Online Poker Payment Processor Motion (Part 1)

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Jul/10/2009

TO: THE UNITED STATES ATTORNEY FOR THE SOUTHERN DISTRICT

OF CALIFORNIA KAREN P. HEWITT, THE UNITED STATES

ATTORNEY FOR THE SOUTHERN DISTRICT OF NEW YORK LEV

DAESIN, AND ASSISTANT UNITED STATES ATTORNEYS ARLO

DEVLIN-BROWN AND JEFFREY ALBERTS:

PLEASE TAKE NOTICE that on _________, 2009, at __________m., or as

soon thereafter as counsel may be heard, in the courtroom of the Honorable

_____________________________, United States District Judge, movant Account

Services Corporation ("ASC"), by and through its counsel of record, will move this

Court pursuant to Rule 41(g) of the Federal Rules of Criminal Procedure for the

release and return of funds totaling approximately $13,000,000.00 held in account

number 7986104185 with Wells Fargo Bank in Escondido, California, and funds in

excess of $1,000,000.00 held in accounts numbered 353000248 and 353000256

with Union Bank, N.A. in San Diego, California. The Wells Fargo funds were

seized pursuant to a warrant, whereas the Union Bank funds were seized without a

warrant in the Southern District of California. ASC respectfully submits that this

Court has equitable jurisdiction over this Motion, and requests the release and

return of the property for the reasons set forth in the attached Memorandum of

Points and Authorities.

This Motion is based on Rule 41(g) of the Federal Rules of Criminal

Procedure, on this Notice of Motion and Motion, the attached Memorandum of

Points and Authorities, the attached exhibits, and on such further evidence and

argument as may be presented at or before the hearing on this motion.

DATED: July 10, 2009 Respectfully submitted,

LAW OFFICES OF MICHAEL PANCER

MEMORANDUM OF POINTS AND AUTHORITIES

INTRODUCTION

Account Services Corporation, through counsel, respectfully moves this

Court to order the return of funds seized from Wells Fargo Bank ("Wells Fargo"),

account number 7986104185, and from Union Bank, N.A. ("Union Bank"), in

accounts numbered 353000248 and 353000256, pursuant to FED. R. CRIM. P. 41(g).

Alternatively, counsel requests that this Court conduct an Evidentiary Hearing on

the issues raised by this Motion. As grounds for this Motion, Account Services

Corporation submits the following:

FACTUAL BACKGROUND

Internet poker is a popular and widespread leisure activity in the United

States. At least 10,000,000 Americans play internet poker, and some estimates set

that figure substantially higher. Operators of online poker websites (collectively,

"operators") offer internet poker players the option of either playing with "play

money" (online credits) or "real money" (legal currency). If a player chooses to

engage in wagering with real money, the player must deposit his or her funds into

an account with an operator or an operator-designated third-party processor. At all

times, the money on deposit is owned and controlled by the player. The funds are

merely held in trust for the benefit of the player and released upon the player's

request. See, e.g., PokerStars End User License Agreement, attached as Exhibit 1.

Account Services Corporation's Business Operations

Account Services Corporation ("ASC"), the movant in this action, is a

payment processor with a business address in San Diego, California. ASC

maintains bank accounts with Wells Fargo in Escondido, California, and Union

Bank in San Diego, California. ASC processes payments for players, including 2

MOTION OF ACCOUNT SERVICES CORP. FOR RETURN OF PROPERTY

CASE NO.

those residing in California, who have real money accounts with operators or an

operator-designated third-party processor. See Decl. of Douglas G. Rennick,

attached as Exhibit 2. More specifically, ASC's role is limited to processing the

return of an individual player's money per that individual's request. When a

player wants to withdraw his or her funds, the player will so inform the operator or

the operator-designated third-party processor holding the funds in trust. The

money is then forwarded to ASC with specific directions to return those funds to

the individual making the request. ASC holds the funds in trust on behalf of the

player until such time as the payment can be processed. The processing includes

confirming relevant facts (e.g. establishing the player's identity and state of

residence) and drafting a written check to the individual player.

As noted above, millions of Americans play internet poker. It is

consequently not surprising that the number of players depositing funds with the

operators or operator-designated third party processors is quite large. Similarly,

the number of individuals seeking to withdraw their funds at any one time is

significant. In fact, it is not unusual for ASC to process the return of money for

thousands of players in any given month. It is also worth noting that players

withdraw the money whenever and for whatever reason they see fit. Each

individual's circumstance is unique.

