California Card Room Fined Millions as Gambling Expansion Stalls

California Card Room Fined Millions as Gambling Expansion Stalls

It seems like years have passed since California was the greatest hope for legal online poker in the United States. In fact, several years have passed since lawmakers and interested parties discussed online poker.

As 2019 comes to and end, the distance between gambling expansion supporters and everyone else has grown. This has prevented online poker from even being discussed anymore, and sports betting is now caught in the middle of the ongoing fight between card rooms and tribal casinos.

Meanwhile, one of the largest card rooms in California was just fined $6 million by the state for misleading gambling regulators and violating federal laws related to money laundering prevention.

Suffice it to say that California is further from online poker than ever. And sports betting efforts might fall by the same wayside.

Rise and Fall of Online Poker Hopes

California lawmakers first began pursuing an online poker regulatory framework in 2010. There had always been some disagreements between card rooms and tribal casinos, not to mention horse racing tracks, but compromise seemed possible.

As the years progressed, there was positive movement toward finding middle ground. The horse racing industry agreed to a subsidy deal to leave online poker alone. Lawmakers pulled card room owners and tribal leaders into rooms for discussions.

However, there were several issues that prohibited progress but one primary issue created the final impasse.

PokerStars partnered with several card rooms and one tribe to fight for online poker legislation, but tribal entities formed an opposing coalition that labeled PokerStars a “bad actor.” The tribes refused to accept any proposals that included PokerStars’ ability to be licensed in California. The Poker Players Alliance – when that was still active – refused to talk about online poker without PokerStars.

Lawmakers became so frustrated with the issue that they stopped trying to talk. The last bill was proposed in early 2017 and officially died in September of that year.

One of the California legislature’s primary proponents of online poker refused to even introduce a bill in 2018. And even the thought of it was dismissed out of hand in 2019.

Battle Escalates Between Tribes and Card Rooms

Tension built for years.

The issue at the heart of the tension was banked and percentage-based table games.

Technically, tribal casinos were the only ones allowed to offer true casino-banked table games like blackjack, according to their tribal gaming compacts with the state. California card rooms were supposed to only offer player-banked games per the state’s gambling laws.

However, tribes asserted for years that casinos were using third-party proposition players (TPPPs) to fill the spots and enable the player-banked games to run. Tribes asserted that the practice violated state law and their compacts. They also contended that the rotating bank around the table was not regularly enforced, again breaking the law and violating compacts.

In early 2018, the tribes decided they had enough at a meeting of the California Nations Indian Gaming Association (CNIGA). The mention of a lawsuit by Rincon Band of Luiseno Indians Chairman Bo Mazzetti garnered much attention.

The California Bureau of Gambling Control stepped in to prevent said legal action. The regulator planned to crack down on card rooms with warnings followed by enforcement of the pertinent gambling regulations.

Within a month, the Rincon Band of Luiseno Indians and Santa Ynez Band of Chumash Indians coordinated to file their lawsuit in the California Superior Court. That happened in November 2018, but the defendants filed motions to dismiss several months later. And in April 2019, Judge Timothy Taylor granted significant motions for the defendants with regard to issues of standing.

In May, the two tribes submitted an amended complaint. Meanwhile, several other tribes, including the Viejas Band of Kumeyaay Indians, filed suit against the state of California concerning the same issue. However, that lawsuit was dismissed via granting the defendants’ motion to do so.

Needless to say, the tribes have not been finding a great deal of success in any attempt to push the state and its gambling regulator to enforce gaming compacts and gambling laws.

Enter Sports Betting Enthusiasts

When the US Supreme Court ruled for New Jersey in May 2018, overturning PASPA and allowing states the right to legalize and regulate sports betting at their will, California wanted in on the action, too. As dozens of states took up proposals, California did the same.

Assemblyman Adam Gray introduced a sports betting bill in 2017 before the US Supreme Court ruling, and it remained open into 2018 but eventually died.

In 2019, State Senator Bill Dodd introduced SCA6 with help from Gray. It was referred to committees on July 10 but failed to advance. A coalition of tribes then coalesced to file a ballot measure to change the California constitution to allow sports betting. They want it to appear on the 2020 election ballot. But card rooms and the California Gaming Association believe the bill’s purpose is to put card rooms out of business, allowing the tribes to file civil actions against them.

The overview of the situation indicates another impasse. It seems that the card rooms support SCA6 and the tribes want the ballot measure, and neither will budge due to ever-increasing animosity between the two parties.

Hawaiian Gardens Owes $6 Million

Speaking of California card rooms, the second-largest one in the state is called Hawaiian Gardens and is located in the Los Angeles area.

According to the Associated Press and an L.A. Times report earlier this month, Hawaiian Gardens now owes nearly $6 million in fines as a part of a settlement with the state. The California Gambling Control Commission approved the deal, which includes the fines and compliance with regulations for two years under strict scrutiny.

California Attorney General Xavier Becerra said the card room will pay $3.1 million to the state for misleading gambling regulators and violating a federal law intended to prevent money laundering. The fine is a result of an investigation between California and federal regulators.

The crux of the latest investigation was a previous investigation into Hawaiian Gardens’ gambling practices by the federal Financial Crimes Enforcement Network, a part of the Treasury Department. It kept the information from the California Department of Justice for years, according to Becerra. The result of that investigation is an additional $2.8 million for several violations:

–1. Failing to have an effective anti-money laundering program

–2. Failing to report certain transactions involving currency in amounts greater than $10,000

–3. Failing to report certain suspicious activities

–4. Failing to keep appropriate records between 2009 and 2016

Becerra said they will be under the watchful eye of the state for the next two years, as the card room’s license will depend on strict compliance with the letter of the law.

California Gaming Association President Kyle Kirkland was careful to point out that the violations took place several years ago. He said that there was inaccurate reporting but no direct evidence of money laundering.

The casino responded that it was “pleased to have the settlement finalized” for its community and its 2,000 employees. The statement also noted that there are now “strong procedures in place” and corrective measures to prevent the issues from happening again.

 

About Jennifer Newell

Jennifer began writing about poker while working at the World Poker Tour in the mid-2000s. Since then, her freelance writing career has taken her from Los Angeles to Las Vegas and back to her hometown of St. Louis, where she now lives with her two dogs. She continues to follow the poker world as she also launches a new subscription box company and finishes her first novel. Jennifer has written for numerous publications including PokerStars.com and has followed the US poker and gaming market closely for the last 15 years. Follow Jen on Twitter

Disclaimer: The information on this site is my interpretation of the laws as made available online. It is in no way meant to serve as legal advice or instruction. We recommend that you seek legal advice from a licensed attorney for further or official guidance.

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