On March 21, 2007, NETeller made a public statement about the funds from U.S. online players that it had frozen. I wrote then that the statement contained both good news and bad. The good news was that NETeller had announced it was going to give back the money.
But, the bad news included that the announcement on March 21 dealt only with the $55 million or so that was seized by the U.S. Attorneys. It did not necessarily cover the other hundreds of millions of dollars from NETeller’s American patrons. On the other hand, NETeller always said it wanted to give back all of its customers’ funds.
My conclusion was that the money was safe — not only was it held in separate escrow accounts, but NETeller is so rich that it could pay back everyone with its own cash.
This turned out to be the case. It appears that everyone got all of their money back from NETeller. NETeller paid no interest, but then, it never did. And who can complain, when the U.S. federal government was claiming it would confiscate every cent.
But the deal NETeller struck with the U.S. Attorneys for the Southern District of New York, which had arrested the two founders of NETeller, was troublesome. American patrons’ funds were returned only after they had been scrutinized by an independent company, Navigant Consulting, Inc. Navigant provided “financial consulting and forensic accounting services to the company, including oversight of the process of returning funds to U.S. customers.”
According to Investopedia.com, “Forensic Accounting” “utilizes accounting, auditing, and investigative skills to conduct an examination into a company’s financial statements. Thus, providing an accounting analysis that is suitable for court.” Dictionary.com continues, “Investopedia Commentary: Forensic accountants are trained to look beyond the numbers and deal with the business reality of a situation. They are frequently used in fraud cases.”
So why was the $55 million seized from U.S. customers’ accounts subjected to this type of scrutiny? There is no allegation that NETeller was involved in anything fraudulent. It would be nice to think that the U.S. Attorneys are worried about money laundering by Islamist terrorists. But, the reality is that the Department of Justice is running a war of intimidation against online poker players.
The DOJ wants to know who has been gambling on the Internet, to scare them, and, more importantly, to see if they paid taxes on their winnings.
I often get emails from players who want to know if they are going to go to jail for betting online. The answer is no. First, it is not against any federal law to make a bet, even with an illegal bookie. Second, although some states do make it illegal to gamble, none care enough to bring charges.
But taxes are a different matter.
Every American who had large amounts of money flowing to, and especially from, NETeller should figure their tax returns for the past few years will be looked at. If the accountants say a person had received thousands of dollars more from NETeller than that person ever deposited, the I.R.S. is going to want to see whether that income was reported.
So, big winners should immediately talk to their accountants. If you haven’t yet filed your tax return for 2006, make sure it includes your gambling winnings (and you can deduct your gambling losses of any kind up to the amount of your winnings).
For prior years, look into filing a 1040X “Amended U.S. Individual Income Tax Return” for any year your gambling winnings were left out, “accidentally.”
©Copyright 2007. Professor I Nelson Rose is recognized as one of the world’s leading experts on gambling law. His latest books, Gaming Law: Cases and Materials and Internet Gaming Law, are available through his website, www.GamblingAndTheLaw.com.
My published works were recently cited in these articles: 1) Mark A. Gottlieb, Richard A. Daynard, and Lissy C. Friedman, "Casinos: an Addiction Industry in the Mold of Tobacco and Opioid Drugs," 2021 University of Illinois Law Review 1711 (2021). Citing I. Nelson...