As “The Poker Philosopher”, and in honor of one of my favorite non-poker blogs, I occasionally consider the ethical dimensions of a high-profile controversy or occurrence in the poker community. This is the first in a series of posts about the major players in the recent Poker Stars – Full Tilt Poker – Department of Justice settlement. Older editions of The Poker Ethicist are available in the archives.

Q: As you’ve probably heard by now, the Department of Justice recently approved a settlement in which PokerStars will buy the remaining assets of Full Tilt Poker, pay a fine to the DOJ, restore the FTP balances of non-American players, and ultimately re-open the site. American players (more specifically those of us who were Americans as of June 29, 2011), via a process yet to be determined, will be able to apply to the DOJ for restitution of our money. The online poker community, myself included, is understandably elated about this near-ideal resolution to perhaps the darkest chapter in our short history.

Many direct their gratitude towards PokerStars. The word “savior” has been tossed around liberally. Numerous Stars-sponsored players have expressed pride at representing the company. Short Stacked Shamus, in a characteristically entertaining blog post, paints PokerStars as the hero in a John Wayne-esque narrative of law-breaking and vigilantism. Dominic Kofert, CEO of PokerStrategy.com, sees them as the benevolent dictator of the new world order of online poker:

Once the acquisition is completed and Full Tilt goes back online, PokerStars, which already has a world-wide market share of around 60%, will have substantially grown the margin by which it is the largest operator in the world. With most competitors severely struggling, I will not be surprised if PokerStars/Full Tilt’s market share reaches 75% by the end of 2013.

For many, this market dominance will be something to worry about. However, judging by PokerStars’ conduct over the past years and assuming that the company’s great philosophy does not change now that PokerStars.com co-founder Isai Scheinberg has to step down, I think that PokerStars will act responsibly and with the players in mind going forward – as it has always done in the past.

Do we owe PokerStars our gratitude? Or was this just a savvy maneuver to acquire their largest competitor and establish a near-monopoly on online poker? Should the average player really be celebrating this deal?

A: To quote Grandpa Simpson, “A little from column A and a little from column B.”

Let’s start with the obvious: PokerStars isn’t doing anything out of the goodness of their heart. There’s been rampant speculation about why the company would be interested in Full Tilt. Did they seek its customer database? Good will with the DOJ? Good will with the online poker community? Re-entry to the US market? All of the above?

Your guess is as good as mine. Whatever their reasons, I believe Stars wouldn’t have purchased FTP unless they believed it was in their interest to do so.

I know they’re playing a game and acting strategically in their own best interest, but that doesn’t mean I’m not grateful. What I’ve always respected about Stars – I used to represent them myself – is that they are playing a long game, and that’s good for customers.

Among other things, PokerStars has just purchased a generous helping of legitimacy for online poker. Black Friday and subsequent revelations about the FTP “Ponzi scheme” made mainstream headlines around the world and surely scared away thousands of would-be depositors from other online poker sites. Making the affected players whole may not undo the public relations damage entirely, but it’s a gigantic step in the right direction.

The companies that have done the most harm to online poker – Full Tilt Poker, Ultimate Bet, Absolute Poker – were playing a short game. Common wisdom once held that no company would risk slaying the goose that laid the golden egg by stealing customer money. That assumption proved wrong. Principals at all of those companies chose a short-term windfall over an uncertain but potentially even more profitable future. In other words, they took the money and ran (or not).

In ways large and small, PokerStars has repeatedly demonstrated that they are in it for the long haul. It’s clear from their recent actions that they expect to be in the online poker business 10 years from now, and they’ve just made an investment that may take that long to mature.

That makes them a good company to work with, because it means that good customer service is in their interest. They want satisfied customers and repeat business. They want legitimacy and a regulated, predictable marketplace. Their business model seems to align with the interests of their players in a way that, at least in retrospect, FTP’s and UB’s did not (though also in retrospect, the signs were there: re-entry tournaments, anyone?).

Arguably, FTP and UB made the wrong choice, not just ethically, but financially. They may well have made more money by running honest businesses. Sometimes greed overtakes good business sense, and sometimes people are just short-sighted.

I’m grateful that PokerStars has so far eluded these pitfalls, but I don’t delude myself into thinking that they are playing sheriff out of an innate sense of justice. Nor have they claimed to be. In fact, I would distrust any company that did claim such.

I expect a large corporation to act in its own self-interest. If one tries to tell me they are not, then they’re lying, and that makes me suspicious. I’m far more comfortable in a relationship where I know what game the other party is playing and I can see how their interests align with mine. Both PokerStars and I have an interest in the long-term viability and legitimacy of the online poker industry, and that makes me glad to be their customer, even if I’m not kissing their feet. I’m grateful that they seem to have the foresight that some of their competitors lacked, and that even as they close this landmark deal they continue to work tirelessly to serve their customers.

