Fatal System Error (13 page)
Read Fatal System Error Online
Authors: Joseph Menn
Tags: #Business & Economics, #General, #Computers, #Security, #Viruses & Malware, #Online Safety & Privacy, #Law, #Computer & Internet, #Social Science, #Criminology
Barrett had spent several years protecting companies. He’d helped crack one Russian gang and educated government officials, technologists, and others about what else they could do. But there didn’t seem to be any more progress in the fight against criminal hackers abroad. Rather than walk away, he figured he could at least hurt the U.S. mob by pulling the rug out from under his partners. A close observer might conclude that the U.S. government, following reasoning of its own, had come around to a similar position. The American mafiosi who had moved illegal gambling to the Internet were more vulnerable than the criminals doing damage from overseas. They faced a national law enforcement apparatus that had useful regulations on the books and that already knew who the key players were. And the bad guys hadn’t managed to go completely “virtual.” Bettors could make deposits and collect winnings through online accounts. But a lot of the clientele were old-timers like those Sacco grew up around, people who wanted to hand their cash to a guy in the neighborhood and get paid the same way. That meant a human trail of agents and runners who could be caught and occasionally turned into cooperating informants.
Barrett’s change of heart came just as the Justice Department turned aggressive against some of the sports outfits. The feds had previously made a smattering of arrests of mobsters with gambling operations in Costa Rica. Justice officials believed that the 1961 Wire Act prohibited at least sports betting and probably other forms of gambling online, but not all lawyers agreed. As a result, the government carefully picked cases to prosecute. It generally stuck to sports and often targeted either companies with mob ties or the most aggressive promotion—or both, as in the case of BetonSports. Steve Budin of SDB Global was arrested in 1998, paid a big fine, and avoided jail. In a confessional 2007 book, Budin described working for unnamed Brooklyn investors, whom he never had to finger in court. In 2002, New York and federal officials unveiled a sixty-eight-count indictment against seventeen Gambino family members and associates, including boss Peter Gotti, who succeed his nephew John atop the clan. Prosecutors said a Gambino captain, Anthony Ciccone, played a leading role in extorting money from actor Steven Seagal and helped run the New York operations of Pelican Sports, a Costa Rican book, in 2000 and 2001.
BetonSports drew fire by shouting from the rooftops. The longtime Prolexic customer blew more than $10 million a year on advertising and marketing, buying space in
Maxim
magazine and time on Howard Stern’s radio show. When the 2002 football season started, the company pushed the envelope even more. It hired a Florida firm, Mobile Promotions, which covered a motor home with the BetonSports Web address and related artwork and drove it to the parking lot outside a Tampa Bay Buccaneers game. A Tampa Bay police detective joined a group of fans who walked in to get BetonSports material. Employees helpfully registered him as a BetonSports client, accepted a credit card deposit to open an account, and dialed Costa Rica for him so he could place his first bet. Police busted four Mobile Promotions staffers. The feds likewise used the ban on promoting gambling to go after publications, radio stations, and Internet sites that took virtual casino and sports betting money for advertisements. In 2007, Microsoft, Google, and Yahoo! settled claims that they profited from gambling ads by agreeing to turn over a total of $31.5 million in cash and public-service warnings.
Maxim
magazine and time on Howard Stern’s radio show. When the 2002 football season started, the company pushed the envelope even more. It hired a Florida firm, Mobile Promotions, which covered a motor home with the BetonSports Web address and related artwork and drove it to the parking lot outside a Tampa Bay Buccaneers game. A Tampa Bay police detective joined a group of fans who walked in to get BetonSports material. Employees helpfully registered him as a BetonSports client, accepted a credit card deposit to open an account, and dialed Costa Rica for him so he could place his first bet. Police busted four Mobile Promotions staffers. The feds likewise used the ban on promoting gambling to go after publications, radio stations, and Internet sites that took virtual casino and sports betting money for advertisements. In 2007, Microsoft, Google, and Yahoo! settled claims that they profited from gambling ads by agreeing to turn over a total of $31.5 million in cash and public-service warnings.
In July 2006, federal agents arrested David Carruthers, CEO of publicly traded BetonSports, as he changed planes in Texas en route to the company’s Costa Rica headquarters. Notwithstanding the unusual prominence of the target, the indictment followed the pattern by focusing on sports and activities in the U.S., including the ads on Stern’s radio show. Carruthers had also spent a fair amount on public relations, which apparently backfired. He had led an industry lobbying group and even written a piece in the
Wall Street Journal
calling for legalization.
Wall Street Journal
calling for legalization.