The Seizure

On June 2, 2009, the Office of the United States Attorney for the Southern

District of New York obtained a Warrant of Seizure on "all funds on deposit at

Wells Fargo Bank in San Francisco, California, in account number 7986104185,

held in the name of Account Services Inc."1 Warrant of Seizure (June 2, 2009),

attached as Exhibit 3. The Warrant was issued on the basis of an affidavit filed

under seal by Federal Bureau of Investigation Special Agent Dana Conte. Special

Agent Conte sought a Warrant of Seizure pursuant to 18 U.S.C. §§ 981, 984, and

The warrant was served upon Wells Fargo's San Francisco Headquarters, despite

the fact that the funds seized were on deposit at Well's Fargo's Escondido branch.

1955. The affidavit remains under seal. As of the date of this filing, no criminal or

civil action, including forfeiture, has been initiated with regard to this seizure.

About ten days later, on or around June 12, 2009, the U.S. Department of

Justice ("DOJ") seized - without a warrant - all funds on deposit at Union Bank, in

San Diego, California, in accounts numbered 353000248 and 353000256, both of

which are held in the name of ASC. Until recently, the only information ASC had

regarding this warrantless seizure is that which was received in a letter from Union

Bank, sent in response to ASC's inquiry about the accounts. See Letter of Manisha
10

Merchant, attached as Exhibit 4. According to the letter sent by Manisha

Merchant, Vice President and Senior Counsel of Union Bank, DOJ seized the

funds without a warrant, asserting non-specified exigent circumstances. See Id.;

Letter of Lev L. Dassin, attached as Exhibit 5. Union Bank was subsequently

served with a Warrant of Seizure pursuant to 18 U.S.C. §§ 981, 984, and 1955.

See Warrant of Seizure (June 24, 2009), attached as Exhibit 6. The warrant was

issued twelve days after the seizure, on the basis of an affidavit filed under seal by

Dana Conte, Special Agent of the Federal Bureau of Investigation. The affidavit

remains under seal. As of the date of this filing, no criminal or civil action,

including forfeiture, has been initiated with regard to this seizure.

The funds seized were held in accounts owned by ASC, and consist

overwhelmingly of money held in trust by ASC on behalf of approximately 13,800

individual poker players who requested the return of their money from an operator

or an operator-designated third-party processor, but also include ASC's operating

funds and a small amount of other funds unrelated to online poker. See Decl. of

Douglas G. Rennick, attached as Exhibit 2. The Wells Fargo account totaled

approximately $13.3 million, and the Union Bank accounts totaled over $1 million.

At the time of the seizure, ASC had over 13,800 hundred checks to individuals

outstanding, all of which bounced (or would have bounced) as a direct result of the 2

seizure. Undersigned counsel believes, based upon the limited facts available, that

the seizure was made pursuant to alleged violations of the Illegal Gambling

Business Act ("IGBA"), 18 U.S.C. § 1955, which prohibits conducting, financing,

managing, supervising, directing, or owning all or part of an illegal gambling

business. As will be set forth more fully below, neither Account Services, the

operators, nor the individuals whose funds have now been seized violated § 1955.

Thus, the Government had no legal authority to seize the funds in question, and

this Court should order the seized property returned.

ARGUMENT

I. This Court has Equitable Jurisdiction Under FED. R. CRIM. P.

41(g) to Return the Funds Seized and is the Proper Venue for this

Action

Following a governmental seizure of property, FED. R. CRIM. P. 41(g) is the

appropriate method through which a party may recover the seized property if no

civil forfeiture or criminal proceeding has been initiated. In order to determine

whether the Court should entertain a motion for return of property under Rule

41(g), it must consider four factors, which are discussed below. If the Court finds

it has equitable jurisdiction to hear the motion, it must next consider whether the

seizure was reasonable under all the circumstances. In this case, analysis under the

four prongs, together with the unreasonableness of the seizure, dictate that this

Court order the return of seized funds to ASC.

The Southern District of California is the proper venue for ASC's motion

because the bank accounts from which the funds were seized were all located

within this district. Rule 41(g) mandates that motions for return of property be

MOTION OF ACCOUNT SERVICES CORP. FOR RETURN OF PROPERTY

CASE NO.

filed "in the district where the property was seized." FED. R. CRIM. P. 41(g).

Under the "separate entity" rule, deposits are held at the branch where the account

is maintained. See Trinh v. Citibank, N.A., 850 F.2d 1164, 1172 n.5 (6th Cir. 1988)

("The situs of a bank's debt on a deposit is considered to be at the branch where

the deposit is carried."); Fidelity Partners, Inc. v. Philippine Export & Foreign

Loan Guarantee Corp., 921 F. Supp. 1113, 1119 (S.D.N.Y. 1996) ("the ‘separate

entity' rule[] provides that ‘each branch of a bank is a separate entity, [and is] in no

way concerned with accounts maintained by depositors in other branches or at a

home office.'") (internal citation omitted). Here, ASC's Wells Fargo account was

opened and maintained through Wells Fargo Business Banking, located at 444 S.

