Inside Online Poker's Cheating Scandals
Monday, December 1, 2008; 1:00 PM
In 2007, news of cheating at two of the world's biggest online poker sites rocked the world of Internet gambling. Both scandals came to the forefront after aggressive detective work by several players who suspected the cheating. The players persistence in pushing reluctant online poker officials to acknowledge the scandals -- and pay out millions in refunds to scammed players -- appears to be a victory for the self-policing nature of the Internet. But the cheating has also bolstered objections by critics who view Internet gambling as an unregulated, murky industry.
Washington Post investigative reporter Gilbert M. Gaul answered questions on Monday, Dec. 1 at 1 p.m. ET about his reporting on Internet gambling, joined by Serge Ravitch, an online poker player and one of the "detectives" in the Absolute Poker scandal.
The transcript follows.
Full investigation: Inside Bet
Gilbert M. Gaul: Hi everyone. Welcome to our chat today on Internet gambling. Sorry for the delay getting going but we are now ready to take your questions.
Anonymous: Where are these companies taxed?
Gilbert M. Gaul: It's unclear if the companies highlighted in the stories pay taxes in Canada. That's because the Kahnawake consider themselves to be a soverign nation, outside of federal and provincial law. Other companies have chosen to locate in places where their taxes will be minimized, such as the Isle of Man and Costa Rica.
Richmond, Va.: This is all very interesting, but I thought online betting was illegal. True?
Serge Ravitch: Placing sports bets is illegal as per the Wire Act, but playing online poker is not covered by the Act and is not illegal under federal law. A handful of states (Washington state) do ban it, but it's legal to play in the vast majority of the US.
Castle Rock, Colo.: Why don't any of the stories mention how UB and AP formed the new company called Cereus?
Gilbert M. Gaul: Cereus was just formed the other day and it's unclear how if at all it changes things. The press release says that the new company reflects the owner's renewed commitment to improving security. We'll have to see how that plays out.
Buxeuil, France: Have any cheating allegations surfaced regarding online backgammon sites?
Serge Ravitch: I don't have any direct knowledge of that, but unlike poker, backgammon has been solved by computers (there is always a mathematically correct play) and there are definitely programs out there that let people cheat in that fashion. It comes down to whether those sites adequately police themselves to ban those cheaters.
Rockville, Md.: I understand that being able to see other players' hole cards gives you a big advantage, but there is still the luck of the draw on the 5 community cards. A 7-2 off-suit can beat pocket aces if the other 5 cards benefit the 7-2 player.
It seems that in the articles, the cheaters never lost. Is that true? If so, it seems that they knew the 5 community cards before they were shown. Did you have any evidence that they did or did not know that?
Serge Ravitch: That part was a little off in the article - the cheaters did lose hands where they would be all in preflop (before the cards were dealt.) They didn't know the community cards, just the hole cards, which was unfortunately more than enough, anyway.
Boston: On the legalization front, one aspect that didn't get covered was how the U.K. regulated online gambling. Did you do any research into that? And if so, what did you find?
Gilbert M. Gaul: I did some research into the UK regulations, in part, because the Kahnawake sought to get on their White List of approved advertisers, but were turned down last December around Christmas. They were upset about the decision and approached the division of culture and ministry for another meeting. However, the current grand chief told us the other week that nothing had come of their request.
I am not expert on the UK but I do know their regulations are fairly stringent and not like some of the other off-shore locations where there isn't a lot of transparency or oversight. At this stage of Internet gambling, it is probably the gold standard for regulation.
Silver Spring, Md.: How prevalent do you think this type of cheating is on web-based poker sites? Any sense of whether these two cases were outliers, or the tip of an iceberg? Where should an online gamer go to stay up-to-date on these things?
Serge Ravitch: These were the first and hopefully last two cases; I personally see them as outliers. I've been in personal contact with the management of a handful of other sites, and they're all obviously greatly unhappy at how this impacts the perception of the rest of the industry -- they're committed to providing a clean game. In addition, many of the sites are actually well regulated already; for example, Pokerstars is incorporated on the Isle of Man and follows the rules set by the British gaming commission, which are quite strict in that regard. But the bottom line is that, to be sure this never happens again, the U.S. needs to ensure the sites serving us are well regulated.
The best place to go to to stay on top of any breaking news are the forums at twoplustwo.com. It's a large poker community and where we broke the news of the original scandal.
Rockville, Md. - a follow-up: "the cheaters did lose hands where they would be all in preflop"
So then I assume if the cheaters folded post-flop, you did not consider that a loss as well.
