> He says the New York district attorney’s office tried to strong-arm him into a plea agreement that would have had him hacking into the systems of his software clients in order to obtain the usernames and passwords of gamblers and their bookmakers to help authorities gather evidence of illegal gambling.
If the premise of Harvey Silverglate's book, "Three Felonies A Day: How the Feds Target the Innocent,"[0] is correct, then this is quite plausible. A key message from Silverglate's book is that because it is impossible to know if one's behavior is lawful[1], it is impossible to be sure that one operates within the contours of the law at all times. Thus, if you would be convenient to nail not because of anything in particular that you've done but because you can probably be convinced to testify against someone higher up in their chain, beware.
From my recollection of this book, this was a tactic more typically used at the federal level, so either the tactic is spreading or my recollection of its state-level use is just dim.
EDIT: In response to all of the other comments pointing out other absurd choices the authorities could make (they could prosecute Pepsi since they sell soda to these operations, etc), Silverglate's book provides a nice framework for why this programmer would be targeted and not Pepsi. He's not the fodder, but he does have meaningful access to the fodder (whereas Pepsi surely does not).
I would look this up to refresh my memory, but I've loaned out the book. As I recall, states have a higher burden of proof than the federal government. It had to do with most states being bound by English common law tradition, whereas the feds have exempted themselves. So, a writ of habeas corpus, for example, is further undermined at the federal level [1].
The degree of militarization of, and breathtaking overreach by law enforcement depicted here is stunning. 30 camouflaged SWAT officers? To arrest a coder because someone else was using his software illegally? Really?
The case began in February 2011, when Stuart says he and his wife got the Kim Dotcom treatment after about 30 local Arizona law enforcement agents wearing SWAT gear and camouflage dress — some of them with bushes attached to their shoulders to blend into the woods around his house — descended on his home and threatened to send him and his wife to prison for 35 years if he didn’t cooperate.
The search warrant used in the raid said Stuart and his wife were engaged in money laundering, operating an illegal enterprise and engaging in the promotion of gambling. Stuart has tried to obtain a copy of the affidavit used to get the search warrant, but it’s currently sealed.
The conversation for the plea agreement occurred the day after the raid, when Stuart says he was still traumatized by the experience and had only rent-a-lawyers, hired quickly over the internet, to represent him. The lawyers urged him to cooperate and agree to the terms.
And then once they arrested him, this:
Stuart showed Wired a plea agreement (.pdf) signed by former Manhattan Assistant District Attorney James Meadows, which stated that he would plead guilty to second- and fourth-degree money laundering charges and assist the DA’s investigations by, among other things, “aiding in the design of software used to obtain records, usernames, passwords, and other information stored on websites using” his company’s software.
Stuart says authorities specifically told him that they would not use the backdoor themselves but that he would be expected to access the servers of online casinos and others who used his software overseas in order to retrieve the information of gamblers and bookmakers on their behalf.
“They made it clear that they would do nothing. I was expected to do everything, to modify the system to allow myself to get in to get the information they wanted,” he says. “Their whole intention was for me to retrieve information from those databases that were located in foreign countries…. They were going to use me to get to the clients…. But I’m not a hacker, I’m a software developer.”
So in other words, these guys are too lazy to do any of the hard things associated with their job: not investigating, not establishing proof, not getting a valid search warrant that passes the laugh test. So they've decided to find ways around doing their job, and get the accused to do their job for them, via SWAT teams and threats.
The conversation for the plea agreement occurred the day after the raid, when Stuart says he was still traumatized by the experience and had only rent-a-lawyers, hired quickly over the internet, to represent him. The lawyers urged him to cooperate and agree to the terms.
As an aside, this is why you first hire lawyers only to get you out of jail, after which you hire your real lawyers.
The NY State government has a huge hang up about gambling. I've had multiple discussions with NY State liquor control and the AG's office about what they consider "Gambling instruments", which you cannot possess in a establishment that serves alcohol.
Not Gambling instruments:
Darts
Chessboard & Chess Pieces (including checker pieces)
Bowling Balls (and Bowling in general)
Pool cues (and Pool tables & balls)
Gambling Instruments (possession of any of these items is a Class A misdemeanor punishable by up to 1 year in jail):
Deck of cards
Dice
That makes the following games illegal:
Any card game (Poker, Blackjack, Rummy, Go Fish, Solitare)
Yahtzee / Boggle
Trivial Pursuit (just having the cards are OK for some reason)
Candy Land (!!!)
Just to further the point, you can shoot pool, for money, and it's not gambling. But if you carry a child's boardgame into a bar, you've violated NY State gambling laws.
Thanks for the heads up. Sometimes I carry around a deck of cards for entertainment (solitaire or 500 rummy if multiple players are available) -- it's tiny, light and doesn't depend on electronics being available.
Knowing I could be arrested for this in NY makes me really not want to visit that state.
And their unconstitutional stance on gun control, but I digress.
no wait.... in the NY State you can't own a deck of cards? Did I get this right? Is this for real? Because if so this is the most crazy thing I ever read..
Gambling is generally waging money on an outcome determined by (a) chance or (b) the actions of others.
