How is Pinnacle Involved in US Sports Betting Arrests?

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This article was contributed by a guest author to OPR and involves speculation regarding criminal charges.  All companies and individuals named are presumed innocent until proven guilty.
This article is now a part of our archives and is no longer updated.

Update 10:30am 11/11: According to anecdotal reports, Pinnacle is cracking down on accounts with US connections.

Update 9:00am 11/10: Michael Colbert has pleaded not guilty to the charges facing him.

Update 10:00AM 10/30: Michael Colbert has reportedly been fired from Cantor.  Separate note: We have been unable to obtain a copy of the indictments related to the Extension Software arrests so far.

Update 9:00am 10/28:  In an apparently related action, NY authorities arrested the people allegedly behind Extension Software on Saturday.  Charges stem from “promoting and profiting from online gaming software that provides online sports books the infrastructure to run illegal bookmaking operations” but apparently no accusation that those involved actually took bets.

Update 10:10am 10/26:  Interesting regulation call-to-action / commentary on the story from Matt Youmans at the LVRJ.

Update 10:00am 10/26: EGR (paywall) is reporting that Alderney will be opening an investigation into Pinnacle Sports Europe.  You can read the press release from Alderney here.  Also, the LVRJ has beefed up their main story on the arrests with a few more details and some additional context.

Update 4:30pm 10/25: Pinnacle released a statement posted by asserting that “[N]o Pinnacle Sports employees have been arrested or charged, and Pinnacle Sports itself was not charged in the indictment. We expect no interruptions to our day to day business activities at this time.”

Update 1:21pm 10/25: LVRJ is reporting that Cantor Gaming will be investigated in connection with the arrests.  Cantor has publicly denied any involvement.  Early reports from the LVRJ indicated that Cantor was not a subject of the larger investigation.

Update 12:20pm 10/25:  A copy of the indictment has been released by the Queens DA.  A text-searchable version of the file is available here.

Update 12pm 10/25: ESPN is reporting that the owners of Pinnacle are named in the indictment.

Update 11:45am 10/25:  The Nevada Gaming Control Board has released a statement on the arrests, as has the Queens DA.  Both contain extensive details about the arrests and related charges.

The Las Vegas Review Journal (LVRJ) reported last night that Cantor Gaming executive Mike Colbert, who also manages the sportsbook at The M Resort in Las Vegas, was one of several arrested on charges involving illegal US sports betting.

For more complete details on the arrests and related charges, refer to this copy of the indictments or this press release from the Queens DA.  A total of 25 people from four states have been named at this point.

Clearing up one area of controversy before adding another:  Cantor Gaming has  stated that the charges against Mike Colbert do not involve their company.  The LVRJ article further asserted that: “Gaming and legal sources said the matter does not involve Cantor Gaming and is unrelated to its business in Las Vegas.”

Was Involved?

Quite interesting is this quote from the LVRJ article:

Gaming and legal sources confirmed the charges involve, one of the largest off-shore sports wagering websites. Sources said agents for the website were arrested in several cities Wednesday.

As far as most in the gambling industry are aware stopped servicing American players on January 11, 2007 which was shortly after UIGEA. They certainly come off as a company that has been compliant with various laws and regulatory issues.

On December 19, 2008 they stopped offering betting odds on North American races. On June 13, 2011 they closed their poker room over regulatory concerns. While this was due to the Entraction Network no longer accepting gambling licenses from outside the European Union, Pinnacle did shortly later obtain a EU license from Alderney Gambling Control Commission (AGCC) to supplement their long held Curacao license.

There was speculation that poker brought the company unneeded risks. In many countries outside the United States, sports betting is viewed differently. For example China, Taiwan, Singapore, South Africa, Korea, Australia and Japan are some of the many countries where legal online sports betting is available while online poker is not legal. With poker being a small aspect of Pinnacle’s business and them having no interest in the US market, closing their poker room was likely an easier decision.

Pinnacle Sports has also complied with many additional legal changes around the world. They currently block residents of over two dozen countries from wagering at their website. The specific countries change on a regular basis. For example, due to new laws in Spain, Pinnacle Sports exited the Spanish market on June 7, 2012. So the question is how does a site that blocks players from over two dozen countries, including the United States and its territories, France and its territories, Brunei, Spain, Netherlands, Turkey and others become linked to arrests in the United States involving sports betting?

It’s the opinion of a well-known betting forum poster (who uses the username Prop and manages a portal on betting websites,) that the association is probably a stretch.

In my private conversation with Prop, he did provide some good insights on how the agent system works.

Pinnacle Sports Agent System

As Prop tells it, Pinnacle has “dozens of agents all over the world,” including many in Asia and even many that are properly licensed. Their agents have an interface with many tools, one of which is the ability to create player accounts which have a stated credit limit or balance.

From here the player can log in and make bets using the website. However, they are not actually betting with Pinnacle but rather with the agent. If the agent doesn’t pay them, they cannot go after Pinnacle for the cash. The player’s full relationship is with the agent.

Prop explains that “Pinnacle has no reason to worry about where these bets are coming from so long as their agents are not located in the United States or other countries where there are legal concerns. Agents in most cases are a very legitimate part of the sports betting business.”