Serge Ravitch: The Excel spreadsheet sent to us actually showed everyone's hole cards, including when the cheater would fold postflop. Naturally, he would simply fold whenever someone else would flop a higher pair than he did, and bet or raise when he had the best hand.
Washington, D.C.: Interesting series, thanks. I'm curious about how it happened that the Post partnered with 60 Minutes on this and whether you anticipate doing it again in the future.
Gilbert M. Gaul: The Post has partnered with 60 Minutes before on stories. In this instance, someone approached a Post editor with an idea for a story and the editor suggested it might be a good story to collaborate on. Newspapers and other forms of media face a lot of challenges these days and are looking at ways to leverage their resources and exposure. We're no different that way. The idea is that the collaboration will drive readers and viewers to our sites.
Bowie, Md.: If you have online poker winnings for a year how do we calculate them for tax purposes? Is there a minimum amount? Any suggestions? Thanks.
Serge Ravitch: This is a complicated question and depends on whether you're a pro or an amateur. It also varies by state. I recommend buying the book "A Gambler's Guide to Taxes" and reading that.
I want to clear up one misconception I see a lot: you do owe taxes on winnings as a U.S. citizen. I certainly pay mine.
Richmond, Va.: Do you believe that if online poker was legal, regulated and taxed in the United States, these types of cheating scandals would be more difficult to achieve? Would it also be a money-maker for the government (tax revenue in excess of regulation cost)?
Gilbert M. Gaul: The argument for regulating and taxing comes from the poker community and a number of legislators, Barney Frank from Massachusetts being the most prominent. The idea is that by licensing and regulating (presumably with a level of oversight in line with land-based casinos and gaming) you would minimize the opportunities for cheating -- though probably not eliminate entirely. I agree with one of the other chatters that you will never eliminate cheating entirely, online or on land. The proponents have tossed out figures that the government would collect billions in taxes by licensing and regulating. That obviously depends on the book of business, but again the thinking is that the U.S. being so big a market, the companies will flock back here.
Anonymous: do you think that the winners pay taxes on their winnings? Did you ask the guys who said that they were cheated whether they reported their winnings?
Serge Ravitch: Along these same lines -- yes, everyone I know pays (lots of!) taxes. I treat my play as a business and file as a self-employed professional; most of my friends do, as well. The sites pay us with checks and bank wires that we can show the IRS, and most provide full records of our play; I personally keep a very detailed Excel spreadsheet in case of an audit, and so on.
Washington, D.C.: Thanks for the response on the tax question. Since online poker is in such a grey area, do we risk getting in trouble with the law by declaring poker earnings for the year with the IRS? Does showing earnings allow the Feds to come after a poker player since they discourage online poker? Thanks.
Serge Ravitch: Final tax followup -- no, you cannot get in trouble for declaring yourself as a poker player on your taxes. If you are extremely worried or live in a state that does ban online gambling, keep in mind that putting down "poker" on a form makes no distinction between online play and live play. There's nothing on my tax forms to indicate whether I play online or drive to Atlantic City, for example.
San Francisco: I hear that professional poker players represent, and even have ownership in, sites like Absolute and Ultimate Bet. What responsibility do they have to the community when a scandal like this breaks?
Gilbert M. Gaul: This is a great question because it goes to one of the principal differences between the land-based casinos and the Internet gambling sites -- transparency. We kept hearing that that there were multiple investors in sites such as AP and UB. We even heard a few of the names. However, there is no easy way to confirm the ownership links. Most of the offshore sites are set up as limited partnerships that are hard to get behind. Also, there are often multiple layers of ownerhsip. One company may own the brand. another company may own the back office operations. Still another, the marketing and management. Besides being hard for a reporter to penetrate, it creates potential problems for players who think they have been cheated or have had other problems. Let alone who do you sue and where do you sue if you identify a cheater?
Bowie, Md.: I was surprised to read in today's article that lawmakers were caught off guard by the online gaming ban rider in the port security bill. I seem to remember it getting plenty of publicity around here, and 60 Minutes even did a piece on it before the bill was passed.
My question: has there been any real discussion by lawmakers to legalize, regulate, and tax the online gaming industry in the US? The rationale behind the ban is flimsy at best and in most cases, completely self serving.
Gilbert M. Gaul: There have been a couple of hearings in recent years with testimony from DOJ reps, members of congress, poker groups and so on. So, yes, there has been some serious discussion of the issue, and most recently involving the delayed implementation of UIGEA.
