New Jersey’s decision on Pala Interactive sends a mixed message

The decision to grant the Pala Band of Mission Indians a license to offer online poker in New Jersey appears contradictory to other decisions made by the NJDGE.

As a preface to this article I would like to state that I have met Jim Ryan personally at a couple of conferences and have found him to be a very pleasant man with sound knowledge of the poker industry. He has been nothing but kind and open to discussion. Consequently this article is not aimed at Jim Ryan personally but rather with the New Jersey Division of Gaming Enforcement and their double standards.

Last month the New Jersey Division of Gaming Enforcement (NJDGE) gave the Pala Band of Mission Indians a license to offer online poker in New Jersey in partnership with Borgata and with the license they had to determine whether Jim Ryan, the CEO of Pala Interactive was a "bad actor". They stated that New Jersey had no concern about Jim Ryan and his history with Excapsa Gaming claiming that Ryan never violated the UIGEA and he was in no way connected to the cheating scandal at UltimateBet. The decision has many, including myself, scratching our heads because it is inconsistent with other decisions the DGE has made. To understand the whole situation it's important to look at Ryan's history in the industry.

Pala Interactive New Jersey online gamblingJim Ryan started working in the gambling industry around the year 2000 when he held a job with Toronto based Cryptologic, a gambling software designer. Ryan moved from that position to become the CEO at Excapsa Gaming, the parent company of UltimateBet in 2003 where his main duty was to get Excapsa listed on the AIM stock exchange. UltimateBet had several shareholders and celebrities associated with it including Phil Hellmuth, Annie Duke, Russell Hamilton and the 2 founders of the company Greg Piersen and Jon Karl. The company was actually founded in 2000 under the name eWorldHoldings based in Antigua but split into 2 companies in 2004- Lovation which designed the software and Excapsa which owned the Ultimate Bet poker site. This split was deemed important in order to be able to get listed on the stock exchange. Ryan finally was able to get the IPO in 2006 but shortly thereafter the UIGEA was passed which wiped out the IPO, although early shareholders cashed out with a handsome profit. The company continued to cater to U.S. customers after the UIGEA was passed but later in 2007 Excapsa sold UltimateBet to Tokwiro Enterprises based in Kahnawake and owned by Chief Joseph Norton. Tokwiro previously acquired Costa Rica based Absolute Poker from a group of owners which included Scott Tom. Both companies operated on the MIT servers at Kahnawake.

The following year the infamous poker scandals were uncovered first at Absolute Poker and later at UltimateBet. Without going into great detail about the scandals, a poster at 2 plus 2 poker forum noticed some strange play from a certain account at Absolute Poker and asked the site for a hand history for large buy-in tournaments which the site sent to him. Upon examining the data it was evident that the player going under the handle POTRIPPER had to be cheating since he was betting heavy on very poor hands when others at the table had weak hands and folding strong hands like K-K when another player had A-A. The player went public with the information and, after an outcry from poker players on the 2 plus 2 forum, the Kahnawake Gaming Commission (KGC) said it would launch an investigation. What they uncovered was that Absolute Poker had a "superuser" account that could see the hole cards of other players at the table and as it turns out the account belonged to former owner Scott Tom. The KGC determined that when the software was developed the superuser account was created to ensure that the software was running correctly and once they were satisfied that the software was working properly that account would be deleted. Tom, however, never bothered to delete the account and instead used it to cheat players in high buy-in games starting as far back as 2003.

Not long after the Absolute Poker scandal players also noticed suspicious play at Ultimate Bet and once again a KGC investigation revealed that the software there was compromised and the cheating traced back to Ultimate Bet shareholder Russ Hamilton. After the KGC did their investigation it was determined that the Ultimate Bet cheating occurred as far back as 2004, just after Jim Ryan was hired on as CEO. Tokwiro paid players almost $21 million for the Ultimate Bet cheating scandal but was able to recoup about $15 million of that after an Ontario court ruled that Excapsa was at fault and liable for damages. Absolute Poker and Ultimate Bet merged to become the Cereus Network not long after and were sold to Blanca Gaming but the benefits of the purchase were short lived as the sites were seized by the DoJ on Black Friday and Cereus ceased operations shortly thereafter.