That doesn’t mean that I’m sanguine about a single company possessing such a large share of the market. I feel better when a company, no matter how benevolent the owner (who, by the way, is stepping down as a condition of this settlement) or how strong the track record, feels that treating their customers right is good business and not simply “the right thing to do” as a matter of principle. Principles change, especially when there’s a lot of money at stake.

Thankfully PokerStars still has a lot of self-interested reasons to treat its customers well. They may soon face competition from gaming mega-brands like Caesar’s/World Series of Poker in a regulated US marketplace. They know that they can’t afford to rest on their laurels if they want to gain access to that market at all, let alone be competitive in it. It’s no coincidence that PokerStars’ own announcement of the settlement concludes with these words:

Our settlement acknowledges that both PokerStars and Full Tilt are eligible to apply for a license in the U.S. to offer real money poker when states or the federal government offer such an opportunity. We look forward to this opportunity and are confident that we bring tremendous value, regulatory experience, market credibility and financial integrity to the marketplace.

We’re optimistic about the future and we look forward to sharing the next chapters in our history with you.

My sentiments exactly.

The title of this post is in German because that’s where I am right now. My girlfriend and I have just embarked on a three-month Europe trip. My inability to play online poker has become a convenient excuse to travel the world, spending several months first in Canada and now in Europe. As far as occupational hazards go, these aren’t so bad.

In a sequel to my Gray Friday article entitled Three Days in Madrid, I described meeting two new friends after a last-minute decision to play the Grand Final of the European Poker Tour. Appropriately, both Soeren and Nico are also coming to Berlin for the EPT, and I hope to see both of them today. Nico and I traveled to Cannes for the WSOP-Europe a few months ago, but this will be the first time I’ve seen Soeren since Madrid.

In the last year, Nico’s home country of Spain has adopted legislation restricting its citizens to playing on Spanish-only sites, and Soeren’s home country of Germany threatens to enact similar legislation. Back in the United States, the patchwork of pending legislation at the state and federal levels is too complex for me to keep up with it. Although the holy grail would be legislation welcoming PokerStars back into the US market so that US players could compete against the rest of the world, at this point even the creation of a US-only market would be a vast improvement over the status quo.

For now, though, I remain a poker nomad. I play the EPT Berlin on Monday and hopefully the rest of the week as well. Last night a former student who lives in Berlin picked us up at the train station and took us to dinner. Soon we’ll be on to Amsterdam, where I hope to meet another former student and also spend some time with Richard “tzen1” Veenman, a member of PokerStars Team Online whom I first met in the Bahamas earlier this year.

A long-time blog reader offered us a couch to crash on in his Paris apartment, so that’s where we’ll be after the SCOOP. Then there’s hiking in the Swiss alps, hopefully meeting a student in Switzerland while we’re there, and then on to a small town in Germany for the wedding of one of my closest friends, who asked me to be his best man on this date in 2011.

I still haven’t answered any of those big questions, but I’ve managed to orient myself and muddle my way through a messy situation by focusing on what’s important to me: relationships with family, friends, and my girlfriend; traveling, meeting new people, and having new experiences; and making the best of any situation in which I find myself, doing my best not to look to the past with resentment or longing nor towards the future with fear or anticipation.

How did Black Friday affect you? What has your life been like for the past year? How do you feel on this important anniversary?

It’s bittersweet, but I’ve decided to leave UB.

I have nothing but positive things to say about UB and my experiences with the brand, management team, and dedicated employees who work hard every day to deliver a terrific online poker experience for players like you.

I’ve sincerely enjoyed wearing the UB patch, but it’s time for me to move on.

So why am I leaving UB? In a nutshell, professional and personal growth.

Translation: “They can’t afford to pay me and/or I don’t want to go to jail.” There’s been some speculation that perhaps Annie no longer wants to be associated with some of the biggest scumbags in the industry, but she’s stood by them for some time through a huge cheating scandal and repeated attempts to cover it up. Something has changed, and I’m guessing it’s their willingness or ability to pay her.

From Phil Hellmuth’s Twitter:

Making a BIG move…leaving UB. Truly lots of great memories, but it’s time to move on…Mutual decision…Looking forward to BRIGHT future!

The future’s so bright he has to wear shades… everywhere he goes… even indoors.

This one is less of a surprise. Phil was never as public in addressing UB’s problems as Annie was, and recently he’d stopped appearing in public with the UB logo.

Again, it’s hard for me to believe that this was purely a PR/branding decision. Although the man practically invented the idea of a poker celebrity, the UB brand was at its worst years ago but he is just now leaving. It was all about the money for him, even moreso than for Annie, and presumably they can no longer pay him what he believes himself to be worth.

