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Gunning for Cheats

Two online poker regulars uncover a scam fleecing unsuspecting players of millions of dollars.
Michael Kaplan
From the Print Edition:
Daniel Craig, November/December 2008

(continued from page 1)

Very quickly, however, the tone on the site changed. Players began posting their experiences against NioNio and others who exhibited similar patterns. As evidence built, it became increasingly difficult to attribute NioNio's success to luck or superior poker skills. "You know someone's cheating when you miss your flush draw and bet with, say, Queen-high on the river and a guy calls you with King-high," says Nat Arem, vice president of information technology at a company that runs Web sites, who did some of the later detective work. "That can happen once or twice for a lot of different reasons. But if it happens 10 times, something is most definitely wrong."

One day later, a poster by the name of Michael Josem ran the numbers and came up with the probability of NioNio winning at his extraordinary rate. Josem pointed out that NioNio operated at nine standard deviations above the mean. This would be the equivalent of winning three consecutive one-in-a-million lotteries. Within three days, it became clear that at least $600,000 had been heisted from the stacks of UltimateBet's legitimate no-limit Hold'em players. What nobody realized was that the six-figure amount was just the tip of the iceberg. It has recently been estimated that UltimateBet's high-limit players have been scammed out of a sum that exceeds $6.1 million.

Paul Leggett, chief operating officer of UltimateBet, says he found out about the cheating on January 12, after receiving "a complaint from a customer." A couple of months after the original discovery, he issued a press release, acknowledging his awareness of the scam.

"I've been told that it was [built around] a dormant auditing tool," he says, speaking to me via telephone from a hotel room in Vancouver. The tool in question was a piece of software that creates a so-called super-user account, which allows the user to see players' hole cards in real time. "The super-user account viewed hole cards and another account sat at the table and played." When you can see your opponent's cards, the biggest challenge is to not get greedy and to not arouse suspicion. Winning money is a given.

For all the success that the cheaters had, their execution is not technologically outré or inventive. It's simply a modernized version of the old-fashioned peeps that served the exact same purpose. Somebody would drill a hole in a hotel room ceiling, outfit it with a lens, signal a confederate in the game and fleece unsuspecting victims. Leggett says that the primary perpetrator—who, according to an investigation headed up by Catania Gaming Consultants, has proven to be 1994 World Series of Poker champion Russ Hamilton—was involved with UltimateBet at a high level when it was under previous ownership. (The current owners, who hired Leggett, purchased the site in October 2006.)

Leggett says that the scam was perpetrated with 19 accounts and 88 user names—such as Sleepless, NoPaddles and nymobser. "Because [these people who pulled off the scam] used to work for the company, they knew how to move money around. There was a complex web of money movement." Complicating things further is a $75 million lawsuit, related to the cheating scandal, that came to light as this issue was going to press. According to MSNBC, Blast-Off Ltd., a Malta-based company that has an ownership stake in UltimateBet, is suing Canada's Excapsa Software Inc., which formerly owned and licensed UltimateBet's poker software. For Annie Duke, a poker pro who's had consulting deals with UltimateBet almost from its inception, the fact that large sums of money changed hands on the site without arousing suspicion was symptomatic of a systemic problem. "People would break rules on the site"—often relatively small rules, like letting loose with offensive chat—"and if they were big players, the site would let it go," she says. "Rules applied differently to some people than they did to others." Duke says she argued for everybody to follow the same rules, and she says that if equality had been part of UltimateBet's DNA, cheating would have been much more difficult to pull off. "Huge sums of money were transferred, and they should have been investigated. But because the person doing the transfers was a friend of the site, they did not get looked at. That should have raised red flags." And the red flags, in turn, would have led to a closer look at how those large sums were generated. But because Hamilton had a longstanding affiliation with site management, scrutiny was dispensed with.

The flouting of rules allowed the scam to run smoothly for almost three years. And if not for a chance conversation between two disgruntled players, none of this would have even come to light. How does Leggett feel about the customers who policed his site in this manner? "It was impressive," he allows. "The people who uncovered this are some of the smartest people I've ever met."

Nat Arem resides among that brainy contingent. As news of the cheating spread, Arem used contacts in the industry to find real identities behind the screen identities. Long before the recently completed investigation that placed Hamilton at the center of the scam, Arem began naming names and going public. Hamilton (who declined to be interviewed for this story), at the time, denied it vociferously. Leggett vows that Hamilton will be prosecuted to whatever degree possible. That ambition may prove to be a little tricky since online poker remains unregulated in the United States. Considering that Arem had long-ago uncovered damning evidence that pointed toward Hamilton, few in the poker world are now surprised that Hamilton is the primary culprit. More unexpected is that he has been publicly named. Prior to the revelation, players speculated that a fall guy would be paid to take the rap. Others believed that Hamilton's identity would never be officially exposed for reasons best understood by Leggett. Why UltimateBet would have super-user accounts, which allow access to hands in real time, is not exactly clear. "Some people say it was designed to monitor what is going on while hands are being played," says Arem. "Some people say it was designed for cheating in the first place. Some people say that it was designed for development."

Whatever the original purpose, it evolved into a serious liability for the new owners of UltimateBet. Once it became clear what had been perpetrated and the damage that it could inflict on the company's reputation, Leggett took action. His first step was an attempt to resolve the problem. "We went on a three- to four-week rampage to find the code that allowed this to happen," he says. "We eventually found code on the server for a specific user account that was getting information."

The code was dismantled. But it still left UltimateBet with a number of damaged, angry players. Hanging in the balance was the site's credibility. The scandal ran so deep, and was so destructive, that it jeopardized the very existence of the company. If UltimateBet was a rogue site, why would anybody play on it? In an effort to rebuild the site's reputation, Leggett vowed to make players whole. "We are refunding everything that players on our site lost to the cheaters," says Leggett. "But if you won a pot, you don't get to keep the cheater's money. We are refunding net loss."

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