Online-Poker Bust Raises Legal Stakes

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By TAMARA AUDI and AMY SCHATZ, www.wsj.com

Prosecutors' seizure of $34 million belonging to online poker players ups the ante in a long-running struggle between the Justice Department, which wants to shut down the online-gambling industry, and members of Congress who want to make it legal.

The government has used several laws to prosecute online gambling. Critics claim those laws are unclear and are sometimes contradicted by a patchwork of state laws.

Last month, Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, proposed legislation to legalize and regulate Internet gambling so revenues could be taxed and consumers would have some protections.

The Poker Players Alliance, a lobbying group, said there are 10 million Americans who play online poker for money, spending about $6 billion a year. The group attacked the recent seizure, carried out by the U.S. attorney in the Southern District of New York, saying funds belonging to 27,000 online poker players were frozen. The U.S. attorney's office declined to comment.

"It's a big gamble by the Department of Justice," said Prof. I. Nelson Rose, a senior professor at Whittier Law School and a leading expert on gambling law. The seizures could lead to a court ruling that actually supports Internet poker, Mr. Rose said.

Previous efforts in Congress to legalize and regulate Internet gambling have failed because of opposition by conservative Republicans and others who worry it would encourage gambling, particularly among gambling addicts and minors.

Mr. Frank and other legalization advocates argue that Internet gambling is a reality, and that consumers would be better off if there were some rules in place to require games to be run fairly and to require age verification of players.

"You've got an industry that already exists. You can't shut it down," said Jan Jones, vice president of government relations for Harrah's Entertainment Inc. Harrah's is one of several companies pushing Congress to legalize online gambling. Ms. Jones said the company would like to enter the business itself.

Rep. Spencer Bachus of Alabama, the ranking Republican on the financial-services panel, has blasted Mr. Frank's legislation, calling it a "clear danger to our youth, who are subject to becoming addicted to gambling at an early age."

The seizures by the U.S. attorney have sparked outrage among online-poker enthusiasts. "I'm screaming mad," said Mike Markee, an online-poker player from Flint, Mich., who said he can't afford most other forms of entertainment. Mr. Markee said he has spent only $123 in the past two months playing Internet poker at least two hours each day.

He said he has stopped playing for now, because he is worried about the government seizures. "I didn't think it was technically illegal. I don't want to jeopardize my job," he said. After the seizures, he emailed his congressional representatives to urge them to protect online poker.

The government has prosecuted online-gambling sites for years, and views most Internet gambling as illegal -- with some important exceptions. Online horse betting is legal in some states, for example. Online gambling sites are legal in many countries outside the U.S., but companies in the industry tread on dangerous legal ground when they cater to U.S. players.

The U.S.'s resistance to legalizing online gambling is part of a nascent trade dispute with the Europe. On Wednesday, the European Union released a report that says U.S. Internet gambling laws violate international trade rules. European companies can't offer gambling services to Americans under the rules, but U.S. companies can offer some online gambling services, such as horse betting, to Europeans.

The EU said Wednesday it would hold off on filing a formal complaint in hopes of negotiating some sort of solution with the Obama administration.

"Internet gambling is a complex and delicate area, and we do not want to dictate how the U.S. should regulate its market," said EU Trade Commissioner Catherine Ashton. "I hope that we will be able to reach an amicable solution to this issue."

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