Mitch Garber and the regulatory threat from Massachusetts
24th October 2013 8:50 am GMT
The regulatory threat that has been whispered about for years finally hit home this week when Caesars withdrew from Boston.Mitch Garber’s spells as CEO of PartyGaming and Optimal Payments during those crazy Wild West years pre-UIGEA were cited as one of the reasons why the Massachusetts regulator would deny Caesars a licence.
Garber himself told us that while the questions were raised, Caesars never got round to answering them given the “unreasonable” nature of other demands from the regulator.
That does not tie in with the report, which states quite clearly that Massachusetts’ investigator took sworn testimony from Garber on June 12th, 2013 in the presence of two Caesars lawyers.
Garber says now: “I gave an interview to an investigator hired by the Board. The investigator presents the transcript to the Board. The Board has follow up questions. The Board never met me.”
It never got the chance of course but Garber had plenty of opportunity to explain all his actions to the investigator, who concluded: “Garber was the CEO of two companies that came under scrutiny by the DOJ for illegal Internet gaming transactions while he was their CEO. Both companies entered into non-prosecution Agreements which included statements that the companies’ activities violated prohibitions against Internet gambling in the United States, prior to the implementation of the UIGEA.”
It looks straightforward when it’s written down in black and white. They broke the law and they admitted it.
The other “unreasonable” demands included suspicion of an investor in Caesars partner Gansevoort having mob links in Russia. This has been dismissed as “rumour or innuendo previously printed in gossip columns” by Gansevoort but it pulled out of its Vegas joint venture with Caesars anyway - to prevent any “embarrassment” for Caesars. The gossip column in question was the New York Post and it was citing court documents from a High Court case in London.
Caesars CEO Gary Loveman dismissed the regulator’s report as “extraordinary”, claiming that no multi-jurisdictional company would be able to cope with Massachusetts’ demands given all their joint ventures and partnerships. On the one hand, this is fair enough. The mafia links are two steps removed from Caesars.
However, Massachusetts does not have a reputation for over-zealous regulatory actions. The Massachusetts investigator would hardly have been doing her job properly if she had not raised concerns about the ties, even without delving into the murky details of the £1bn UK court battle between Rusal chief executive Oleg Deripaska and businessman Michael Cherney, which settled in September 2012.
Massachusetts aside, Garber points out that he is licensed in Nevada and “will be” licensed in New Jersey. It is never a good idea to second-guess a regulator but we will take him at his word. I’m led to believe that Mitch and Caesars’ suitability review has not been completed by the NJ Department of Gaming Enforcement (DGE) yet. However, his point is that Massachusetts never dived deeper into the specifics of his previous roles and the choices he made while conducting them.
It will be interesting to see how deep New Jersey delves because Nevada merely skimmed the surface when it came to questioning Garber’s background. His spell at Party was one thing - after all, he did pull them out of the US post-UIGEA - but the Optimal Payments business, which took payments from US-facing online sportsbooks is another thing entirely. There are grey legal areas regarding online poker but sports betting is fairly universally agreed to be out of bounds Stateside.
Nevada Gaming Control Board chairman AG Burnett passed over Optimal like it was an irrelevance. Garber described Optimal thus: “That company processed billions of dollars of credit card transactions for hotels, restaurants, electronic commerce type stores and for licensed Internet gaming companies. And ultimately through a series of transactions that company was acquired by a NASDAQ listed company, and I became the CEO of the company from about 2003 to 2006.”
That was it. There was no probing as to the nature of internet gaming or how the company managed to process internet gaming transactions in a banking and legal environment that was suspicious of them. There was no probing whatsoever. Massachusetts seemed a bit more thorough in that regard.
Burnett’s conversation with Garber then turned to PartyGaming and its settlement with the DOJ. He concluded: “It is my own personal opinion that during your time with your previous company you performed admirably under a series of probably very difficult circumstances.”
Massachusetts took a different tack: “The Commission may choose to view his action in initiating contact with the DOJ as recognition on his part that pre-UIGEA Internet gambling activity would not be forgiven altogether.”
Burnett though was positively gushing in his summary: "...it should be noted there are several individuals that we have looked at in relation to this application...and I find all of them to be suitable. And most notably Mr. Garber. I have had some communications with you over the last two years or so, and... I think that Caesars is probably lucky to have you onboard. It is my hope that you will guide the company through the continuing tangled web of laws regarding this sector or lack thereof."
He also gave a green light to Caesars’ due diligence on 888, which Massachusetts did not look into, although it had huge concerns about the rest of its due diligence.
Of course, this story is not just about Mitch Garber. There will be a fair few gaming executives out there with butterflies in their stomachs right now. Who will be and who won’t be licensed by US regulators has been the subject of the most fevered gossip since the US seriously looked like opening up again to online gaming.
It will be interesting to see if Caesars calms the “bad actor” rhetoric it has been using to tar PokerStars with. Its arbitrary choice of UIGEA as a cutoff date conveniently avoids the issue of Optimal’s sportsbook past and has now been exposed as an irrelevance by Massachusetts. However, insiders have told me with no caveats that Optimal will be licensed in New Jersey. Apparently an announcement is due any day now.
