Straight Flush: The True Story of Six College Friends Who Dealt Their Way to a Billion-Dollar Online Poker Empire--and How It All Came Crashing Down . . .

by Ben Mezrich

  But Canada, obviously, was momentarily unclear about how it viewed the business—so for now, Vancouver was done. Pete was in Costa Rica, winding down the Vancouver operations, trying to help the team ready a first-world company for a billion-dollar IPO in a third-world setting. It wasn’t easy, but he had no reason to believe they couldn’t make it work. Everyone they talked to, from the bankers to the lawyers, believed that the company was weeks away from being valued at over a billion.

  He glanced at his watch and realized it was nearly nine thirty; Brandi was going to kill him if he stayed any later. She didn’t like living in San José, and she had made it abundantly clear that the stay was going to be temporary. Pete had assured her that as soon as that IPO went through, he would have enough shares in the company for them to live anywhere in the world she wanted.

  He flicked off his computer and rose from his chair, his eyeline rising above the edge of his cubicle. Scott had given him one of the larger prefab squares; he didn’t have real walls or a window, but at least he had two computer screens and easy access to the kitchen, which was really a pair of refrigerators and a sink out of which spurted water he wouldn’t have washed his dogs in.

  He reached for his briefcase, tucking a few closing reports on Vancouver into the side pocket, and was about to head toward the stairwell that led down to the parking lot when he noticed a dull yellow light coming from the far end of the office. Someone was in the very last cubicle, hunched over a computer screen.

  Pete knew Scott and Hilt had headed out earlier, Shane was at home, and Garin had taken a three-day weekend to visit relatives back in the States. It could have been one of the Costa Rican employees, but he doubted it; it was extremely unlikely that any of them would have been in the office on a Friday night, especially since it wasn’t raining outside—a brief gap in the unrelenting rainy season—and most would be on their way to the beach.

  That left Brent. Which was odd as well; since returning to Costa Rica to start his new family, Brent had settled into at least a semblance of a more normal working life—a Friday night was an unusual time to find him at a computer screen.

  But as Pete circled around the cubicles and approached the glow, he saw that it was indeed the youngest member of their team. Brent didn’t look up as Pete slid into the cubicle behind him, and Pete was about to give him a little shove to wake him up when he saw the way Brent was gripping the edge of the desk beneath his computer’s keyboard.

  “Hey, man, you okay?” he asked. Brent didn’t glance up from the screen. Pete looked toward the glow and saw that the screen was filled with video—an assembly hall of some sort, with wooden chairs and benches, most of them empty, and a scrawl of writing beneath. Pete read some of the words—and saw immediately that Brent was watching a feed, either recorded or live, from C-SPAN. Pete had never watched C-SPAN before, but he could tell that what Brent was looking at was some sort of U.S. congressional session.

  “I don’t think that I am,” Brent finally answered. “I don’t think any of us are.” His voice sounded strange.

  Pete put a hand on his shoulder. “What are you watching? Did something just happen?”

  “As far as I can tell, they just voted through something called the Unlawful Internet Gambling and Enforcement Act of 2006. I’ve gotten like twenty e-mails about it in the past ten minutes. The UIGEA, they call it.”

  Pete squinted at the screen, reading more of the scrawl beneath the picture.

  “It says they just voted on a Safe Port Act. It says it’s a bill about protecting our ports from terrorism,” he said.

  “Yeah, that’s the thing. They tacked the antigambling bill onto the Safe Port Act, because they knew nobody would vote against an antiterrorism bill. Most of the people who voted it through didn’t even read the antigambling addendum—they just voted to protect our ports. The bill itself, it’s basically the same antigambling bullshit a couple of moralizing senators have been failing to get anybody to take seriously for years, but now it’s passed through Congress. On the last day of the congressional session, with almost nobody around to even take a look at what they’re voting on.”

  Brent hit keys on his keyboard, pulling up a handful of e-mails he’d gotten from friends across the industry who had been monitoring the legal back-and-forth that had led up to the congressional vote. Pete speed-read through the summaries—and as he got to the gist of each e-mail, he felt the color leaching from his face.

  According to Brent’s experts, the UIGEA was really the brainchild of two conservative senators—Bill Frist, a Republican from Tennessee, and Jon Kyl, a Republican from Arizona—who’d come up with the ingenious plan of attaching it as a last-minute amendment to the Safe Port Act—no matter that Internet gambling had nothing to do with protecting U.S. ports from terrorists. The two antigambling senators, who had run for their positions on morality platforms, knew that trying to take down a pastime that millions of Americans were already enjoying was too difficult, so they’d concocted what was essentially a sneak attack.

  The bill didn’t make playing online poker illegal. In fact, the bill didn’t even make running or owning an online poker site illegal. What the bill made illegal was dealing in online gambling proceeds. Specifically: “The Act prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law.”

  It wasn’t entirely clear from the bill what constituted a “gambling business,” but the addition of the phrase “unlawful under any federal or state law” seemed to give a lot of leeway to prosecutors who wanted to go after an Internet company. All you’d need to do would be to find a state with a particularly harsh definition of gambling—and you could use that definition to go after any website that took money from a player living there.

