By Joseph Menn
SAN FRANCISCO (Reuters) - The trade group for the U.S. casino industry has asked New Jersey regulators to bar a British-Isles-based online gambling company from returning to the U.S. market in an unprecedented intervention in a state licensing case.
In a brief filed Monday with New Jersey's Casino Control Commission, the American Gaming Association says the panel should reject a petition by PokerStars, a closely held Isle of Man operator of online gambling web sites, for interim authorization to buy a small, real-world casino in Atlantic City.
A law signed in New Jersey last week allows companies with physical casinos in the state to offer online betting as well. PokerStars, which authorities had alleged for years accepted bets from U.S. customers up to 2011 at a time when online gambling was illegal in the country, now hopes to operate in the United States. That prospect alarms American Gaming Association members such as MGM Resorts International and Caesars Entertainment Corp, which have their own plans for online poker sites.
At a Wednesday meeting, the New Jersey Commission will consider to allow the Gaming Association to intervene in the process. Even if PokerStars gets interim authorization, the casino's ownership would be held in trust until state officials complete a full suitability investigation.
For years, U.S. residents were the biggest players in a global online poker market that the trade group said produced nearly $7 billion in annual revenue. PokerStars and rival Full Tilt Poker, were the clear market leaders, operating from what they thought were safe havens abroad.
Two years ago the Justice Department sued both firms for fraud, saying they used false billing codes to process wagers from U.S. residents after Internet betting was explicitly barred by Congress in 2006. Prosecutors filed related criminal charges against several principals at the companies and temporarily seized their web sites.
PokerStars stopped taking bets from the United States in 2011 following the Justice Department lawsuit.
The New Jersey showdown could end up deciding what sorts of past transgressions will disqualify a company from handling online betting in the United States. Three states, including Nevada and New Jersey, have legalized online gambling in the wake of a 2011 decision by the U.S. Department of Justice giving states broad latitude on the matter.
In July 2012, PokerStars agreed to forfeit $731 million to settle the case and to take over the accounts at Full Tilt, which did not have the cash to refund customers on its own.
The Gaming Association, which acknowledged it had never previously intervened in a state regulatory proceeding, noted in its filing that criminal charges are still pending against two fugitive former PokerStars officers, including founder Isai Scheinberg, whose son is the acting chief executive.
"Allowing PokerStars to be licensed would send a damaging message to the world of gaming and to the world beyond gaming, that companies that engage in chronic lawbreaking are welcome in the licensed gaming business," the 18-year-old trade group wrote.
PokerStars spokesman Eric Hollreiser said that many of the claims in the brief were "false and defamatory" and that PokerStars did not admit to wrongdoing in its settlement.
"We work closely with regulators and are in good standing with governments around the world," Hollreiser said. "We will continue to work with authorities, including the New Jersey regulators and other interested state regulators, to discuss our qualifications."
The New Jersey commission is expected to hold a hearing on the dispute next week. A spokesman there did not return a call seeking comment.
The stakes in the battle increased dramatically this month with the passage of the New Jersey law and a revamped law in Nevada. Delaware also allows in-state online gambling, but the Nevada and New Jersey laws both allow for the negotiation of interstate compacts.
Those deals would allow residents in one approved state to play against people in another approved state, which would attract more bettors and increase the pressure on other states to allow their citizens to play. If PokerStars were approved in New Jersey, that might allow it to effectively circumvent a Nevada law which bans companies that took bets from U.S. players after the 2006 ban. Hollreiser said he couldn't talk about any plans beyond New Jersey.
In the meantime, MGM and Caesars are getting closer to making their own online offerings in partnership with PartyGaming owner Bwin.Party Digital Entertainment Plc and 888 Holdings Plc, respectively.
Both of those companies were also major participants in the U.S. market prior to legalization, gaining online expertise that Las Vegas casino operators need. Unlike Pokerstars, they pulled out of the United States after the 2006 legislation.
The Gaming Association's brief in the New Jersey proceeding acknowledges that many states had declared that online poker was illegal even prior to 2006. At least eight states enacted laws specifically banning Internet gambling, and every state bans gambling without a license, the trade group noted. Thus, "PokerStars violated the laws of every state," it wrote.
By that standard, 888 and Bwin's PartyGaming, with which AGA's members are now allied, would also have been in violation of the laws of every state.
PartyGaming agreed to pay $105 million in a settlement with the Justice Department in 2009. Officials at 888 acknowledged settlement talks but never signed.
On Wednesday, 888 will go before the Nevada Gaming Control Board for a hearing on its suitability for an online license in conjunction with Caesars. If approved, as expected, the two could begin accepting bets by the end of the year.
(Reporting by Joseph Menn. Editing by Jonathan Weber, Matt Driskill and Andrew Hay)