The payments provider will claim it has legal precedent on its side. In 2001, MasterCard and Visa were sued in a civil RICO suit for processing sports betting transactions. The judge distinguished clearly between the payment processor and the sports betting company. The case was dismissed. However, the DOJ has always said Mastercard is not a precedent because DoJ was not a party to that proceeding.
Tricky legals aside, the whole issue just goes to show that everyone with experience in online gaming has skeletons in the closet. One only needs to look at bwin.party CEO Norbert Teufelberger and his ongoing criminal case in France to see what a pickle executives can get into with outdated laws.
A personal view is that US law is struggling to catch up with the internet age and its authorities should be learning from entrepreneurs rather than excluding them from business or worse, imprisoning them.
However, my view doesn’t count for nought, let’s see what New Jersey DGE director David Rebuck thinks. He has told attorneys working on licensing applications that he does not care about pre-UIGEA operations. But does that apply to sports betting? Or payments for sports betting? Over to you Dave.sah@gamingintelligence.com
However, Massachusetts does not have a reputation for over-zealous regulatory actions. The Massachusetts investigator would hardly have been doing her job properly if she had not raised concerns about the ties, even without delving into the murky details of the £1bn UK court battle between Rusal chief executive Oleg Deripaska and businessman Michael Cherney, which settled in September 2012.
Massachusetts aside, Garber points out that he is licensed in Nevada and “will be” licensed in New Jersey. It is never a good idea to second-guess a regulator but we will take him at his word. I’m led to believe that Mitch and Caesars’ suitability review has not been completed by the NJ Department of Gaming Enforcement (DGE) yet. However, his point is that Massachusetts never dived deeper into the specifics of his previous roles and the choices he made while conducting them.
It will be interesting to see how deep New Jersey delves because Nevada merely skimmed the surface when it came to questioning Garber’s background. His spell at Party was one thing - after all, he did pull them out of the US post-UIGEA - but the Optimal Payments business, which took payments from US-facing online sportsbooks is another thing entirely. There are grey legal areas regarding online poker but sports betting is fairly universally agreed to be out of bounds Stateside.
Nevada Gaming Control Board chairman AG Burnett passed over Optimal like it was an irrelevance. Garber described Optimal thus: “That company processed billions of dollars of credit card transactions for hotels, restaurants, electronic commerce type stores and for licensed Internet gaming companies. And ultimately through a series of transactions that company was acquired by a NASDAQ listed company, and I became the CEO of the company from about 2003 to 2006.”
That was it. There was no probing as to the nature of internet gaming or how the company managed to process internet gaming transactions in a banking and legal environment that was suspicious of them. There was no probing whatsoever. Massachusetts seemed a bit more thorough in that regard.
Burnett’s conversation with Garber then turned to PartyGaming and its settlement with the DOJ. He concluded: “It is my own personal opinion that during your time with your previous company you performed admirably under a series of probably very difficult circumstances.”
Massachusetts took a different tack: “The Commission may choose to view his action in initiating contact with the DOJ as recognition on his part that pre-UIGEA Internet gambling activity would not be forgiven altogether.”
Burnett though was positively gushing in his summary: "...it should be noted there are several individuals that we have looked at in relation to this application...and I find all of them to be suitable. And most notably Mr. Garber. I have had some communications with you over the last two years or so, and... I think that Caesars is probably lucky to have you onboard. It is my hope that you will guide the company through the continuing tangled web of laws regarding this sector or lack thereof."
He also gave a green light to Caesars’ due diligence on 888, which Massachusetts did not look into, although it had huge concerns about the rest of its due diligence.
Of course, this story is not just about Mitch Garber. There will be a fair few gaming executives out there with butterflies in their stomachs right now. Who will be and who won’t be licensed by US regulators has been the subject of the most fevered gossip since the US seriously looked like opening up again to online gaming.
It will be interesting to see if Caesars calms the “bad actor” rhetoric it has been using to tar PokerStars with. Its arbitrary choice of UIGEA as a cutoff date conveniently avoids the issue of Optimal’s sportsbook past and has now been exposed as an irrelevance by Massachusetts. However, insiders have told me with no caveats that Optimal will be licensed in New Jersey. Apparently an announcement is due any day now.
The payments provider will claim it has legal precedent on its side. In 2001, MasterCard and Visa were sued in a civil RICO suit for processing sports betting transactions. The judge distinguished clearly between the payment processor and the sports betting company. The case was dismissed. However, the DOJ has always said Mastercard is not a precedent because DoJ was not a party to that proceeding.
Tricky legals aside, the whole issue just goes to show that everyone with experience in online gaming has skeletons in the closet. One only needs to look at bwin.party CEO Norbert Teufelberger and his ongoing criminal case in France to see what a pickle executives can get into with outdated laws.
A personal view is that US law is struggling to catch up with the internet age and its authorities should be learning from entrepreneurs rather than excluding them from business or worse, imprisoning them.
However, my view doesn’t count for nought, let’s see what New Jersey DGE director David Rebuck thinks. He has told attorneys working on licensing applications that he does not care about pre-UIGEA operations. But does that apply to sports betting? Or payments for sports betting? Over to you Dave.sah@gamingintelligence.com 