  Poker, Pete firmly believed, was for the most part a game of skill. But he also knew that in a few states—New York, for example—there were some pretty wide definitions of what constituted illegal gambling, definitions that could seem to include even games that were mostly skill. So what, exactly, did this mean? It was a bill; it had now gone through Congress. It still had to be signed by the president, which would take some time. But what did this mean?

  “This seems crazy,” Brent was saying, tapping the screen. “It doesn’t target the players. It doesn’t even target the game. But it makes the movement of money illegal, if that money is used for illegal gambling. But how do you define illegal gambling? Every lawyer we’ve talked to says under the Wire Act of 1961 it doesn’t mean poker. But for players playing from the U.S.—I guess this is saying it varies state by state?”

  Pete rubbed a hand through his hair. “Have you talked to Scott?”

  “A few times since these e-mails started coming in. He’s pretty pissed about this too. I think some of the shareholders are running around like the building just got set on fire. The lawyers, though—most still believe the legislation isn’t clear, especially for a private, international company like ours. And on top of that, the lawyers have brought him and Hilt a fairly radical offer, which they’re kicking around.”

  “What’s that?”

  “You ever heard of Joseph Norton—the Canadian Indian chief?”

  Pete raised his eyebrows. It was a name out of left field, but having just dealt with the Royal Canadian Mounties and taken a look at Canadian gambling law, he had indeed heard of Joseph Tokwiro Norton—the former grand chief of the Mohawk Council of Kahnawake, near Montreal. Norton was a bit of a legend in Canada. Story was, he’d once stopped an RCMP raid by literally blocking federal troops from crossing a bridge into Mohawk land. An actual armed standoff—First Nations against federal agents with guns and tanks. Norton had negotiated a peaceful resolution and had become a hero in his community. In recent years he had become a successful businessman and had established the Kahnawake Gaming Commission, which licensed and regulated Internet gaming sites. Becau
se he operated out of designated First Nations territory, he wasn’t bound by Canadian law; even if there had been any clear rules against poker, they wouldn’t affect his business.

  “What about him?”

  “I think he’s about to become the owner of Absolute Poker. He’s approached our legal team, made it clear he’s interested in buying the company.”

  Pete looked at Brent. “We’re going to sell the company to an Indian chief?”

  But when he thought it through, it made sense. Certainly, it added a step between them and this UIGEA bill, and there was no question that under Mohawk law an online poker company would be legal. However, from what Pete was reading, that wasn’t exactly what this bill was going after. On a straight reading of the UIGEA, running an online poker company wasn’t illegal. Playing online poker wasn’t illegal. The only thing that was illegal was accepting money from U.S. players. They were going after the flow of money—and the more Pete thought about it, the more he realized that this was going to change everything.

  “It’s like Prohibition all over again,” he said. “Every company is going to have to go through the same thought process—do we shut down now, just close up shop? Do we cut out of the U.S. market and only go international—even though that would just about kill us, or any of our competitors, because as an industry, eighty percent of our players are American? Or do we just keep doing what we’re doing, take our chances, and hope this is more smoke than fire?”

  The way Brent was still gripping the desk beneath his computer, Pete could tell they were sharing the same thought. They were weeks away from starting the process of their IPO, and this was going to ruin everything. This bill, this UIGEA, snuck through on the tail of some antiterrorist Safe Port Act, wasn’t just smoke, and it wasn’t just fire.

  It was Armageddon.

  CHAPTER 26

  The panic had reached epidemic proportions; Scott could see it in the eyes of every person he passed as he strolled the last few yards through the huge, warehouse-like conference center’s main floor, toward the elevators that led into the hotel. They all looked as though they were melting down inside, succumbing to a fever so fierce and virulent, it threatened to consume them.

  Only when the elevator doors shut behind him, leaving him alone in the brightly lit, thickly carpeted steel box, buffeted by invisible waves of Spanish Muzac—some version of a Beatles song, Paul McCartney run through a vocal translator and backed up by what sounded like a mariachi band—did he let his body show the toll the last two weeks had taken, allow the true weight he’d been carrying around since the bill had gone through Congress to settle across his taut features.

  It had been an emotional roller coaster, from the first minute his phones had lit up with the news about the UIGEA sneak attack—in Scott’s mind, the act had come out of nowhere, tacked onto that Safe Port Act like a legal version of Pearl Harbor, with no warning to anyone in the industry—to the day he and his team had left for Barcelona, for the Internet gaming industry’s annual conference. They had planned the trip months earlier, as had everyone else; but nobody could have foreseen that the conference—usually an event marked by partying to excess, good food, and plenty of optimism in an industry that was minting money day by day—would become ground zero for a community facing what appeared to be a mortal blow.

  Scott coughed, trying to clear his throat as he watched the digital display on the elevator count upward. He had been talking nonstop since the bill had gone through, and he was in real danger of losing his voice. At first, the calls had all been the same—terror-stricken associates, competitors, and shareholders telling him that it was all over, that the gaming industry, as he knew it, was finished. Even Scott had joined in on the talk of gloom and doom; he’d immediately called Phil, his dad, and told him that it felt like they were done, that they’d have to shut down operations and just move on.

