Cheating Scandal Roils Online Gambling Industry

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.

“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.”