Chess, bowling, pool, and darts are games of skill; all events in the games proceed directly from the player's actions. Players can play these games for money themselves but generally cross into gambling if they place wagers on games in which they are not participating.
Boggle, Yahtzee, and Candyland (among other board games) are largely or entirely based on chance (i.e,. the dice rolls). Similarly, the card games enumerated are also games of chance (because skill is not a meaningful determinant until you reach the upper echelons of players).
NY appears to have gone pretty far overboard with their enforcement of the gambling laws, but the actual laws themselves (i.e., the distinction between gambling and non-gambling) is pretty uniform across the states (excepting NJ and NV).
In other news, people are still looking for the inventor of the hammer to charge him with multiple accounts of manslaughter, consequence of every death in which his invention was used. People with sore thumbs are waiting for a verdict before presenting their griefs.
Faraday commented: "I am not guilty of the use of electricity in Guantanamo"
This is not a fair comparison. A hammer has multiple purposes. In general, it is not an instrument intended to cause harm. Even a gun can be used for a purpose other than causing harm to others -- it can be argued that it serves as a deterrent to violence.
What other purpose could gambling software be used for? It's irrelevant whether it was sold to overseas countries since, given the nature of the internet, New Yorkers would have access to those sites.
I'm not saying that I think what is happening is right, I just think your comparison is unfair.
This is alarming. Gambling laws in the US are antiquated and intellectually dishonest. It is unfortunate the Wire Act of 1961 was written more to stop organized crime than it was to actually help regulate gambling. The language in this piece of legislation is so broad and poorly defined that states often reach conflicting conclusions.
One hopes this guy can afford suitable counsel and get out of this without too much trouble. I sincerely hope a future victory will set a more business-friendly precedent.
Many states are also running gambling monopolies, in the form of lotteries. As with the liquor monopolies that many of these same states run, competition isn't desired. Asking a politician to give up a revenue stream is a difficult task, though not impossible.
Most laws are intellectually dishonest. Creating a legal code that is so big that it's impossible to know what it is and thus, to be able follow it, is intellectually dishonest. Really, the fundamental basis of our legal system is intellectually dishonest.
> At the time of the raid, Stuart had about 20 clients, all of them outside the U.S. in Costa Rica, Panama, Australia, Jamaica, the UK, the Dominican Republic and elsewhere. Now he’s down to 10 clients.
Maybe this was the goal all along. Simply targeting this individual is enough to permanently damage his business. It might even cause others to have second thoughts about developing gambling software. Even if this doesn't end in a conviction the landscape of online gambling software will be altered.
$2.3M in cash and money orders? Isn't that a MASSIVE red flag that you are dealing with unscrupulous people? That's textbook money laundering.
It's alarming on the surface, but he HAD to know he was dealing with criminals with that volume of untraceable payments. I certainly don't think he should be facing criminal charges, but I can't imagine he's actually surprised.
Apparently designed in MS Word, minimal information, no product details (why not?), can't keep their own tagline straight (is it "International Software Systems" or "International Sportsbook Systems"?).
I hope it's not delving into ad hominem territory, but it's a shady website no doubt.
"Stuart had about 20 clients, all of them outside the U.S. in Costa Rica, Panama, Australia, Jamaica, the UK, the Dominican Republic and elsewhere."
Sending Cashier's Checks by mail is pretty much what you'd want to do in the above cases. Visa and MasterCard 6K-40K transactions aren't really going to work out for you too well coming into your PayPal account, especially from the above Countries.
You've removed all fees, all bullshit, and most of the fraud by accepting legitimate bank checks.
> That's textbook money laundering.
Money laundering is the process of concealing the source of money obtained by illicit means.
I don't think he concealed anything, nor was the money obtained illicitly. He licensed a software product.
"Isn't that a MASSIVE red flag that you are dealing with unscrupulous people?"
I used to think so, but there are legitimate and perfectly legal businesses that only accept cash or teller's checks. I recently dealt with a car shipping service that demanded cash (I was suspicious too, but my car is fine and the service was prompt). Some people don't trust banks; some come from countries where banks cannot be trusted.
There is no upper bound on legal cash transactions. We have cash for a reason, and people who pay in cash (even large sums of money) should not be assumed to be criminals (despite what tyrannical forces like the DEA tell you).
First I would point out that the people he would be working with are businessmen like anyone; they don't twist their mustaches and have maniacal laughs.
If he was working with companies in Costa Rica then he was working with companies that are open to US citizens, which he knew because everyone does. That's why the gambling company scene in Costa Rica is so strong, it's like we like it in the US, but at a safe distance.
The idea that a supplier can be held accountable for the actions of the company they are supplying to though... well he would have to have been very closely embedded into the company for him to have had dealings with the payment processing for this to stand a real chance.
In the eyes of the law a wire transfer is considered cash, money orders are negotiable instruments. Probably copy and pasted from a court filing somewhere without realizing what it actually meant.
Maybe we're reading it wrong, but "cash" doesn't have to be hard bills, just in money that he actually received. If they had received wire transfers into a checking account it would be accurate to describe that as "cash".
