(CN) – The government can maintain control of the credit union that acted as a clearinghouse for accounts on PokerStars and Full Tilt Poker, the embattled online gambling giants on lockdown by U.S. prosecutors, a federal judge ruled.
Arizona-based Vensure Federal Credit Union filed a petition to show cause challenging conservatorship by the National Credit Union Administration, which took effect on April 15. That same day, federal prosecutors in Manhattan filed civil and criminal actions against PokerStars and Full Tilt, accusing the world’s largest online poker sites of money laundering and taking billions of dollars in illegal bets from U.S. citizens. The government is seeking forfeiture of the websites’ funds, which are held in various financial institutions.
Vensure provides automated clearinghouse services to one such institution, Trinity Global, and takes a fee every time poker players deposit or withdraw money from their online accounts.
The National Federal Credit Union first alerted Vensure about deficiencies with its operations in 2009, when the company was known as Great Adirondack. By 2010, the federal agency said Vensure was in full compliance but noted that its relationship with Trinity posed a “strategic risk.” It said, omnisciently, Vensure’s capital would be threatened if Trinity were to end up in bankruptcy or become insolvent, given the questionable legality of internet gambling. In January 2011, the agency recommended that Vensure stop processing such payments “immediately,” but Vensure did not heed the warning, saying it had a contractual obligation to give Trinity 180 days’ notice before ceasing clearinghouse payments.
U.S. District Judge Rosemary Collyer ruled on June 24 that the agency proved it had grounds to act as conservator of Vensure as an emergency action since the government froze Trinity’s assets.
Several portions of 12-page decision, explaining the government’s reasoning for taking control of Vensure and the problems with clearinghouse services, are blacked out. The censored filing was only recently made available to the public. Collyer does quote from findings of fact the court made on May 11.
“I just have to find [Vensure] didn’t read the tea leaves, it didn’t take action, and it then left itself terribly at risk if something should happen to its access to Trinity’s funds, which indeed happened,” Collyer said. “It didn’t happen because of NCUA. It happened because of criminal enforcement or investigation. That is not to suggest that Trinity engaged in criminal behavior, I have no idea. …
“The business model collapsed in a heartbeat. Since there were inevitably and always empty returns, as I’ve labeled them, meaning money handling that came back with insufficient funds, Vensure was left with an obligation to pay up on those and no access to Trinity monies, exactly the risk foreseen by NCUA and not previous experienced by Vensure. …
“I cannot find that NCUA on this record acted arbitrarily and capriciously or irrationally and unlawfully in putting this credit union into conservatorship. …
“It may be that had Vensure management been allowed to maintain the business through this perfect storm of events, they would have been able to hasten their attention to new lines of business. But they did not do so for months and months and months and I don’t think can now be heard to cry wolf that they haven’t been given that opportunity once the perfect storm happened.”