I don't think 60 Minutes did a program on the UIGEA rider being attached to the port security bill BEFORE it was attached. I don't see how that was possible. There was a lot of discussion leading up to UIGEA, mostly around the more general issue of banning all Internet gambling, but I don't think so much around the issue of using the payment transfer companies as a way to stop Internet bettting.
Herndon, Va.: Gentlemen,
I've read both articles and watched the 60 Minutes piece, and have enjoyed them both. I've also probably contributed to Serge's retirement fund, so (ahem) don't spend it all in one place.
A lot of people seem to believe that legalizing Internet gambling, thereby regulating it and taxing it, is the way to go. My question is, what incentive would Internet gambling sites have to relocate operations to the U.S. and subject themselves to draconian regulation and excessive taxation?
It seems to me that the trend, even among legitimate businesses, is to move offshore and I don't think the argument that the U.S. will be able to tax these groups holds water.
Serge Ravitch: The largest incentive, by far, is unfettered access to the U.S. market and the ability to advertise here as "a fully legal poker site", etc. This is worth billions a year to a site that can go through that type of vetting. Additionally, I personally have little doubt that, as soon as Internet gambling is fully legalized, the major Vegas casinos will be looking to purchase many of the online sites; Full Tilt might not want to relocate here, but MGM would be happy to spend several billion and do it for them.
San Francisco: Do you have plans to interview congressmen who voted to ban online gambling?
It would be interesting to know if they oppose it due to the risks of gambling, or due to the lack of regulation (or both).
Likewise, it would be interesting to know how they rectify that with the fact that various forms of gambling are allowed in the U.S. already.
Gilbert M. Gaul: I think today's story goes into these issues to some degree. The congressmen and women we spoke with are either opposed to gambling generally or think Internet gambling poses to new and unacceptable risks -- for example, underage gambling or feeding addictions. The story today also highlights the contradictions in our current approach to regulating gaming in the U.S. As you correctly point out, we are already a nation of gamblers in many respects -- from charity bingo to state lotteries to land based casinos and horseracing. It's a little tricky logically to say that the one is okay but the other isn't.
San Francisco: Cheating is not absent from live poker, either.
Which environment do you believe is currently safer for the average gambler in your opinion -- live poker, or online?
Serge Ravitch: I believe online poker is much safer overall. I live in New York, where live poker is clearly illegal; lots of people play anyway, but that attracts robbers and other criminals. Earlier this year, a man was killed at a poker club in Manhattan during such an armed robbery. I certainly have no fear of that online!
On a less sad note, most sites do make a large effort to police their games extensively, something that is more difficult to do live -- it's much harder to tell whether a dealer is a card mechanic than if two people are openly colluding at an online table.
Williamsburg, Va.: Is anyone pursuing prosecution of Russ Hamilton? He is a U.S. citizen in the U.S. Even if he were not prosecuted for cheating, can't he be prosecuted for being an owner of Ultimate Bet?
Gilbert M. Gaul: First of all, at this point there is only an allegation that Russ Hamilton was involved in the UB scandal. It comes from the Kahnawake Gaming Commission, which has not released any of its evidence but says it is comfortable that its evidence is "clear and convincing." Hamilton's lawyer denied unequivocally that Russ was involved in the cheating. See day one of the WP series.
The Kahnawake say their investigation is continuing. As recently as a few weeks ago, they also said they were prepared to turn over whatever information they have to responsibile authorities. However, they weren't prepared to say who those authorities might be or when they would act, if at all. Recall that in the AP scandal, they agreed not to turn over the name of the cheater. One of the big issues with the Internet as reflected by this story is where does a cyber crime occur? And where do you then turn to prosecute the crime? In this case, there were multiple locations involved. Do the Mohawks, who consider themselves a soverign nation, outside of federal control, turn to the RCMP? Do they ask the FBI to look at their evidence? Authorities in Costa Rica?
Boca Raton: Why do you think the NFL takes the stance against gambling that it does?
Serge Ravitch: It's certainly hypocritical on their part, because we all know that NFL gambling is the reason football is so popular, but I assume it's because they're terrified of a Black Sox-type scandal.
I would like to point out that poker has nothing to do with sports betting. Even a brilliant handicapper will still have trouble correctly picking over 55% of the games. With a handful of exceptions for truly incredible handicap savants, a very good poker player is far more dependent on skill, and poker is inherently more of a skill game since you do have a large amount of control of the outcome. The NFL's attempt to ban all gambling is very off target here.