These two announcements lend urgency to a warning I made earlier this month:

When [disreputable sites like Cereus] decide to close up shop, it will likely be without warning, and they may well take your money down with them. This wouldn’t even have to entail outright theft, though I wouldn’t put that past them, either. An unexpected occurrence such as a major crackdown on their payment processors could render them suddenly illiquid. If you believe that Cereus keeps player deposits in a separate account that is not used for operating expenses, I have some real estate to sell you in Florida….

Joe Sebok is still drinking the Kool-Aid:

Speaking of Team UB, while it’s true that two of our members have moved on, don’t think that we aren’t restocking the talent. We’ll be announcing our newest Team UB member next week and I am crazily pumped about it. UB has, and will continue to have, a whole new look and feel for our team and our newest signing exemplifies that, so stay tuned for that announcement next week. Going to be a bit of a doozy.

In related news, I’ve got a big announcement to make tomorrow

Lottery officials denied allegations of rigging: “We are in the business of luck, and when it comes to chances and probabilities anything is possible, even the rare and infrequent, like in this case,” said Dr. Chaim Melamed, the statistics expert for the national lottery company. An examination of the machines and lottery balls revealed no irregularities.

You’d have to pretty dumb to rig the lottery in so obvious a way, a way that is guaranteed to invite further investigation. Then again, if you’ve got superuser access to an online poker site that you own, you’d have to be pretty dumb to call all-in with T-high on the river in the biggest tournament your site will run all year.

I suppose if this were evidence of fixing, it would be because someone had weighted the balls or otherwise rigged the mechanism by which the numbers were selected in a way that was accidentally replicated three weeks later. And I suppose that is more likely, at least prior to a thorough investigation, than that this occurred as a result of dumb luck. After all

Yitzhak Melechson, a statistics professor at the University of Tel Aviv, said that “the incident of six numbers repeating themselves within a month is an event of once in 10,000 years.”

Their flawless software that is now the best and most secure in the industry apparently produced this little gem in the UBOC O/8 event the other day. The bet sizes were all screwed up, enabling people to limp in for 15 at the 50/100 level, and for the player in the Big Blind to move all in. Their response was to cancel the tournament, refund buy-ins, and offer a freeroll for affected players with about $10,000 in UBOC championship event buy-ins added.

Thanks to TwoPlusTwo poster FreeFalling for this awesome image!

While the grist for Cowboys Full is plenty interesting and contains more than a few entertaining stories. McManus’ specific treatment thereof is hit-or-miss. The historical chapters are mostly well-researched and -written, but the more contemporary ones feel rushed (on the author’s part) and laborious (for the reader). The former sections I enjoyed as a sort of anthology of obscure poker lore, particularly those focusing on the presidents and military leaders who loved the game. I found McManus’ treatment of present-day subjects such as the UIGEA, the WSOP, and the Ultimate Bet cheating scandal, however, to be long on trivialities and short on research and nuance.

Overall, Cowboys Full will be an entertaining and informative read for anyone, professional or amateur, interested in poker. Needless to say, the game has a rich history, and McManus ably expounds upon the ways in which it intertwines with the history of the United States. The knowledgeable insider, however, will be disappointed by the author’s perfunctory treatment of contemporary controversies. Worse, those who haven’t closely followed such issues themselves may even be misled.

Early chapters survey the origins of gambling, playing cards, and the games that preceded poker. Documentation from this era is scant, but McManus seems to have done his homework. Quoting records as diverse as ancient religious texts and the diaries of Civil War soldiers, he traces the emergence of the game we have come to know as poker.

By the outbreak of the Civil War, poker was a widespread pasttime, and Cowboys Full offers more than a few examples of ways in which it influenced the thinking and tactics of generals on both sides. Of course, misrepresentation and bluffing played a role in military strategy for millenia prior to the development of poker. What is significant, and what McManus highlights well, is the extent to which military leaders from the Civil War on articulated their thinking using the language of poker. He makes a compelling case that the game actually helped these men (and, in at least one instance, women) learn and refine such tactics.

For example, during World War II, America attempted to deceive the Axis about its plans by dropping dummy paratroopers on several potential invasion points prior to D-Day. What’s really cool is that they also dropped these dummies at Normandy, hoping to convince their enemies that this was yet another bluff. When their troops later stormed the beaches, they benefited from what poker players would call a “reverse tell”- relying on past bluffs to convince your opponent he has caught you in yet another, when you in fact possess considerable strength.

With the advent of the Cold War, poker logic extended increasingly into American diplomacy and politics as well (though McManus also includes far earlier examples of this as well, including one bluff which convinced France to sell off the Lousiana Territory at fire sale prices). Though most US presidents played poker, Eisenhower and Nixon were particularly avid players, and McManus argues that this influenced their handling of the Soviet Union. Then again, it was Kennedy calling Khrushchev’s bluff during the Cuban Missile Crisis that provides the single best illustration of Cold War diplomacy as poker played for the highest possible stakes.

