Dueling Legal Briefs, JetSet Poker, Full Tilt and the “Jesus Coalition”

The ongoing battle by Florida-based Cardroom International LLC (CI) to grab a slice of the half billion dollars being paid by PokerStars to the United States continued last week, with both the US Department of Justice and CI attorneys filing legal briefs regarding the DOJ’s attempts to have CI’s claims dismissed.

“Cardroom claims that the forfeiture of Full Tilt Poker’s software and transfer of those assets to PokerStars caused a breach of a 2003 agreement.” The DOJ continues to hold $30m in escrow from the Stars settlement and related Black Friday seizures against the legal possibility that the CI claim might prevail, as it does with a similar amount also held in consideration against ongoing claims made by the Commonwealth of Kentucky.

Cardroom International’s claims and interests are also intertwined with an in-progress California case, Cardroom International LLC v. Mark Scheinberg et al, in which CI has alleged that Full Tilt and PokerStars impeded CI’s attempts to succeed in the free-to-play online market.

Dueling Legal Briefs: Information Withheld or Bad Faith?

The ongoing legal battle between the DOJ and CI has changed gears in recent months, with CI altering its claims in light of the gigantic settlement last summer between the DOJ and PokerStars. Since CI had an active legal case against both Stars and Full Tilt, no settlement could be signed off without some form of consent from CI, regardless of the validity of claims, which is how the $30m escrow fund originated.

According to a court document, that agreement was reached on or about June 19, 2011, clearing the way for the Stars/DOJ deal, which was finalized a month later. In the meantime, US attorney Jason Cowley filed a motion to strike CI’s claim, independent of any escrow arrangement, asserting that for several reasons, CI lacked standing in the federal seizure and settlement.

The DOJ motion to strike CI’s claim allowed time for a legal response, and on August 20, 2012, CI attorney Cyrus Sanai filed a declaration asserting that due to a previous relationship between the company that eventually became Full Tilt and an entity known as BH Development LLC, a shared copyright-deal between Full Tilt and BH existed in which neither company could transfer associated software copyrights without approval of the other company.

However, the brief by Sanai made no mention of any ongoing financial arrangement between BH Development and Full Tilt, made no declaration of damages, and most importantly, did not include a copy of the purported agreement, called the “BH Development Settlement Agreement.” The specific terms of that agreement, according to Sanai, were included in a complicated restructuring of legal firms connected to the BH Development, and remain unavailable.

Sanai also assailed DOJ attorney Cowley, who, claimed Sanai, “refused to give me any further information about the settlement.” Nonetheless, Cardroom signed off on the deal.

A September 2012 memorandum from DOJ prosecutors struck back at the CI claims, submitting the following:

... Cardroom now claims an interest in funds forfeited in this action based on an entirely new theory and entirely new set of purported facts, and requests permission to file an amended claim. Cardroom now claims that the forfeiture of Full Tilt Poker’s software, among other of the company’s assets, and transfer of those assets to PokerStars as part of the settlement between those entities and the United States caused a breach of a 2003 agreement (an agreement that Cardroom does not attach to its opposition and claims that it does not have a copy of) purportedly requiring Cardroom’s consent to the transfer of certain of Full Tilt’s copyright interests in software used by Full Tilt Poker in 2003….

...Moreover, Cardroom’s attempt to raise a new theory of standing based on the 2003 agreement, raised for the first time a year after Cardroom’s original, deficient claim and after cardroom stipulated to the forfeiture and transfer of assets about which it now seeks to complain, smacks of undue delay, bad faith, and dilatory motive, and would cause undue prejudice to the United States.

Separately, DOJ attorney Jason Cowley filed a declaration asserting that, “Cardroom’s counsel never raised any purported ownership interests claimed by Cardroom in any of Full Tilt Poker’s specific assets, including [...] software and copyright interests in software, and never raised any purported restrictions on the transfer of such software or copyrights.”

In fact, Cardroom itself acquired the assets connected to its claim in 2008 from a company called Lilemco LLC, which in tern had acquired the assets of BH Development in 2007, via court-ordered bankruptcy sale. However, neither Cardroom nor Lilemco actually had an active interest in BH Development.

In response, Sanai asserted that:

the reason that this point was not raised with Mr. Cowley was because nothing the United States elected to reveal about the proposed settlement, […] notified Cardroom that the software and other business assets would be transferred to PokerStars and that they would have a free pass to seek permission from state governments to enter the legalized real-money online poker market. Had the United States provided notice that this might occur in its complaint, the issue would have been raised.

Such a claim is suspect in the face of widespread speculation regarding the sale of Full Tilt’s assets that existed for several months before the Stars-DOJ deal was announced, first involving the French distressed-investment company Groupe Tapie, and then PokerStars itself. The latest filing also adds nothing to the allegations of how CI itself was damaged, except to refer to the ongoing California case mentioned above.

The “Jesus Coalition” and JetSet Poker

If nothing else, the recent court filings continue to fill in the complex tale of how Full Tilt originated. According to Sanai’s filings, “The Full Tilt Poker business originated with the development of BH Development in Delaware on or about October 15, 2001.”

Sanai declined to name the “Founder of BH Development,” for whom he provided legal services, though separate records indicate it to be Californian Brett Scharf, with many BH documents listing Scharf’s personal California address.

According to Sanai, the unnamed founder then recruited Chris Ferguson, who in turn recruited Ray Bitar, Howard Lederer and others, with another group of Santa Barbara, CA investors collected in an entity called Westerland also soon joining in.

Sanai also noted Perry Friedman as an early “employee” of BH Development, correlating with other reports of Friedman’s early involvement in the company.

In early 2003, according to Sanai, Ferguson, Friedman and other members of the “self-proclaimed 'Jesus Coalition’ sought to take over the company or acquire its software and its trade name, 'Full Tilt Poker’.” A brief lawsuit and settlement then ensued, leading to the agreement between BH Development and the player-owners who became known as the faces as Full Tilt.

Both sides were allowed to continue developing the software for their own purposes while relinquishing their previous claims against each other, and BH Development and Scharf later emerged with a competing poker site, JetSet Poker, whose sad history wasn’t mentioned at all in Sanai’s briefs.

JetSet Poker, which existed on more than one network during its existence, was infamous for its disappearing from the poker world on October 13, 2006, shortly after the passage of the United States’ UIGEA. When JetSet folded, however, it did so with literally five minutes notice, and disappeared without refunding tens of thousands of dollars in player balances.

By that time the site was already in deep financial straits, its parent company facing a previous IRS lien of more than $424k, so its quick failure left few onlookers surprised. From there, the defunct company’s software and hardware assets lingered until the November 2007 bankruptcy auction, where Lilimco and later Cardroom entered the picture.

Cardroom, which via Sanai had knowledge of the roots of the JetSet Poker software, then reworked and relaunched the code as the play-money site Cardroom.com in 2008.

Cardroom’s own history includes some murky points as well, with the site OnlinePokerSites.co.uk noting that Cardroom.com com first existed as a “micro skin” under Poker Host, a part of SBC Global, a sportsbook that encountered difficulties independent of the Full Tilt / BH Development story.