The indictment also named as defendants London-based BetonSports itself, which handled more than $1 billion in bets annually, and company founder Gary Kaplan, making much of his criminal history as a bookie in New York and Florida before he moved abroad in 1995. Kaplan was caught in the Dominican Republic in March 2007. After that, BetonSports pleaded guilty, filed for liquidation, and agreed to help prosecutors in their case against Kaplan and Carruthers, who was kept under house arrest until he pleaded guilty to racketeering in April 2009. Kaplan pleaded that August, agreeing to a mammoth $43 million fine and a sentence of more than three years.
Mere weeks after Barrett quit Prolexic’s board, the company’s name made its first appearance in court records. A sweeping indictment named a Lucchese crime family associate, more than two dozen other people, Prolexic, and Brian Green’s Digital Solutions. New York Police Commissioner Raymond Kelly announced the arrests on November 15, 2006, saying they dismantled “the largest illegal gambling operation this department has ever encountered.” During the period when the ring was under scrutiny, it processed a mammoth $3.3 billion in bets, more than most casinos. Atop the enterprise was well-known professional gambler James Giordano. Phone taps showed he had a network of 2,000 bookies who kicked their action up through more than 100 agents. Among those arrested was an active baseball scout for the Washington Nationals. To get Giordano, agents had to scale the walls of his $10 million compound in Pine Crest, Florida. Authorities seized four Manhattan condos, millions in cash, artwork by Salvador Dali, and a football signed by the 1969 Super Bowl champion New York Jets.
Darren Rennick and Keith Laslop were stunned by the indictment, which accused Prolexic of aiding gambling. Darren told his lawyer that Prolexic had just sold bandwidth to Brian’s company, which had been a real vendor of Playwithal’s. But they didn’t have long to recover from the shock.
With Barrett telling him where to find servers and information related to Digital Gaming and Digital Solutions, Betancourt decided to extend the search and got federal warrants to raid Prolexic’s office and its computer rooms in Miami and Phoenix. A week after the New York indictment, five FBI agents and eight local Hollywood, Florida, police barged into Prolexic’s office with their hands on their guns. They broke down the door to the office Darren and Laslop shared with Joe Daly, finding only Laslop and Daly. “Take your hands off your desk!” an agent shouted. The squad herded the employees into a central area. When the company’s sixty-year-old accountant began to ask a question, a local cop snarled, “Shut up and sit down!”
Police brought staff members into a conference room one by one for encounters with the FBI. The agents spent hours questioning everyone. Did they know of any illegal activity? Who was in charge? What did the company do? “They wanted to make sure we were a legitimate business,” Daly said. The agents took half of Prolexic’s equipment, including Laslop’s computer and cell phone. As word spread, panicked gambling customers began calling, asking what had been taken and what it might show. Laslop was especially concerned about what was on the servers dedicated to gambling firm First Fidelity, owner of
YouWager.com
. He had good reason to be nervous; First Fidelity’s machines housed Web pages marketing its betting business.
YouWager.com
. He had good reason to be nervous; First Fidelity’s machines housed Web pages marketing its betting business.
After the raid, Darren left for Canada. Laslop, who had been named president in July 2006, stayed behind and tried to convince the FBI that he didn’t know anything about what Prolexic’s clients did. The company struggled on, its payroll met by loans from BetCRIS, before its eventual sale. The FBI, meanwhile, followed Barrett’s leads about Prolexic’s unsavory ties. Barrett passed on emails from such clients as First Fidelity showing that bets had been handled on Prolexic machines, and he turned over cash-flow statements proving that Digital Gaming had poured tens of thousands of dollars into the company.
WHILE SPORTS BETTING OPERATIONS were finally feeling the heat, poker companies still seemed safe in early 2008—at least for the owners. Just like the sports companies, many were controlled by mobsters offshore or by questionable founders who had managed to go public in London. It was the customers who stood to lose: though the companies uniformly claimed to be regulated, in reality they were often corrupt.
PartyPoker’s predecessor cheated at some casino games. Many other books didn’t pay when they lost big, tried to stretch out payments over long periods, or simply disappeared. There wasn’t much the victims could do. In theory, they could appeal to a number of websites that ranked the betting sites by quality or to the industry groups that sanctioned various companies. But both could have secret conflicts of interest. Such bodies as the Offshore Gaming Association and the International Sportsbook Council, it later came out in court, were controlled by BetonSports.
Poker players also worried about automated programs that pretended to be fellow bettors. The major poker sites officially banned these “robots,” but they still took a percentage of every pot the programs contributed to, raising questions about how hard the companies tried to weed them out. One of the best-known poker sites secretly deployed bots against its customers to fill up tables and bolster earnings, according to a professional player who gambled there and asked to remain anonymous. Even Brian Green said he wouldn’t play for serious money online for fear of getting cheated.
