Case Study

Internet Poker: Search for U.S. Assets

Multimillion-Dollar Settlement Reached for Bankruptcy Estate

Challenge

In its first four years of operation, an online poker website skyrocketed to having nearly 30,000 players generating hundreds of millions of dollars in revenue. At the height of its success, the Costa Rica based online company was dealt a bad hand when Congress passed the Unlawful Internet Gambling Enforcement Act (UIGEA), making it a crime to take payment from U.S. players for internet gambling. In a scramble to continue its operations, certain assets of the Norwegian owner of the poker website and its Portuguese subsidiary purportedly were conveyed to another entity. Because of the alleged violations of the UIGEA, several company founders/employees were arrested upon their return to the U.S., while others became fugitives, hiding in South America. The poker website was frozen, and its intellectual property and other assets were subjected to a civil forfeiture action brought by the U.S. Attorney for the S.D.N.Y.

Solution

Trachtenberg Rodes & Friedberg represented the bankruptcy estate trustee of the Norwegian owner of the poker website and its Portuguese subsidiary. We worked closely with a prominent Norwegian law firm to devise strategies to overcome the U.S. government’s forfeiture claim and recapture the assets of the companies.

We discovered that among the companies’ assets was a claim against a prominent U.S. law firm relating to tax advice that resulted in a $20 million tax liability for the companies. Given the sensitivity of asserting a claim of legal malpractice, we proceeded with a high level of discretion. With the help of our colleagues in Norway and tax experts in Portugal, we prepared a draft complaint setting forth the companies’ claims. Upon providing a “courtesy copy” of the complaint to the law firm, we entered into a tolling agreement and engaged in informal discovery. During this process, we uncovered key documents that revealed that the law firm had failed to properly address the interaction between Norwegian and Portuguese tax law and exposed its refusal to consider expert advice from Norwegian tax counsel.

Result

In order to support our client, which had limited funds to pursue this claim, we proceeded on a contingent fee basis. After several settlement/informal mediation conferences and an exchange of position letters, we successfully secured a multimillion-dollar settlement for the bankruptcy estate.