Escondido Boulevard, Escondido, California; and its Union Bank accounts were

opened and maintained at Union Bank's San Diego Main Branch, located at 1201

Fifth Street, San Diego, California. See Decl. of Douglas G. Rennick, attached as

Exhibit 2. Therefore, this Court has jurisdiction and is the proper venue to hear

this Motion.

A. Rule 41(g) is the appropriate vehicle through which to seek return

of the seized funds

Federal Rule of Criminal Procedure 41(g) provides:

A person aggrieved by an unlawful search and seizure of property or

by the deprivation of property may move for the property's return.

The motion must be filed in the district where the property was seized.

The court must receive evidence on any factual issue necessary to

decide the motion. If it grants the motion, the court must return the

property to the movant, but may impose reasonable conditions to

protect access to the property and its use in later proceedings.

In this instance, FED. R. CRIM. P. 41(g) is the appropriate means for ASC to seek

release of the wrongfully seized funds because the Government has not instituted

proceedings for forfeiture on either a criminal or civil basis. See Ramsden v.

United States, 2 F.3d 322, 324 (9th Cir. 1993) (internal citations omitted). Rule

41(g) is described as "a vehicle for recovering seized but not forfeited property."

Turner v. Gonzales, No. 06-4020, 2007 WL 1302126, at *1 (7th Cir. May 3, 2007)

(citing United States v. Sims, 376 F.3d 705, 708 (7th Cir. 2004); United States v.

Howell, 354 F.3d 693, 695 (7th Cir. 2004)).

The Ninth Circuit Court of Appeals has held that a motion for return of

property is proper where there are neither criminal proceedings nor civil forfeiture

proceedings pending against the movant. See United States v. Baker, No. CR-04-

40054 SBA, 2007 WL 4259556, at *1 (N.D. Cal. 2007) (citing United States v.

Martinson, 809 F.2d 1364, 1366-67 (9th Cir. 1987) ("A district court has

jurisdiction to entertain motions to return property seized by the government when

there are no criminal proceedings pending against the movant."); United States v.

U.S. Currency $83,310.78, 851 F.2d 1231, 1235 (9th Cir. 1988) (cited in In re

Return of Seized Property v. U.S., Nos. 2:09-cv-459-FMC & 2:09-cv-1887-FMC-

JCX, 2009 WL 1651179, at *5 (C.D. Cal. June 11, 2009) (A Rule 41(g) motion is

properly denied once "a civil forfeiture proceeding has been filed, [because] the

claimant has adequate remedies to challenge any fourth amendment violation.")).

See also Beard v. United States, No. 208CV00949, 2008 WL 2132381, *3 (C.D.

Cal. Mar. 10, 2008) (citing United States v. $8,850, 461 U.S. 555, 569-70 (1983)

(Rule 41(g) "has been applied in other situations where the return of property is

sought, including requests by claimants for the return of property where no

criminal action is pending and no civil forfeiture proceedings have been

instituted.")).

MOTION OF ACCOUNT SERVICES CORP. FOR RETURN OF PROPERTY

CASE NO.

B. This Court should entertain ASC's Rule 41(g) motion

Prior to a district court reaching the merits on a pre-indictment FED. R.

CRIM. P. 41(g) motion, it must evaluate whether the underlying facts warrant such

consideration. The factors to consider in deciding whether to entertain such a

motion are as follows: 1) whether the Government displayed a callous disregard

for the party's constitutional rights; 2) the movant's interest in and need for the

property he seeks to have returned; 3) irreparable injury to the movant by denying

return of property; and 4) whether there exists an adequate remedy at law for

redress of the movant's grievance. See Ramsden, 2 F.3d at 325 (citing Richey v.

Smith, 515 F.2d 1239, 1243-44 (5th Cir. 1975)).

Each of the four factors are considerations to be weighed by the court; no

single factor is dispositive with regard to the court's exercise of equitable

jurisdiction. See Meredith v. Erath, 2001 U.S. Dist. LEXIS 16902 (C.D. Cal. Sep.

19, 2001) (exercising equitable jurisdiction and allowing motion for return of

property where "factors appear to be roughly equal": movant showed interest in

property and lack of adequate remedy at law, but failed to show irreparable harm

or callous disregard). In this case, it is clear that the facts justify the Court

considering this pre-indictment Rule 41(g) motion.

