New Jersey ordered Amaya Gaming to fire four senior execs connected with PokerStars and Full Tilt

The New Jersey Division of Gaming Enforcement (DGE) ordered Amaya Gaming to fire four senior execs connected with PokerStars and Full Tilt as a condition of receiving a license to operate online gambling in the state.

On Friday, the DGE released a report of its investigation of Amaya’s $4.9b acquisition of the PokerStars and Full Tilt online gambling companies. The previous week, the DGE announced that it had approved Amaya’s new brands to operate in the state’s regulated online gambling market via its partnership with Atlantic City’s Resorts Casino Hotel.

The announcement came one year after Amaya acquired the Oldford Group, the parent company of both brands, and filed a petition seeking to operate the brands in New Jersey. The report (read it here) details the lengths to which the DGE went to ensure that Amaya has sufficiently distanced itself from the principal figures associated with Stars and Tilt.

Amaya’s petition to the DGE said it had succeeded in “irrevocably and totally extinguishing the ownership interest of Isai and Mark Scheinberg” and had ensured that the Scheinbergs and other tainted execs “will have no further involvement in the operation or management of their former companies.”

Isai was Stars’ founder and one of the 11 individuals indicted on April 15, 2011 (aka Black Friday) for continuing to serve US customers following the 2006 passage of the Unlawful Internet Gambling Enforcement Act (UIGEA).

The DGE says it examined over 45k pages of documents relating to Stars’ business dealings and conducted 71 sworn interviews with 64 former employees of Stars, Tilt and Pyr (Stars’ software division, since renamed Amaya Software) who were kept on following Amaya’s acquisition.

The DGE says it is satisfied that Amaya’s acquisition of Oldfod had “permanently and irrevocably severed all of the ownership interests” of the Scheinbergs. The DGE said Amaya’s acquisition had achieved the “significantly changed circumstances” benchmark laid out in the two-year suspension the DGE had slapped on Stars’ application to operate in New Jersey back in 2013.

However, the DGE ordered Amaya to “separate from employment on or before January 30, 2016, four individuals identified by the Division as having failed to establish the requisite good character, honesty and integrity required by the [New Jersey Casino Control] Act due to their involvement in the business activities of the PokerStars Entities between the enactment of UIGEA and Black Friday.”

The DGE didn’t identify the four individuals by name, but it did say it had conducted plenary investigations of four senior execs with ties to the previous regime and who remain with Amaya following the Oldford acquisition.

Those four execs are: Michael Hazel, Stars former CFO; Israel Rosenthal, director of operations for the Rational Group and a “long-time friend of the Scheinberg family;” Charles Fabian, former head of games systems development at Full Tilt’s parent Pocket Kings Consulting; and software manager Serge Bourenkov, who began working at Pyr following Black Friday, so he would appear to be in the clear.

Amaya also has to keep the DGE in the loop in case any of the former Stars and Tilt principals attempt to “influence, suggest or communicate with any employee of Amaya” regarding the company’s activities. Additionally, Amaya has to provide the DGE with minutes of all future meetings of its board of directors and compliance and audit committees.

The DGE says it has required other companies to sever ties with or forego hiring “at least 10 senior executives” since the state authorized online gambling in 2013. Sadly, these names also weren’t disclosed.

The DGE reported that PokerStars generated $44.3m in revenue from New Jersey players between Oct. 13, 2006 (the effective date of the UIGEA) and April 15, 2011.

When Stars reached its civil settlement with the Department of Justice in 2012, it returned just over $5m in deposited funds to its NJ players. Incredibly, the DGE says there remain an undisclosed number of open New Jersey PokerStars accounts containing nearly $428k as of January 2015. This sum will now become property of the state. Score!

The DGE’s opinion is that Amaya will not enjoy “an unfair competitive or economic advantage” based on Stars’ history in the New Jersey market. The DGE noted that Stars’ New Jersey database is over four years old and that the state’s existing online licensees have a 22-month headstart on Amaya. The DGE also claimed that some of these licensees were “large companies with powerful brand names that are well positioned to challenge” Stars and Tilt. Sure they are…

In the five-year period spanning 2010 to 2014, the Rational Group operations saw revenue go from $863.6m to $1.13b, while profit went from $188.9m to $416.2m. The company recorded a nearly $424m loss in 2011, but this was the financial year in which the expenses from the $731m DOJ civil settlement were booked.

The operations benefited from their home base in the Isle of Man, which imposed an effective tax rate of 1.1% in 2012 and 1.3% in 2013. The DGE said it examined tax records the company had filed in Australia, Malta, the UK, Ireland, Austria, Costa Rica, France, Macau and Russia and found no items that required further investigation.

As for Stars’ ongoing tax problems in Italy, Amaya told the DGE that it remains in discussions with the Italian tax authorities. Should Stars be found liable for a back tax payment, Amaya says indemnity provisions in the acquisition deal would allow it to pass the buck to Stars’ former owners.

It seems Amaya’s recent acquisition of daily fantasy sports operator Victiv, which has since been rebranded as StarsDraft, didn’t cost Amaya anything. The DGE says Victiv exchanged its assets for an undisclosed percentage of a joint venture, to which Amaya contributed branding and marketing, as well as access to its player database.

It seems former Full Tilt payments director Nelson Burtnick, who pled guilty in 2012 to conspiracy and accepting funds in connection with unlawful Internet gaming, was sentenced on September 16 to time served and one year of supervised release. Burtnick also forfeited approximately $300k.