In the meantime Jim Ryan, who was released from Excapsa in 2007 with a non-compete clause, received a job offer at Party Poker which was looking for a replacement for Mitch Garber, who had moved on to Caesars. Ryan apparently was released from his non-compete clause with the agreement that he would not implicate any shareholders at UltimateBet. Ryan then became CEO at Party Gaming. As part of his reign there Ryan helped form the merger of Party Gaming with bookmaker Bwin to create a mega site Bwin.Party, which traded on the AIM stock exchange, to become the largest publicly traded online gambling site. Party Gaming also settled with the U.S. government for past wrongs and paid a $105 million fine. Bwin.Party has struggled to live up to its potential ever since the merger, which some claim was because the two companies weren't a good fit for each other and Party Poker just wasn't as successful without their other skins. The sale of the Ongame network to Amaya gaming, as surplus software, was also believed to be a bad deal for the company. Many of Ryan's decisions have been questioned since.

In 2012 Jim Ryan resigned from Bwin.Party as CEO, although some claim he was forced to resign. The main reason cited for his resignation was the poor performance of the company, although insiders claim it had more to do with Bwin.Party's desire to get a U.S. license in several states, beginning with Nevada. Bwin.Party shareholders were worried that the company would be excluded from obtaining a Nevada license if they looked into Ryan's past and realized he was still working for Excapsa in 2007 after the passage of the UIGEA. And, of course, up until that point they were still taking U.S. bets. Moreover, there was concern about his role in the cheating scandals and while Ryan claimed he never knew anything about the cheating or the faulty software many state legislators believed that as CEO he had to field some of the blame.

In 2013 Ryan started a joint venture with the Pala Band of Mission Indians who wanted to use the same software company that provides poker software to Bwin.Party with the intention of bringing poker and casino games to California under the name Pala Interactive. In creating the new framework for legal online poker in California, legislators put in a bad actor clause and there have been suggestions by many competing parties in California that Ryan shouldn't be allowed to co-own a gambling company because he is a bad actor as a result of his time as CEO of Excapsa. Most upset about Ryan possibly being allowed to run a poker site in California are the Morongo Tribe in California which had inked a deal with PokerStars prior to the sale of PokerStars to Amaya Gaming, but were constantly being blocked by other bands including the Pala Indians because those tribes deemed PokerStars to be bad actors for continuing to offer services to U.S. customers after the passage of the UIGEA. Not surprisingly the Morongo Tribe have been fighting to exclude the bad actor clause from any legislation but they believe that if the clause is going to be included they want all tribes treated equally and they see no difference between UltimateBet or PokerStars both which offered gambling to U.S. citizens after October 2006.

That brings us back to last month's decision by the New Jersey DGE, which is the same entity that refused to give PokerStars a license in 2012 because they claimed Isai Scheinberg was a bad actor because of charges against him related to PokerStars' dealings with American customers. The NJDGE seemed to have no interest in the clean slate given to PokerStars by the federal government after paying a $400 million fine, repaying all players and purchasing Full Tilt Poker which saved the fed's behinds.

So here you had one decision which berated one company for having catered to U.S. players after the passing of the UIGEA while ignoring the wrongs of another company which did the same thing. To add fuel to the fire, the NJDGE recently reversed its opinion and gave PokerStars the go ahead to aplly for liecense in New Jersey after the sale to Amaya saying that "bad actors are people not companies." That same logic has been used to allow NETeller to offer payment processing services to New Jersey residents and ironically Pala Interactive which began operating in New Jersey last Saturday in partnership with Borgata is using NETeller as a payment processor.

The question that now has to arise is what is a bad actor? How is Isai Scheinberg a bad actor but Jim Ryan isn't? What about other companies that continued offering services to U.S. citizens but eventually withdrew? If Bodog poker wanted to partner with an Atlantic City casino and obtain a license from New Jersey would Calvin Ayre be deemed a bad actor which would disqualify Bodog? Does the fact that he no longer has any association with the gambling side of Bodog have any relevance to that decision?

Similarly if New Jersey gets the right to offer sports betting could companies like Pinnacle which catered to U.S. citizens until a few years back apply for a New Jersey license or would the state laugh at the suggestion even if Pinnacle could set up an alliance with a company like Caesars or Borgata? Would it matter whether the original owners were still associated with the company when making that decision?

The bottom line is that New Jersey has opened up a can of worms with their determination that Jim Ryan is not a bad actor when it seems he should be if they applied the same guidelines they set with their disqualification of PokerStars. New Jersey clearly has a double standard and it seems that may be the case in California too if the state continues to deny considering PokerStars for a license but allows Pala Interactive to operate.

Of course hypocrisy, mixed messages and confusion is nothing new when it comes to the U.S. and gambling.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!

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