The robots stayed underground until 2005, when a $100,000 contest lured some into the open. A couple of promoters staged the World Poker Robot Championship at Binion’s in Las Vegas, and most of those who competed said they had been playing their creations on PartyPoker. Ken Mages, one of the promoters, had written his own robot before signing away the rights. After two weeks of programming, he said, “I could sit down at a 50-cent table, put 50 bucks in the account, go to bed and wake up with at least $75.” The most Mages won that way was $250; he never lost. PokerProbot, written by an Indiana car salesman named Hilton Givens, won the top prize and a playoff against a human pro, Phil “The Unabomber” Laak, known for his shades and hooded sweatshirt. It took Laak three hundred hands to win. “It would for sure make money online,” Laak said after his victory. At least in the simpler versions of Texas Hold ’Em with betting limits, “bots are better than the average person.”
Then there was insider cheating, like that exposed by some players at Costa Rica—based Absolute Poker who were determined, clever, and lucky—at least in their seat-of the-pants investigation. Before that, they seemed downright unlucky. Todd Witteles, a computer expert and professional poker player, dropped $15,000 to a terrible opponent called Grey Cat. Harvard law grad David Paredes lost $70,000 to a turkey named Nio Nio on a sister betting site, Ultimate Poker. Players compared notes online and agreed that the victors had been betting at all the wrong times, in all the wrong denominations, and still somehow cleaning up. The break came when one of those who had been offended by the results requested a history of the hands that involved Potripper, another improbably lucky soul. The company accidentally sent back not just how those hands had been played, but what everyone had in the hole. The mathematical analysis was damning, number-cruncher Michael Josem told
60 Minutes
in 2008: it was “approximately equivalent to winning a one-in-a-million jackpot six consecutive times.”
60 Minutes
in 2008: it was “approximately equivalent to winning a one-in-a-million jackpot six consecutive times.”
It got more interesting when the players traced back the player IP address that Absolute Poker had included in the spreadsheet of data—again accidentally, unless, as the
New York Times
wondered, a whistleblower sent the address deliberately. It belonged to a modem controlled by an employee—according to the
Times,
company part-owner Scott Tom. Finally, the company admitted that insiders had been cheating, and it pointed the finger at an unnamed former employee, whom other sources identified as A. J. Green. Responsible for investigating the scandal was the Kahnawake Gaming Commission, which handles complaints for the many poker sites whose servers are officially on Mohawk Indian land within Canada. The commission said groups at Absolute Poker and sister site Ultimate Bet cheated regular players out of more than $20 million over four years. It fined the sites $2 million and told them to repay the losers, but it didn’t take away their license, which happened to be held by former Kahnawake Grand Chief Joe Norton, who set up the commission in the first place. Neither the Indian commission nor 60
Minutes
ever got the full story. A. J. Green, alias Potripper, wasn’t a former employee at the time of the scandal, but a current employee. He also happened to be a friend and sometime roommate of Scott Tom, leading people inside the company to conclude their top man had been involved in the scandal.
New York Times
wondered, a whistleblower sent the address deliberately. It belonged to a modem controlled by an employee—according to the
Times,
company part-owner Scott Tom. Finally, the company admitted that insiders had been cheating, and it pointed the finger at an unnamed former employee, whom other sources identified as A. J. Green. Responsible for investigating the scandal was the Kahnawake Gaming Commission, which handles complaints for the many poker sites whose servers are officially on Mohawk Indian land within Canada. The commission said groups at Absolute Poker and sister site Ultimate Bet cheated regular players out of more than $20 million over four years. It fined the sites $2 million and told them to repay the losers, but it didn’t take away their license, which happened to be held by former Kahnawake Grand Chief Joe Norton, who set up the commission in the first place. Neither the Indian commission nor 60
Minutes
ever got the full story. A. J. Green, alias Potripper, wasn’t a former employee at the time of the scandal, but a current employee. He also happened to be a friend and sometime roommate of Scott Tom, leading people inside the company to conclude their top man had been involved in the scandal.
Loose regulation, which varied widely from country to country and remained in some cases entirely absent, meant that much more cheating could exist undiscovered. “It’s not only difficult to find out if a company is operating under a well-run regulatory system, it’s hard to find out if they’re even licensed,” said Whittier Law School professor Nelson Rose, who has written books on Internet gambling laws and was an early advisor of Ruth Parasol, the mysterious doyenne of the poker world. Consumers who felt cheated certainly couldn’t turn to the government. The Federal Trade Commission deferred to the states. The California attorney general, among others, received complaints about companies vanishing and cheating, said spokesman Nathan Barankin, but couldn’t help. “We really don’t delve into it, because online gambling is prohibited by federal law,” Barankin said.
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