Cowboys Full takes a turn for the worse when McManus turns his attention back to the game itself. His treatment of the “first World Series of Poker” intriguingly suggests that the famous days-long match between Johnny Moss and Nick “the Greek” Dandalos may never have occurred, at least not in remotely so dramatic a fashion as legend suggests. From there, however, he quickly becomes bogged down in a long and tedious recitation of past WSOP winners, including in some cases the winners of side events, along with largely uninteresting personal details about them.

This brings him to online poker, the Unlawful Internet Gambling Enforcement Act, the cheating scandals at Ultimate Bet and Absolute Poker, and some predictions about the future of poker. Here, McManus slips from journalist and academic to cheerleader and propagandist. Whereas past chapters seemed thoroughly researched and often challenged received wisdom, these last nakedly present the author’s own opinions (including, quite irrelevantly, on the failures of George W. Bush’s presidency), quote directly from interested industry sources without any attempt to provide alternate viewpoints or balanced evidence, and in some cases just plain get the facts wrong.

To be clear, it’s not that I disagree with the author’s positions, on either poker legislation or our former president. It just doesn’t strike me as good journalism or good advocacy not to at least give the other side its due. McManus makes quite clear, for instance, that he believes the UIGEA to be an irresponsible, ill-advised piece of legislation. Yet he makes no attempt to explain the concerns of its proponents or why anyone supports it. Whether those arguments hold water is for the audience to decide, but they deserve a fair portrayal.

The bottom line is that if you’re interested in poker, you’ll like Cowboys Full. There are plenty of humorous anecdotes and great stories that even your non-poker friends will get a kick out of. It was only frustrating for me because I felt the topic had so much potential, especially in the hands of a writer of McManus’ caliber. Just take the last few chapters with a grain of salt, and you’ll be very happy with this book.

Needless to say, the Post story was better than the 60 Minutes segment. Authored by two-time Pulitzer Prize winner Ira Rosen, it explored the cheating and the means by which it was discovered in considerable detail. Best of all, it kept the focus on UB and AP rather than painting all internet poker sites with the same broad brush. The overall theme of the story was that cheating occurred and that, although the perpetrators were not substantially punished, the players were able to uncover it and force restitution to be paid.

The 60 Minutes story was a bit more sensational, with references to the Wild West and cards “tumbling out of the computer”. It was also a bit more entertaining. After he declined to return their phone calls, they took several pretty funny shots UB cheater and former WSOP world champion Russ Hamilton, who won his “considerable weight in silver” along with the 1994 title.

The only thing that struck me as truly irresponsible were the multiple references to online poker being “illegal”. Technically speaking, certain financial transactions between banks and online poker sites are illegal, but the actual playing is not. It’s pretty bad for a highly respected news program to misstate a verifiable fact like that, particularly given that many people from 2+2 called and e-mailed producers over the weekend to point out the error before the show went to air.

Also troubling were the ominous closing comments of Todd “Dan Druff” Witteles about how cheating was probably going on undetected at other sites. He’s already said that he regrets this comment, and while I don’t think the overall message that cheating is possible and players should be cautious is a bad one to send, Witteles and 60 Minutes didn’t communicate it in the most responsible way. There’s no reason to speculate with no evidence about what is actually happening at other sites, only to speak in broad terms about what has happened, what could happen, and most importantly (and largely lacking from the coverage) what can be done to prevent it in the future.

It would have been nice to hear about Rep. Barney Frank’s efforts to regulate and tax internet poker. And if they really wanted to discuss the legality of playing poker online, they should have spoken to prominent legal scholars like Charles Nesson and I. Nelson Rose.

Still, on the whole they largely confined their comments to UB and AP, identified the most prominent perpetrator, embarrassed the Kahnawake Gaming Commission, and portrayed the complicated details of the situation in a way that should make sense to the general public. I continue to be of the opinion that if we want greater legitimacy, we in the poker community must be willing to air our dirty laundry.

1. Cheating at Ultimate Bet- Ultimate Bet’s press release carefully avoided the word “cheating”, instead using the phrase “unfair play”. Mike and Adam resolved to press Leggett to use the word cheating, but surprisingly he employed it readily and without prompting.

2. Refunds- Leggett also referred many times to “refunding” money that was stolen from players. I’m really surprised by this choice of words, because it seems to imply that Tokwiro is returning money they have rather than compensating affected players out of their own pockets, which is what they claim is happening. I find it very strange that they don’t make a bigger deal out of the fact that they are doing this. I mean, if they were actually taking millions of dollars from their own coffers to replace money that they didn’t steal, you’d think they’d jump up and down about what an amazing thing it is they are doing for their players. But Leggett constantly refers to it as a “refund” and could not sound more dispassionate when he insists, “We’re very upset that someone was able to do this on our site, to our players.”