Washington, D.C.: You referenced in your article a pending bill to study Internet gambling. If there are already examples that exist for regulating the activity to protect consumers, what would the study bill accomplish? Also, is there a reason you didn't get into some of the specific safeguards that regulated operators put in place to protect consumers?
Gilbert M. Gaul: Why a study? The subject is controversial. By having our most prestigious researchers study it for a year, I presume that would lend some credibility to whatever they decide that might otherwise not be there. I assume as part of the study they would review the regulations in place in the U.K., Isle of Man, Antigua, Maltya and elsewhere, as well as report on the current state of the technology for preventing underage gambling and so on. Sorry, I'm not expert on those technologies.
Washington, D.C.: Did you make any effort to interview the high-profile poker players that continue to be affiliated with AP and UB like Phil Hellmuth and Annie Duke? It seems like, in light of the lack of transparency with regard to the ownership of these entities, that there should be some pressure placed on people like Hellmuth who are making money representing UB to account for the cheating.
Gilbert M. Gaul: I interviewed Annie Duke but it was mostly about the structure of ownership of the companies, not about the role of these prominent players and the money they get for lending their names. It is a good question and I know there has been chatter on this issue on some of the better known poker blogs. You might want to check those out.
Washington, D.C.: Has the cheating been limited to these two sites, Absolute Poker and UltimateBet? Are there any issues with the two more prevalent sites, Full Tilt Poker and Poker Stars? It seems that there is a far greater number of people playing these sites as well as a greater number of professional endorsements, i.e., more on the line for them.
Serge Ravitch: The two sites you mention have never had such a scandal and both, along with most of the others I know, have stringent security in place to prevent one (especially after this came out!)
There is certainly some level of minor cheating that does often go on, usually involving collusion; a lot of people do think "Hey, why don't I just sit next to my friend and share hole cards on AIM?" What invariably and quickly happens is that the people involved get banned and their money distributed to their victims. I don't want to go into details for obvious reasons, but it's remarkably easy to catch people trying this, even without access to back end security tools.
Additionally, the player community itself is now alerted for any instance of widespread cheating like at AP/UB. Anything out of the ordinary -- a big winrate, an account playing oddly, etc. -- is being scrutinized on poker forums by hundreds of people using statistical analysis. If there is ever another scandal, I am confident we'll find it.
San Francisco: Hi, thanks for the investigation. Achieving security through obscurity -- e.g. hiding the design details from the public -- often only works until someone uncovers the secrets. In the case of Absolute, their superuser feature was a massive security hole once it was discovered and exploited.
Other poker sites seem to follow the same philosophy, failing to release any significant information about their security measures. Do you think there is a place for online poker software that achieves security through full transparency? For example, open source software has been successful in allowing the public to review and scrutinize its code for security holes. The result has been safe, secure, thoroughly-vetted software.
As your story points out, the generally honorable players in the online poker community has achieved a victory by catching the cheaters through their vigilance. I tend to think that these same players could contribute greatly to building a secure, open-source poker experience. Your thoughts?
Gilbert M. Gaul: It's a really interesting idea that I haven't seen a lot of discussion on. I know from my reporting that at least one of the poker-detectives has or is working on a site to help it improve its security. But open source software...I don't know. Some of the companies have developed their own proprietary software (and in at least two instances we now know about, it was flawed). I am guessing they would argue that they don't want to give up their software....
Huntington, W.V.: How can you access a person's winnings? Can you view a screenname's success rate without being a member of that particular online poker site?
Serge Ravitch: Yes, if they play high stakes cash games or tournaments, there are databases (Nat Arem's tournament database is found at www.thepokerdb.com) that collect data on people's wins. This is another tool to detect cheating, as well as to analyze your own play.
Reporting on VIPs: I got the sense that players identified as "VIP" were not tracked the way other players are monitored. Are there plans in place to run reports that will pick up suspicious patterns versus the community investigating the both of you did? I think both are important to have as watchdogs.
Gilbert M. Gaul: Well, UB acknowledged in written responses to our questions that it didn't pay attention to the VIP accounts when it Tokwiro bought UB in october 2006. It says it is paying more attention now, after the scandal broke. But I don't know what it is doing differently.
Williamsburg, Va.: The second part of my Russ Hamilton question was: can't he be pursued for being a part owner of UB (like the gentlemen in Malibu)?
Gilbert M. Gaul: I don't know.
