Bharara’s Hammer

That’s a picture of Fiorello Henry LaGuardia, taken in September 1934 during his first year as mayor of New York City. Those are slot machines he’s smashing with a sledgehammer. “Mechanical pickpockets,” he called them.

LaGuardia’s campaign had included promises to rid the city of organized crime, and indeed among his first actions upon taking office were to go after figures like Lucky Luciano and Luciano’s cohort, the gangster Frank Costello, a.k.a. “The Prime Minister of the Underworld.”

When one looks at the history of gambling in the United States, it is an especially uneven narrative, full of fits and starts with periods of legalization and prohibition falling upon one another in a disorderly, non-linear fashion. After a lengthy period of prohibition of gambling, the Great Depression had inspired a resurgence in legalized gambling in the U.S. as a way to try to restart the economy. And along with that came a crackdown on illegal gambling, such as had been managed by figures such as Costello.

After having rounded up 1,200 or so of Costello’s illegal slot machines, LaGuardia and a group of NYC policemen staged a media event in which they destroyed the machines before pushing them into the Long Island Sound. The whole scene was filmed and shown as part of a newsreel in theaters that fall. Click here to see that footage.

As it happened, the crackdown on organized crime led by LaGuardia and special prosecutor (and later governor of NY and presidential candidate) Thomas E. Dewey would have significant influence on the subsequent history of gambling in the U.S. Most particularly, it drove many of those interested in the business of gambling to move out west, particularly to Nevada where most forms of gambling were legalized in 1931.

Looking back today at the newsreel footage of Mayor LaGuardia swinging that hammer, I can’t help but think of what Preet Bharara, the U.S. Attorney for the Southern District of New York, did when he brought those several charges against the founders of PokerStars, Full Tilt Poker, Absolute Poker/UltimateBet, and others, charges that were unsealed 10 days ago on “Black Friday.” You could say that much as LaGuardia and the NYPD destroyed those slots, Bharara effectively destroyed innumerable poker “machines” with those indictments -- or at least has rendered them inoperable by U.S. players.

The indictments include charges related to violating the Unlawful Internet Gambling Enforcement Act of 2006 (counts 1-4) as well as the Illegal Gambling Business Act (counts 5-7). All of the sites have also been charged with conspiracy to commit bank and wire fraud (count 8) as well as with conspiracy to commit money laundering (count 9). I lack the legal knowledge to discuss the charges or speculate with any specificity whatsoever about what might come of them if the defendants ever come to trial. I do not lack the humility to admit as much and thus avoid indulging in uninformed conjecture.

I will say the first seven counts related to the UIGEA and illegal gambling appear somewhat sketchy, and from what I’m reading likely couldn’t withstand a court challenge. The last two seem more serious and harder to counter, although I’m intrigued by the observation that the banks were hardly “victims” here. (See F-Train’s recent post for more on that point.)

I believe at present three of the payment processors who were charged have appeared in court, with two pleading not guilty and the other scheduling a date to appear again. The other defendants -- including the founders of the sites -- are all out of the country and will likely never be entering the U.S. to face the charges.

In other words, it does not appear as though we’re going to see any real legal resolution of the charges against those operating the sites. Thus, the indictments -- like the UIGEA, really -- will ultimately have more symbolic than actual significance. Sort of like Mayor LaGuardia’s display there next to the Long Island Sound so many years ago. Isai Scheinberg, Ray Bitar, and Scott Tom aren’t going to prison for this. Nor will their non-U.S. companies likely be forfeiting $3 billion in assets to the U.S. government, either.

But symbols can have real, tangible effects. Like the UIGEA, the indictments have forced the online poker sites -- the largest ones, in fact -- out of the U.S. And may eventually work to pressure the smaller, remaining ones out, too. Much as those running the games were encouraged to move westward in the 1930s, so, too, should anyone wanting to spread online poker shy away from the U.S. For the near term, anyway.

I mean, there are lots of other places in the world to go. Places where people aren’t going around smashing your machines with sledgehammers.