3. Stolen From UB?- Leggett repeatedly refers to money stolen “from our players, from our site” as though money were taken from them as well. I’m pretty sure he actually means that it was stolen through or using UB rather than from UB. It’s like he’s trying to portray his company as a victim in all of this as well. I guess if their story is true, then UB is a victim, because their reputation is shot to hell and they are on the hook for all the money.

4. Coughing- Leggett clears his throat constantly, pretty much any time he’s asked a tough question. It’s hard to say, though, whether he’s nervous because he’s lying or nervous because he’s getting grilled.

5. Absolute Poker Cheating Deal- Apparently, Tokwiro, which also owns AP, struck a deal with the perpetrators of the cheating on that site. In exchange for a detailed explanation of how the cheating was carried out, they agreed not to release the names of the individuals or attempt to prosecute the crime. This is new information and certainly inconsistent with the allegation that that cheating was carried out by owners of the site.

6. Kahnawake Gaming Commission Fine- Leggett confirms that the KGC fined Tokwiro $500,000 for the AP incident in addition to the cost of the audit that was performed. I really wish Mike and Adam had asked what the KGC was doing with this money. Since when does the regulator get to issue arbitrary fines and then keep the money for themselves? Yet as far as I know the KGC hasn’t said or done anything publicly with that money for the affected players.

7. Joe Norton Not So Corrupt- This made me laugh out loud. After Leggett cites the KGC fine, Mike and Adam ask if the KGC is really so independent, given that former Kahnawake Grand Chief Joe Norton is the sole owner of Tokwiro Enterprises. Leggett, who not surprisingly seems to have a close working relationship with Norton, says that Joe didn’t found Tokwiro until he was out of public office. He then adds that this is no more corrupt than a US Senator going to work for a lobbyist after he leaves office. That’s a real high moral standard they’re holding themselves to….

8. Return Visit? After the interview, Mike and Adam decide to keep inviting Leggett back every few months in an attempt to hold him to his timeline and insure that his promsies are kept. This is a great idea, and I hope they’ll stick with it.

Bobby Mamudi, an industry analyst and managing editor of the London-based Gaming Intelligence Group, said the new cheating incident is another blow to the reputation of Kahnawake’s gambling industry. “They definitely do seem to be losing credibility and not doing too much about it,” he said.

The article also includes more empty promises from the KGC:

Murray Marshall, legal counsel to the gaming commission, said that Kahnawake’s regulation is among “the tightest in the world” and said similar frauds have occurred in casino gambling and banking. “We would obviously prefer to prevent all possibilities of this kind of thing happening, but no system is infallible,” he said.

Tightest in the world? What does that even mean? How did the same shit get past them twice? Not only did they fail to identify cheating that amateur internet sleuths could and did identify, but to my knowledge there are no documented incidents of the KGC actually doing anything except for fining Absolute Poker after the fact. Their tight regulation hasn’t managed to catch or prevent any malfeasance.

The article also raises the troubling specter of legal action against the online gaming industry by the Canadian government:

The federal government considers the 400 or so poker and sports-betting sites operating from Kahnawake to be illegal, but, fearing a confrontation, both the federal and provincial governments have been reluctant to intervene. Last March, however, an aide to Justice Minister Rob Nicholson said the government was studying ways of shutting down the gambling, possibly by targeting financial transactions with illegal Internet operators.

Let’s hope that doesn’t come to pass, and that future news outlets that cover this and other internet poker stories handle them with the same thoroughness and even-handedness that the National Press does here.

The theft was uncovered through the collective effort of several 2+2’ers who were high stakes regulars at UB affected by the theft, most prominently trambopoline, dlpnyc21, josem, and also Nat Arem. 2+2 Moderator Cornell Fiji composed a thorough summary of what is believed to have happened along with the damning evidence that goes well beyond what UB admits in its press release.

In this new thread, Cornell is once again doing an admirable job exposing all of the deception in the press release. I’m not going to try to summarize it all, but basically it is at the very least a shameful lapse, and more probably deliberate negligence, that UB’s security didn’t notice any of this until 2+2’s amateur investigators compiled undeniable evidence. If security isn’t tracking win rates and investigating the play of the biggest winners in the biggest games on the site, what exactly are they doing? How is it that amateurs with nothing more than Poker Tracker databases can unravel this stuff, but a supposedly professional security team cannot?