WDC: This story highlighted for me why I personally do not gamble: I am unwilling to take the inherent risks (morally, socially, financially). And while it is obviously something that does not universally occur on Internet gambling sites, it a cautionary tale just the same: buyer beware: not everything that glitters is gold, you get the point.
Serge Ravitch: I want to respond to this because it lets me bring up an interesting point: I personally do not see myself as a gambler. I am a professional poker player, which means I do not play games where I do not have an edge (that is, I think I would lose money over the long run). In addition, I use statistical analysis to both improve my game and to determine whether I have an edge. Since starting to play poker, I've never so much as bought a lottery ticket or put a dollar in a slot machine, because it's a losing play and I've never felt the need to do that.
Certainly, there are people I know that are winning poker players that are also gamblers. But I do think there is a distinction to be made between the two.
Pittsburgh: Do you think that in court a judge can be convinced that poker is indeed a game of skill over the long? Do you think we would be even having this problem if poker got grouped with games like hearts, bridge, spades, etc. instead of being grouped with casino-type games and sports betting?
Gilbert M. Gaul: This is one of the arguments that the poker community -- and some legal scholars -- make: that poker is different than other forms of gambling because it involves a set of skills that are missing from games of pure luck. I am a little groggy on some of the specifics, but I think this argument came up in one federal court case awhile back and more recently may have surfaced in another case ongoing in N.J. But it hasn't been clearly define, and in DOJ's defense, they maintain that all forms of Internet gambling are illegal, and do not distinguish between poker and other games.
U.K.: What are the differences in the laws on online gambling and online poker?
Gilbert M. Gaul: I'm not sure the laws distinguish between the two, at least in the U.S. see my earlier response.
Annandale, Va.: Of the billions of dollars being made in this endeavor world-wide, do you have an estimate of the amount (and tax implication for U.S. coffers) that would be generated by U.S. gamblers if online gambling was legalized?
Serge Ravitch: It's impossible to say for sure, but that number is certainly in the billions itself and probably in the tens of billions. Keep in mind that sites with a license here would definitely be required to keep accurate tax records.
Maastricht, Netherlands: Having followed the scandal closely and having read the WaPo/CBS piece, it seems that the involvement of Hamilton on some level is not particularly in doubt. Given that he is both a U.S. Citizen and resident, is there a possibility that the Las Vegas D.A. will begin an investigation? Or alternatively perhaps that the wronged UB/AP customers could file some sort of civil suit against him, resulting in him being deposed?
Gilbert M. Gaul: Well again, for the record, Russ Hamilton hasn't been charged with anything. So let's give him the benefit of the doubt until we see the evidence. See my earlier response re: the difficulty of where do you prosecute and who does the prosecuting. It's tricky.
Silver Spring, Md.: What do you think Congress will do in 2009 given the legislation put forth by representatives like Barney Frank?
Serge Ravitch: I think the overall chances of a repeal, a poker exemption or other modification to UIGEA in 2009 or 2010 are surprisingly good. That said, as I'm not a gambler, I'd rather not bet on it either way.
Hingham, Mass.: How accessible are those facilities -- in Costa Rica and elswhere -- where the online-gambling business is conducted? On the "60 Minutes" version of the story, it seemed like one place was just a small office in a strip mall. BTW, I wish the TV version had shown more of Gil Gaul in action, say, asking questions.
Gilbert M. Gaul: This goes back to the transparency issue. The Kahnawake Gambing Commission, Joe Norton and the managers at his sites declined repeated requests to do on-the-record interviews, even after I agreed to submit some written questions in advance. Nor can you walk up to one of these sites and get inside. We went to Canada but we're told we couldn't visit either the KGC or Mohawk Internet Technologies.
Cheaters' liability: So, the companies are on the hook to pay back the users who were cheated. Did the cheaters have to return their ill-gotten gains? I am disturbed with how little punishment there seemed to be for them. If the company doesn't call the police, you'd think the victims could file a claim.
Gilbert M. Gaul: The cheater in the AP scandal was not turned over to authoritires to be prosecuted. And it's unclear what if anything is going to happen to the cheater in the UB case.
Gilbert M. Gaul: Thanks everyone for joining the chat. Serge and I really appreciate the questions. If you want to send any follow up questions or thoughts, feel free to do so to my e-mail at the WP: gaulg - AT- washpost.com
Serge Ravitch: Thank you for your questions as well, everyone. It's been a privilege to be here, although I hope never to have to answer questions about a cheating scandal again. If you have any followups, feel free to email me at adanthar -AT- gmail.com.
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