1. The government acted with callous disregard for the

movant's constitutional rights

The government acted with callous disregard for the movant's constitutional

rights when it unreasonably and unlawfully seized the funds from ASC's Wells

Fargo and Union Bank accounts; in the case of the Union Bank accounts, without a

warrant. The Fourth Amendment of the United States Constitution protects

individuals from unreasonable governmental seizure of property. See U.S. CONST.

amend. IV. Seizures of property violate the Fourth Amendment unless they are

based upon probable cause and are executed pursuant to a valid search warrant.

See United States v. Delgado, 545 F.3d 1195, 1201 (9th Cir. 2008). Probable

cause for issuance of the warrant only exists when there is a fair probability that

the property is contraband or evidence of a crime. See United States v. Davis, 530

F.3d 1069, 1084 (9th Cir. 2008). Additionally, the Fifth Amendment of the United

States Constitution provides for protection against deprivation of "life, liberty or

property without due process of law." U.S. CONST. amend. V. Due process

requires notice and a hearing prior to seizure of property, unless exigent

circumstances exist. See United States v. James Daniel Good Real Property, 510

U.S. 43 (1993).

In this case, the seizure was unreasonable and in violation of ASC's Fourth

Amendment rights because, first and foremost, neither ASC, the individual players,

nor the operators violated the law. Any fleeting review of the IGBA, ASC's

business operations, or the nature of the funds held in the accounts would have

indicated to the government that there was no reasonable basis, much less probable

cause, to believe that the funds were contraband or evidence of a crime. Moreover,

the seizure of funds from Union Bank was executed without a warrant.

Accordingly, the government acted with callous disregard for ASC's constitutional

rights when it seized the funds.

a. ASC's corporate activities do not violate the IGBA

First, ASC did not, nor could it, violate 18 U.S.C. § 1955. A cursory review

of the function of ASC as a funds processor would have revealed to the

government that ASC merely processes and returns individual player funds. The

conduct criminalized by § 1955, however, is that of conducting, financing,

managing, supervising, directing, or owning a "gambling business" in "violation of

the law of a State or political subdivision in which it is conducted." 18 U.S.C.

§ 1955(b)(1), (i). Gambling, as defined under the statute, "includes but is not

limited to pool-selling, bookmaking, maintaining slot machines, roulette wheels or

dice tables, and conducting lotteries, policy, bolita or numbers games, or selling

chances therein." Id. § 1955(b)(2). Thus, to hold a business accountable as an

illegal gambling business under the IGBA, the government must show two things:

MOTION OF ACCOUNT SERVICES CORP. FOR RETURN OF PROPERTY

CASE NO.

first, the business must be in the business of gambling as that term is defined by the

statute, and second, the business must be operated in violation of the law of the

state in which it is operating.

ASC is in the business of processing checks, not in the business of

conducting any kind of gambling operation. The fact that ASC processes checks

for online poker players does not render ASC in the business of gambling in any

way. Even if the government were to allege that ASC is somehow involved in the

conduct of a gambling business, online poker is not an illegal gambling business,

as discussed more thoroughly below. Indeed, we are unaware of any criminal

prosecutions of payment processors who process checks primarily for online poker

players. ASC, as trustee for the players, had the right and the obligation to safely

maintain the players' funds until the money was received by the individuals; the

government acted with callous disregard for that right.

b. The majority of the funds seized belonged to individual

poker players who did not violate the law

The vast majority of the funds seized from ASC belonged to individual

poker players, for whom ASC was holding money in trust while processing

payment of that money to the players. The law is clear that individual poker

players cannot violate § 1955. The IGBA was not intended to regulate online

poker players. For a violation of § 1955 to occur, someone must first be

conducting an "illegal gambling business." 18 U.S.C. § 1955(b)(1). When

Congress enacted § 1955, it made clear that the term "‘conducts' does not include

the player in an illegal game of chance, nor the person who participates in an

illegal gambling activity by placing a bet." United States v. George, 568 F.2d

1064, 1071 (4th Cir. 1978); United States v. McHale, 495 F.2d 15, 18 (7th Cir.

1974); United States v. Becker, 461 F.2d 230, 232 (2d Cir. 1972), judgment

vacated on other grounds by 417 U.S. 903 (1974); see also 1970 Cong. & Admin.