Moreover, UB claims that it knew nothing about the potential for its software to be exploited in this way. But UB is owned by Tokwiro Enterprises, which also owns Absolute Poker, which was the subject of another scandal where a similar vulnerability was exploited from the inside. It’s absurd for them to claim that they couldn’t have anticipated this, and it’s disgraceful that they either didn’t anticipate it or actively facilitated the theft.

Nat Arem had a chance to question one of their representatives, but don’t expect too much new info from that Q&A session.

Like Absolute Poker, UB tries to reassure its customers by pointing to its “regulatory agency”, the Kahnawake Gaming Commission. Aside from the gross incompetence (or worse) demonstrated above, there’s another big problem with the KGC: Joe Norton, the owner of Tokwiro Enterprises, is also the former Grand Chief of the Kahnawake Mohawk tribe of Montreal! In other words, there is nothing independent about the KGC.

During his time as Grand Chief, Norton was accused of more than his share of shady dealings and corrupt bargains. Though members of his tribe accused him of being a puppet of the Quebec government, he also had a well-publicized (in Canada) clash with Canadian police and soldiers.

In a lot of ways, this latest scandal is very discouraging and disheartening. However, both UB and AP were eventually forced to admit that something had gone wrong and to return player funds that were stolen. This demonstrates the power of the online poker community to exercise some level of independent oversight over the sites where we play. Ideally, this will discourage other sites from trying anything shady in the future. However, if the only ramification for UB, after all this time and effort, is that they have to return the funds that weren’t theirs to begin with, then this will not be much of a deterrent.

So what can we do? I’ve got some ideas, and I hope you’ll offer others.

1. Boycott AP and UB. I never played on AP, and I’ve pulled all of my money off of UB. If a scandal like this doesn’t bankrupt UB or at least crush their market share, then it will not be a deterrent to any future malfeasance by them or anyone else. I was probably one of maybe twenty people regularly playing 25/50 NL on their site, so hopefully my action will be missed, as will that of other high limit players who refuse to play there.

2. Stop endorsing them. High-profile players like Annie Duke and Phil Hellmuth need to end their affiliation with UB. It is downright unethical for them to be encouraging people to play on this site. Similarly, Cliff “JohnnyBax” Josephy should be ashamed of himself for signing with them this week. He claims he was convinced of their desire to change, but based on what he’s said publicly about this, it doesn’t seem like he was especially well-informed about the allegations nor that he went to great lengths to question whomever he spoke with from UB’s management. Then again, he is supposedly a pretty shrewd businessman, so perhaps he knows something I don’t. But I think he ought to either say a lot more about why he has confidence in UB or stop encouraging others to play there.

3. Ask tough questions of other sites. I’m no expert on this, but personally, Poker Stars and Full Tilt Poker are the only sites I’m comfortable playing on right now. Still, I think it would be best to get specific, public statements from them about the nature of their security, why their software is not vulnerable to the exploits that led to the theft on UB and AP, who regulates them and how, etc. UB and AP have been able to hedge, make misleading statements, and deny responsibility because in many cases they had not made explicit statements before these scandals about the nature of their security. As players, we should have a more explicit understanding of the level of security the sites will provide. There should be measurable benchmarks and pre-agreed ramifications for them if something illicit happens on their site. If 2+2 could create a Players’ Bill of Rights or something, thousands of us could ask sites like Poker Stars, FTP, and especially UB to agree to it as a condition for our business.

4. Create a genuinely independent regulatory authority with teeth. Similar to (3), there should at least be an independent regulator whom sites could voluntarily hire to certify the security of their software. Then we as players could refuse our business to anyone who didn’t pay for that certification. There’s probably money to be made here if it’s done right, and it would be a huge boon for online poker generally.

5. Legalize and regulate online poker in the US. Obviously I think this would be a good thing anyway, but as much as opponents of poker may try to use scandals such as this as arguments against legalization, I believe they are actually arguments in favor. Not that government involvement is a guarantor of legitimacy, but it’s got to be better than the legal netherworld in which internet poker currently exists. Once again, there’s money to be made here.

6. Spread a genuine understanding of the issue. Casual players have a right to know about the security issues at AP and UB, and its in our interest to have them playing on the more reputable sites where we are taking our business. At the same time, we don’t want to be fearmongers turning the poker world off to internet poker in general. We need simultaneously to inform people that UB and AP are unsafe but that there have not even been any plausible suspicions raised about extensive cheating at sites like FTP and Poker Stars. I honestly feel that the risk of cheating on those sites is barely higher than it is in brick and mortar casinos and much lower than at underground poker clubs. However, I’ll feel a lot more comfortable vouching for the credibility of those sites if and when some of my above suggestions are implemented.

A few weeks ago, I was contacted by 60 Minutes in conjunction with a reporter from the Washington Post regarding a story about the Absolute Poker scandal from last fall. I was told that they wanted Adanthar and myself for on-camera interviews with Steve Kroft. I later found out they were also interested in interviewing Michael Josem and Marco Johnson.