An example given was who Prop claims is one of Pinnacle’s many agents. Asian Connect services regulated markets where sports betting is fully legal. They are licensed in Curacao and accept many e-wallets. Players can go through Asian Connect to get access to many low margin bookies through the same agent. They’ll place their bets with the websites of pinnacle, sbobet, ibcbet, eastern dynasty and smartbet but they are actually betting with the agent.

Prop further explained that each company or individual using agent systems at various sites have their own unique deals. “In some cases the agent is a client of the website. All bets placed there by the agent’s players are binding between the agent and the site. In other cases, agents pay a fee to use the software and the bets taken have nothing to do with the company providing the software.”

In either case, and however this works, so long as Pinnacle is not marketing in the United States, not accepting US agents, and not sending payments to and from the US … are they violating US gambling laws?

Pinnacle Sincerely Blocks US Players

Over the course of researching this I spoke with several Americans now living abroad who shared how difficult it was to change their address in order to bet with Pinnacle Sports from their new location.

One player living in Thailand had to send an official translation of house documents. Most others players had to fax utility bills and a local ID before Pinnacle would allow them to change their address in order to bet. One player shared the following email:

Dear Sir,

Please log into your account and update your address details and country.

After doing this, you will receive an email where you will be requested to forward some documents to our Risk Management Department.

If they approve your change of residency, your account will be reopened for wagering.

Please note that no wagers may be placed from the United States.

Kind regards,

Customer Service Department

Pinnacle Sports

This supports the opinion that Pinnacle is likely NOT doing business in the US. This might be the case of private agents taking risks, and Pinnacle having no responsibility to police this as they are not transacting with Americans. Yes, while possibly some sort of deeper connection exists or could be made, there is also the possibility the media loves headlines involving gambling sites. Again, details are not out yet, but unless there are charges made against Pinnacle directly they might not be obligated or have an interest to respond.

We’ll be following and will update this section if new details worth reporting are released.

Other Names Mentioned

In the current Washington Examiner Article there are seven more individuals named. It is reported Ian Mandell, was taken in custody to an area hospital as a precaution. In addition to Mike Colbert others their report states are held in Las Vegas are Kelly R. Barsel, 42, Jerald M. Branca, 67, Steven S. Diano, 48, Brandt A. England, 49, and Joseph D. Paulk, 35; and Henderson resident Paul Sexton, 29.

Early posts on poker forums indicate likeliness this is the same Paul Sexton who was formerly a Full Tilt Poker red pro and is the son of poker player Keith Sexton (no relation to Mike Sexton), though this in not confirmed at this point. Obviously all individuals are innocent until proven guilty in the United States.

Below is a video from the 2005 WSOP featuring a Keith and Paul Sexton:

Is a Larger Story Brewing?

There are a few other early news reports lingering that may be coincidental though could be related. There are a couple threads running about bounced checks from 5Dimes and Bookmaker who are both based out of Costa Rica.

Checks bouncing do happen frequently enough in the US market due to processor issues. With reputable sites such as those just mentioned these are generally replaced quickly or other payment methods are arranged. So again, this very well could be coincidence.

Also in a report by Steven Stradbrooke that rehashes this story there is mention that Baltimore County Police conducted raids on 10 internet café/sweepstakes businesses around the same time Mike Colbert and others were arrested.

The local police issued a statement that revealed it had conducted the raids in conjunction with the US Attorney’s office (which was responsible for the Blue Monday sportsbook indictments). It also said two federal agencies – Immigration and Customs Enforcement and the Department of Homeland Security – were involved in what the police referred to as a year-long investigation.

No arrests were made in these raids and this is likely just a coincidence but is worth following.

Also an update to that same article has been posted which states:

The M Resort is owned by Penn National Gaming. Last week, former thoroughbred owner Michael Gill lost a lawsuit against the Pennsylvania Horse Racing Commission regarding Gill’s ejection from Penn National racetrack in January 2010. On Oct. 17, the Paulick Report claimed Gill “predicted a slew of federal indictments will prove that he was railroaded by Penn National ‘insiders’ who were engaging in offshore betting and other illegal activities.” The Paulick Report article goes on to state that “an FBI investigation of jockeys, jockey agents, trainers, racetrack and Pennsylvania Horse Racing Commission employees will lead to as many as 42 federal indictments. The indictments, Gill said, will involve manipulation of races, offshore gambling, collusion between trainers and test barn personnel, and embezzlement.” Gill is quoted as saying that after these indictments drop, “then we’ll see if people will believe what I was saying at the time about all of the corruption at Penn National.”

No doubt much of the early reports are preliminary here. As mentioned in addition to the arrests made in Las Vegas it is reported Nevada Gaming Control Board Enforcement Chief Jerry Markling mentioned there were also arrests in California and New York. It seems likely more details, names and a list of charges will soon follow.

We’ll be watching the story and will be sure to post an update in time. It will be most interesting to learn what involvement is accused of in this case.

- This article was contributed by an outside author who wishes to remain anonymous. The views of this article may not reflect the views of OPR is not responsible for the content of this user-submitted article.
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