pressure on AbsolutePoker's management and the Kahnawake Gaming Commission to address the cheating.
Shortly thereafter, the commission announced that it had hired Gaming Associates, a small Australian computer security firm, to audit the poker site's software. Two days later, AbsolutePoker released an e-mail acknowledging that it had identified "an internal security breach that compromised our systems for a limited period of time." It added: "The cause of the breach has been determined and completely resolved."
The company's statement did not detail how the breach occurred, how many players were cheated or how the cheater was able to spy on cards without being noticed.
Unbeknown to the players, AbsolutePoker had already cut a secret deal with the cheater, whom it characterized as a "consultant with managerial responsibilities." The company agreed not to release his name in return for a "full and detailed explanation" of how he cheated, according to company officials and other interviews. AbsolutePoker also agreed not to sue the cheater or turn him over to Costa Rican authorities, company officials told The Post.
"Of course we considered going to the police, but we decided that it was in the best interest of our cheated players and of AP to get the perpetrator to tell us how the cheating was done," company officials wrote in response to questions from The Post. "We also recognized that prosecutions for white collar crimes in Costa Rica can be time-consuming and sometimes unsuccessful."
(The name of the alleged cheater has circulated widely among poker players on the Internet. The Post is not publishing his name because, even though he purportedly confessed to AbsolutePoker, the company did not release its records and would not discuss the matter. The alleged cheater declined requests to be interviewed.)
Witteles and other players said they were appalled by AbsolutePoker's decision not to seek prosecution of the cheater. "Yeah, we were paid back," he said. "But they made absolutely no attempt to bring any of the people to justice. If someone stole that amount of money from a casino, they would be thrown in jail."
AbsolutePoker said it fired the cheater on Oct. 20, 2007, the day before it started sending $1.6 million in refunds to the cheated players. "Our previous business culture was entrepreneurial, decentralized and individualistic," company officials wrote The Post. "In retrospect, this decentralized approach was not conducive to strict oversight and accountability." The company says it "installed a completely new management team" in order to "build a solid security foundation."
In January 2008, the Kahnawake Gaming Commission released a four-page report on the AbsolutePoker scandal. It said a single cheater using several screen names had taken advantage of a flaw in the software to spy on players' cards during a six-week period starting in August 2007.
It fined Norton's firm $500,000. But it also declined to name the cheater, contending that there "would be no material benefit to the affected players."
"I don't know about that," said Frank Catania, the former New Jersey gambling official who helped the Kahnawake write their Internet gambling regulations, and who was hired by the commission last summer to investigate Norton and his poker sites. "Maybe what they should have done is named the person."
A day after the Kahnawake commission released its report about AbsolutePoker, managers at UltimateBet were alerted to new allegations of cheating involving a player using the screen name "NioNio."
One of those who had played against NioNio was David Paredes, 29, a Harvard graduate and lawyer-turned-hedge fund employee. As a childhood math whiz, Paredes had been good enough at chess to travel to national tournaments. In high school, he and his friends played poker for as much as $100 a game. During breaks from law school at New York University, he played at the Foxwoods Resort Casino in Connecticut and in the city's network of underground clubs.
Paredes started playing online around 2005. "I made money almost from the start," he said. Over time, he said, he used his winnings to pay off his law school bill, rent a Manhattan apartment and pay private tuition for a high school student he mentors.
In July 2007, Paredes lost $70,000 to NioNio in a series of games. NioNio had played recklessly, Paredes recalled, making one improbable bet after another, yet winning most hands.
Paredes said he did not suspect cheating until he discussed his hands with another player who also had lost to NioNio. They did a statistical analysis of hand histories, and what they found shocked them: During one brief stretch, NioNio had managed to win $300,000 while rarely losing. Another poker detective calculated that his win rate was about equal to winning the Powerball jackpot three days in a row.
Moreover, it appeared that NioNio was not the only unusually lucky player. Their investigation turned up seven other suspicious accounts that had won a total of $1.5 million on UltimateBet. Later, UltimateBet officials determined that the cheaters had used as many as 88 screen names to avoid detection.
It was as though the cheaters were playing against a "bunch of blind men," Catania recalled. "I mean ... you're the only one that can see. Everyone else is blind."
In news releases, UltimateBet said that former employees had secretly installed a back door in the software allowing them to spy on players' cards. They stressed the gaming commission's finding that the breach took place before Norton bought UltimateBet in 2006 through a limited partnership in Malta called Blast Off Ltd.
The company told The Post that it performed full financial and operational due diligence before the sale but that it did not find the unauthorized software. Catania, the outside investigator, said that UltimateBet officials did "no due diligence on the technical part. None." At the same time, he said he did not think Norton was aware of the cheating.
UltimateBet officials acknowledged to The Post that the "winning-hand statistics were certainly suspicious and should have been flagged for investigation." They said the accounts belonged to professional players who had been designated as VIP players by the prior owners, and as such were not subject to the same level of scrutiny as other accounts. They added that they did not review the VIP accounts until after the cheating allegations surfaced.
Citing what they said were UltimateBet player logs and real estate records, some of the poker detectives this summer linked former World Series of Poker champion Russ Hamilton to the scandal. In online posts, they alleged that several of the suspect accounts were traced back to property Hamilton owns in Las Vegas, where he is based.
Hamilton did not respond to the accusations. In September, the Kahnawake Gaming Commission announced that there was "clear and convincing evidence" that Hamilton "was the main person responsible for and benefiting from the multiple cheating incidents" at UltimateBet.
The commission did not disclose its evidence allegedly linking Hamilton to the cheating. But Catania said the player accounts "point directly to Russ Hamilton." He added that six to eight accounts were involved in the cheating. "And we know Russ Hamilton was ... part of those accounts."
Hamilton's lawyer, David Chesnoff, scoffed at the accusations. "Have I heard these allegations? Yes," he said. "We deny them." He added: "Without having an opportunity to review what is alleged to exist, we can't answer the questions and don't think we should dignify it with answers."
In a statement, UltimateBet's owner, Tokwiro Enterprises, cited the commission's finding that Hamilton was responsible for the cheating. The company noted that Hamilton "was never employed by Tokwiro or any of its companies," though he briefly had a "relationship" with the company in which he referred players from his Web site to UltimateBet.
To date, UltimateBet has issued $6.1 million in refunds. Catania said the poker site has promised to reimburse players an additional $15 million, at which point he expects UltimateBet to lose its license or be sold.
The gaming commission fined UltimateBet $1.5 million "for its failure to implement and enforce measures to prohibit and detect fraudulent activities." It defended its handling of the case but said its actions "were not well communicated to the poker industry or public at large, creating an incorrect perception that the (commission) was doing nothing."
The Kahnawake now say they operate one of the most secure Internet gambling operations in the world. Tokwiro says it has "established cutting-edge security systems that make us the safest site in the industry." But Catania said he does not expect cheating to stop: "I'm sure there are people out there right now figuring out, let's say, 'Here's a way we can do it again.'"
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