Nat goes on to speculate that the story will likely paint online poker in a negative light:

In terms of agenda, I’ve been told that the goal is to “tell the story from soup to nuts.” I don’t really know if that means a negative agenda for online poker, but I get the feeling that it might. That means that this story is unlikely to be a good thing for online poker on the whole. I wish that programs like 60 Minutes would always tell the whole story (ie, get PokerStars involved, explain why some sites are secure and clean, etc), but I can’t really be sure that will happen. If I do end up on-camera, I will be sure to explain that this scandal was online poker’s “Enron” — ie, the biggest and worst scandal in the history of the industry. It is not a commonplace occurrence and people should not take it as such.

Nolan Dalla expresses similar concerns:

Trouble is, the casual uninformed viewer of such a segment is not going to differentiate between creeps like him and the millions of honest and decent online poker players worldwide who enjoy playing poker in their own homes.Indeed, I fear the target is not going to be the creep, or Absolute Poker (which deserves scrutiny) – but rather the entire online poker industry.

If this is indeed the spin 60 Minutes uses, such a story could not come at a worse time. While there is admittedly no chance the federal government will revoke the Unlawful Internet Gambling Act of 2006, nor pass any of the pro-online legislation offered by our good friends in Congress within the current legislative session, public perceptions will be shaped for a long time by what is shown and seen by 20 million viewers on 60 Minutes.

I fear the portrait will be ugly – a slimy, unregulated, corrupt band of outlaws operating way outside the boundaries of the law or justice. Never mind that many online sites are publicly traded companies with top-flight managers and personnel, and are strictly regulated within their host countries. Perception and reality are two completely different things.

I think it’s important to separate out two different issues here. There’s certainly a concern that 60 Minutes would paint with a broad brush and portray all internet poker sites, and by extension players, in a negative light. It goes without saying that such a story would be bad.

However, there is a separate issue of whether any coverage of the issue at all, no matter how balanced or nuanced, would be bad. Many members of the online poker community have responded to this scandal with such an attitude, generally believing that any exposure whatsoever of cheating will be misinterpreted by the masses to confirm what they all supposedly believe anyway: that online poker is rigged.

I don’t think this concern is unfounded, but if we want online poker to gain recognition as a legitimate, legal activity, then I think we have to take our medicine. The perception of a shadowy world where scandal is covered up and cheating is handled internally by the community is exactly what poker needs to shake. We need to have the courage to air our dirty laundry and allow problems to be solved as they should be in an open society: through media exposure, government regulation, and the reactions of an educated marketplace.

Internet poker is too large and profitable an industry to exist forever in an unregulated legal netherworld. Either it will be prohibited altogether or it will be taxed and regulated like any other legitimate industry. Those of us who would prefer the latter scenario should embrace the publicity and make the argument that this proves the need for regulation.

This kind of publicity is also the best deterrent against future shadiness by other sites. Sadly, the revelation of cheating on 2+2 and other poker forums and blogs has had shockingly little impact on AP’s traffic. Plenty of people either don’t know or don’t care and continue to play there. Surely a site’s owners and operators would be much concerned if there were a very really threat of major media outlets like 60 Minutes picking up on any scandal associated with them.

Certainly a one-sided, largely negative story would be undesirable. But 60 Minutes is one of the more responsible TV news journals, and they tend to do relatively in-depth and multi-faceted stories. I don’t think there’s any reason to leap to the conclusion that they will air an unfair piece.

Assuming 60 Minutes actually goes ahead with the story, which is far from certain, we should take advantage of the opportunity to put our best foot forward and make our case. There is no shortage of well-respected, well-spoken, and likable representatives of the poker world. We need to encourage 60 Minutes to speak with them and get their stories to put the AP scandal in its proper perspective.

You can find a full account of the details and evidence in the most current 2+2 thread. The short version is that an owner or former owner of the site seems to have exploited a ‘superuser’ account, created during early testing of the site’s software, that is able to see the hole cards of every player at the table. Using this information and some sham accounts, he ‘won’ nearly $1 million from the highest stakes ring games and tournaments offered at Absolute Poker.

After initially denying that any cheating occurred, AP recently released this statement:

“October 21, 2007

Dear AP Player:

I am the former Grand Chief of the Mohawk Territory of Kahnawake and the owner of Tokwiro Enterprises ENRG, which holds a 100% interest in Absolute Poker.

As many of our players are aware, there has been a security breach in our system that allowed unlawful access to player information that resulted in unfair play. I am writing to you today to let you know what we know so far in order to set the record straight, and to assure you of AP’s commitment to player security. I am sure that this letter will not address all of the questions and concerns you may have, nor will it extinguish the heated discussion surrounding this issue. At this point, our intention is to let you know all we can disclose and to assure you of our continued efforts to keep you informed as best we can as the investigations continue.