  But by the end of the weekend, the calls had started to change in tenor, especially the ones coming from the many lawyers his company employed, who seemed to be split down the middle on what the UIGEA’s passage really meant. To roughly 50 percent of the lawyers he spoke to, as a private, international company centered on a game primarily of skill, it wasn’t clear that they were within the UIGEA’s jurisdiction. Sure, the safe thing to do would be to shut down U.S. operations—which, for Absolute Poker, with most of its players coming from the States, would essentially mean closing up shop—but if they continued to operate, what could really happen? Would Scott, personally, be breaking the law? Not Costa Rican law, for sure. Not international law. Would he be breaking U.S. law?

  It wasn’t entirely clear. And when, at the urging of shareholders, he and Hilt came up with the plan to sell the company to Norton and the Kahnawake Gaming Commission—for a $250 million promissory note and a portion of future earnings—it seemed a responsible and legitimate way to separate them further from that jurisdiction; certainly they weren’t breaking any Canadian First Nations tribal laws by running an online poker company.

  It was tough, mentally—the idea of selling the company, parting, even in a small way, with the entity he had built from an idea into a worldwide brand. But there was no denying that the world he lived in was now in a state of flux and chaos. One minute he was weeks away from being a near-billionaire; the next, he was facing a confusing legal battle that nobody he talked to could even give him a straight answer about.

  Whatever he felt about the future of Absolute Poker, there was no question that the industry as a whole was reeling. The minute the bill passed, shock waves ripped through the online poker world. Party Poker, which after its multibillion-dollar IPO had become the biggest site, cut and ran from the American market. It paid a $1.05 million fine to the U.S. government and agreed to exit the U.S. market in exchange for amnesty from any future legal actions. And as a result, its value had gone from around $12 billion to around $2 billion—overnight.

  The other publicly traded companies followed suit, and really, they had no choice, because they had to answer to public shareholders who wouldn’t face the risk of legal action, no matter how arbitrary it seemed from Scott’s point of view. In the blink of an eye, dozens of companies shut down U.S. operations, basically giving up billions of dollars in revenue at the stroke of a conservative Republican senator’s pen.

  Although Scott and Hilt initially discussed doing the same, they eventually decided not to pull the trigger—at least not yet. For one thing, the venture capitalists and bankers they had been working with to capitalize themselves in preparation for their IPO basically forbade them from exiting the U.S. market. At that point the company had about four hundred employees, and with the vast majority of its revenues coming from the United States, it would be insolvent if it left. Further, UIGEA’s jurisdiction arguably wasn’t any more clearly damning to Absolute Poker than the original Wire Act had been—even the WTO was in the process of declaring online poker exempt from gaming statutes in a suit brought by Antigua against the United States for hampering its island-based gaming businesses. It didn’t seem right that they should commit financial suicide based on what they saw as shaky law.

  But even so, Scott knew that post-UIGEA, nothing would ever be the same. The way he understood it, his board of directors had been taking feedback from the lawyers, and had voted that the company was to maintain its U.S. presence. Scott felt left with no choice but to uphold that vote—after which, even though they seemed to have gotten what they wanted, 90 percent of the board had resigned, including Shane, along with a large percentage of the U.S. citizens who worked for the company. Shane had decided to step down from his position—from the board, and from Absolute Poker as well—not because he believed the UIGEA prohibited Absolute Poker from doing business with U.S. players, but because he simply wasn’t willing to risk facing prosecution or never being able to return to the United States.

  Nobody wanted to be a cowboy, flaunting the law, even if that law seemed unfair and unclear. Scott felt trapped by the board’s decision,
but he also knew that if they did somehow go forward, there would have to be rules in place for the U.S. citizens who remained at the company. For the foreseeable future, lawyers told them that they’d probably have to restrict U.S. travel, maybe even ban it altogether. If prosecutors in the United States were going to try to go after them, they’d be looking for Americans on the inside of the poker companies to help build those cases.

  Scott clenched his jaw as the elevator slowed near his floor. That he even had to think this way, like he was some sort of criminal for running an Internet poker company—it just seemed so unfair. Why was this happening? Why pass a bill like this, essentially trying to turn a moral issue into a legal one, rather than regulate them, like with cigarettes and alcohol, or give them a chance to regulate themselves? And why didn’t anybody see how hypocritical this was? Nearly every state in the United States ran lotteries, which were clearly gambling, and nobody had a problem with that. Many states allowed horse racing, which was clearly gambling, and nobody had a problem with that. Vegas was built on casinos—hell, they’d rallied around the UIGEA, because it protected their established gambling interests and cut down their competition—and nobody had a problem with that. Poker itself was legal in most states, and nobody had a problem with that. Christ, Scott could go on E*Trade that afternoon, open an account, and roll his entire 401(k) into it, start gambling on the stock market with no advisor and lose everything—and nobody would have a problem with that.

  But online poker? Bill Frist was going to rally the American legal system to protect college kids from playing poker over the Internet? To Scott, it was the height of hypocrisy.