News, p. 4029. There is no evidence whatsoever that the individual players for

whom the seized funds were being held were in any way engaged in financing,

managing, supervising, directing, or owning all or part of an illegal gambling

business. Accordingly, the players are not in violation of § 1955, nor are the funds

seized proceeds of an illegal gambling business. Moreover, players' monies

cannot be subject to seizure or civil forfeiture under 18 U.S.C. § 981 because the

players did not violate any law that may serve as a predicate for forfeiture under

that statute. Thus, the seizure of these funds was unlawful, unreasonable, and

effected with callous disregard for the players' rights.

c. Online poker is not illegal gambling

Even if the government, under an expanded notion of liability, were to argue

that seizure of the funds was lawful because the funds were used to play online

poker, such an argument is made with callous disregard for ASC's Fourth

Amendment rights because online poker does not violate the IGBA. Poker is

neither "gambling" under the IGBA definition, nor has ASC been directed by the

government to any state law that has supposedly been violated. The IGBA

prohibits the conduct, financing, management, supervision, direction, or ownership

of an "illegal gambling business," which it further defines as a gambling business

in "violation of the law of a State or political subdivision in which it is conducted."

18 U.S.C. § 1955(a), (b)(1)(i). The statute also defines "gambling" as including

"pool-selling, bookmaking, maintaining slot machines, roulette wheels or dice

tables, and conducting lotteries, policy, bolita or numbers games, or selling

chances therein." Id. § (b)(2).

MOTION OF ACCOUNT SERVICES CORP. FOR RETURN OF PROPERTY

CASE NO.

(i) Poker is a game of skill and is therefore not

"gambling" under the IGBA

Poker is not gambling under the IGBA's definition of the term because

poker is a game of skill. First, whether an activity constitutes "gambling" under

the IGBA definition must be determined by considering the activities specified in

the statute and applying the interpretative canon ejusdem generis ("of the same

kind"). Under that canon of construction, "general terms that follow specific ones

are interpreted to embrace only objects of the same kind of class as the specific

ones." United States v. Amato, 540 F.3d 153, 160 (2d Cir. 2008); see also United

States v. Turkette, 452 U.S. 576, 581 (1981) ("[W]here general words follow a

specific enumeration of persons or things, the general words should be limited to

persons or things similar to those specifically enumerated."). Poker, however, is

dissimilar from the activities specified in the statute in two crucial ways.

Abundant authority demonstrates that the specified activities are games of chance,

and are "banking" games that are played against the house. Poker, by contrast, is

neither a game of chance, nor is it played against the house: wagers are made

against other players and, as demonstrated below, differences in skill between the

players determine who wins and how much the winning player wins.

Second, as is true for similar games like golf, billiards, and bridge, when

good poker players play against poor players, they consistently beat them. Players

who enter golf and bridge tournaments pay a fee to enter, and earn a cash reward if

they win, but these games are contests of skill because their outcome is determined

principally by skill. See Two Elec. Poker Game Machs., 502 Pa. at 195, 465 A.2d

at 977 ("[i]t cannot be disputed that football, baseball and golf require substantial

skill, training and finesse" even though "the result of each game turns in part upon

luck or chance"); In re Allen, 377 P.2d 280, 281 (Cal. 1962) (bridge requires skill

and is not a "game of chance"). So too with poker. To be sure, there is some

element of luck over the course of a poker match that will affect how individual

players perform. Nevertheless, the fact that every hand of poker involves multiple

decision points (at each of the multiple rounds of betting), multiple decisions at

each decision point (bet, call, raise, or fold), and innumerable factors that call for

skill to evaluate each of those decisions (for example, the player's own cards, the

odds of his hand improving, his sense of the strength of the other player's hand, his

sense of the other players' perception of him), establishes that poker is a contest of

skill.

The essence of poker is correct decision-making. The importance of

decision-making in poker cannot be understated: in a recent statistical analysis of

over 100 million actual poker hands, the players' decisions alone, rather than the

cards dealt, accounted for the result in 76% of all hands played, where all players

folded to a single winning player. See Paco Hope et al., Statistical Analysis of

Texas Hold'Em at 7 (Jan. 28, 2009),2 attached for the Court's convenience as

Exhibit 5. Tellingly, of the 24% of hands that did play to a showdown, only 50%

of those - or 12% overall - were won by the player with the best five-card hand at

the table. Id. In order to make the right decisions consistently, poker players must

employ a range of skills over and above a prerequisite knowledge of odds. To be

skilled at poker, players must develop an ability to directly influence the way an

individual hand turns out - who collects the pot at the end, and how much is in the

pot. As one court recently held, "[s]uccessful players must possess intellectual and

psychological skills. They must know the rules and the mathematical odds. They

must know how to read their opponents' ‘tells' and styles. They must know when

to hold and fold and raise. They must know how to manage their money."

Pennsylvania v. Dent, No. 2008-733, slip op. at 13-14 (Pa. Ct. Com. Pl. Jan. 14,

2009).

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