We deeply regret this situation has occurred. A breach in security in online poker is serious and of great concern to players and the industry worldwide, and this particular situation has been the subject of debate within the poker player community and in the media, giving rise to the creation of several websites and hundreds and hundreds of comments, opinions, and theories of what occurred – some of which are accurate, and some that are not.

Like you, I have not been happy that during the initial stage of our investigation, AP has not been more forthcoming in providing a timely or comprehensive explanation on this matter, giving rise to anger, suspicion, and concern on the part of our valued customers. I hope that our customers can appreciate that this remains an incredibly complex and sensitive issue, and I want to give you my strongest possible assurance that we will be as forthcoming as possible on how this breach occurred and what we are doing to remedy the situation.

What We Know and Actions We Have Taken

AP was notified by a customer that a possible cheating incident occurred during a recent tournament, and in response forwarded players’ hand logs. This disclosure of the hand logs prompted our customers to determine that a more serious security breach had occurred. We immediately launched an internal investigation and also requested a formal audit by Gaming Associates, an acknowledged world-wide expert in audits, interactive gaming tests, and information security.

Based upon our preliminary findings, it appears that the integrity of our poker system was compromised by a high-ranking trusted consultant employed by AP whose position gave him extraordinary access to certain security systems. As has been speculated in several online forums, this consultant devised a sophisticated scheme to manipulate internal systems to access third-party computers and accounts to view hole cards of other customers during play without their knowledge. As this consultant was aware of the details of our fraud detection process, the likelihood that the scheme would be uncovered through our normal procedures was minimized. We consider this security breach to be a horrendous and inexcusable offense.

We will pay for all losses suffered by the affected players as soon as our audit is finished and the amounts are determined. Although we are in the process of attempting to recover all the winnings of this consultant, any unrecovered losses of affected players will be paid by Absolute Poker so that all affected persons will be made whole.

Next Steps

We are still investigating whether the consultant was acting alone or in concert with others, and it appears at this time that all account holders are innocent of collusion and were unaware of any wrong-doing by the consultant, who was immediately terminated. We continue to investigate this matter aggressively, and all of these preliminary findings are subject to the audits currently underway. We have recently uncovered additional accounts used by the consultant that have not been publicly reported. So as to not compromise the investigation, we are not releasing the names of these additional accounts at this time, and will contact these affected customers individually.

The specific allegations of unlawful activity are being investigated both by AP and by the authorized authorities, including the Kahnawake Gaming Commission. We will continue to actively cooperate with these authorities in full compliance with the Regulations Concerning Interactive Gaming. In addition to our own investigation and the audit by Gaming Associates, we have also submitted to an audit by the Kahnawake Gaming Commission.

Please be assured that we have corrected the problem that allowed the system to be unfairly manipulated. We are working furiously to increase the safeguards within our systems. While we are satisfied that our systems are secured, we realize that our security systems must be continuously monitored and enhanced.

Without question, this incident has been unfortunate for all concerned, and we will emerge as a stronger company. I realize it will take some time and much more information for AP to re-earn the trust and confidence of our customers who are in doubt of our commitment to the highest levels of security, privacy and integrity. As we move to address and correct this situation, our valued customers have played a vital role in uncovering this scheme through various online forums and have become an active part of the solution.

With my full sincerity, I thank you, and I promise to keep you updated as we bring this situation to a close.

Sincerely,

Joe Norton”

Unfortunately, this statement consists largely of empty rhetoric and is downright misleading in several places. The statement claims that AP “immediately launched” an investigation and requested an audit, but in fact they initially denied any cheating. Only when overwhelming evidence was compiled did they begin to address the matter publicly and seriously.

Moreover, “Gaming Associations”, the firm that will be conducting the audit, is affiliated with the Kahnawake Gaming Commission, which by the statement’s own admissions “owns a 100% interest in Absolute Poker.” Talk about leaving the fox in charge of the hen house.

I really see no reason for anyone ever to play on Absolute Poker again. There are so many other sites out there without this kind of smirch on their names. Even if the owners of the site are not tied to the cheating, as the statement suggests, their poor response to the matter is damning enough not to give them a second chance.

Finally, I hope this won’t become fodder for suspicion against all online poker sites. There is no indication of malfeasance on well-known sites like Full Tilt Poker and Poker Stars. Hopefully, the prediction of Steven Levitt, New York Times blogger, University of Chicago economist, and Freakonomics author, will prove true:

“The real lesson of this all, however, is probably the following: guys who aren’t that smart will figure out ways to cheat. And, with a little luck and the right data, folks who are a lot smarter will catch them doing it.”