Maybe I misread the article but I didn't get the sense that the $2.3M was in the last year. If the company has been operating for just over a dozen years that could be total revenue which given the type of software really isn't all that alarming.
It's prosecutions like this one that make businesses wary of providing too much of a paper trail. There are plenty of cases of unjust indictments of innocent people by ruthless and ambitious federal prosecutors, and it is not suspicious that someone distrubuting this kind of software would want to be careful.
This is aside from the fact that gambling is a victimless crime, and it is only made illegal to allow a government monopoly over it.
Not necessarily; what is a Paypal payment? "Money Order" implies simply a monetary transfer in some circles, similar to a Western Union/moneygram transaction.
It seems to me that this Assistant DA was trying to coerce this guy into breaking international law. I would think that some of these foreign countries have laws about hacking (installing back doors, secretly extracting user information, etc.). It could be argued that this Assistant DA could be charged with an attempted conspiracy to violate said international laws. I can imagine a scenario where he goes on vacation outside the US and discovers that there's an international warrant for his arrest.
No way would any country on that list dare cross the US. An international warrant for a US government employee? That shit would get canned faster than you can say State Department.
The irony of this is that unless you have solved the halting problem, how do you want to prove that a given piece of software does not do something illegal like facilitate gambling? They are called "general purpose computers" for a reason.
Your identity is becoming more of a liability than an asset. In the next iteration, guys like this and Kim Dotcom will only be known by pseudonymous online handles and accept payment in bitcoin.
What's the point of an anonymous receiving identity if there's a trail of where the bitcoins came from is visible as soon as you go to use it to pay for house/car/rent/colocation? I must be missing something about Bitcoin's usability for nefarious purposes.
> Seriously, if it wasn't illegal gambling where these people gambled I don't see a problem
That's not the case. What appears to have happened is the guy's software was sub-licensed or resold to a company that took bets from people living in the US (which is, until the US legalizes online gambling, illegal).
However, if you go by the Wired article then the Manhattan DA doesn't actually have any proof that the developer of this software knew this was going on. You can only be an accessory to a crime if you have knowledge of it: selling your gambling software to a company that you knew was running an illegal operation would be a crime. Selling it to a company that subsequently resells it to an illegal operation and doesn't tell you would not.
If you go by the Wired article what seems to have happened is the developer in question had no knowledge of this, but received some terrible legal advice advising him to sign the plea bargain.
"Seriously, if it wasn't illegal gambling where these people gambled I don't see a problem."
Here's the problem: New York State runs a gambling enterprise, the lottery. The lottery is a source of revenue for the state, and it is a sneaky way to tax the poor (who are the most likely to buy lottery tickets, despite the poor odds). New York State does not want competition; they already have to put up with reservation casinos, the lotteries of neighboring states, Atlantic City, etc. The last thing they want is another gambling operation that is more exciting and has a higher profit potential.
This guy made the critical mistake of treating his customers with respect. I would have turned state's witness, installed the backdoor, and kept cashing the checks. Don Aronow would approve.
And STILL be prosecuted for 2nd and 4th degree money laundering, and STILL need to extract dirt on all your clients (which your other clients would possibly find out and help you accidentally die in a plane crash).
In cases like this I have always wondered if you could ask the judge/jury if they would also shut down Dell, Microsoft, Apple etc. as the wares from these companies are also used?
"Under plea agreement discussions that were never finalized by a judge, and that occurred in February 2011 before Stuart was charged with any crime, Stuart says New York authorities pressed him to install a backdoor in his software and distribute it to clients so the data of gamblers and bookmakers could be retrieved."
I hope the Bitcoin community is paying attention to this.
When balancing my dislike for furthering the practice of gambling with my dislike for the increasingly excessive use of force by the politicians and their servants, I think I should still side with the software developer. Since the politicians and their servants seem to be trying to intimidate our side, I would be for a solution in which we start intimidating back. Otherwise, our own position will keep eroding until nothing's left.
Do the machines the software ran also had windows or linux ... and the sites were listed in google. i see a lot of fat amicus briefs flooding the courts.
[+] [-] carbocation|13 years ago|reply
If the premise of Harvey Silverglate's book, "Three Felonies A Day: How the Feds Target the Innocent,"[0] is correct, then this is quite plausible. A key message from Silverglate's book is that because it is impossible to know if one's behavior is lawful[1], it is impossible to be sure that one operates within the contours of the law at all times. Thus, if you would be convenient to nail not because of anything in particular that you've done but because you can probably be convinced to testify against someone higher up in their chain, beware.
From my recollection of this book, this was a tactic more typically used at the federal level, so either the tactic is spreading or my recollection of its state-level use is just dim.
EDIT: In response to all of the other comments pointing out other absurd choices the authorities could make (they could prosecute Pepsi since they sell soda to these operations, etc), Silverglate's book provides a nice framework for why this programmer would be targeted and not Pepsi. He's not the fodder, but he does have meaningful access to the fodder (whereas Pepsi surely does not).
[0] = http://www.amazon.com/Three-Felonies-Day-Target-Innocent/dp/...
[1] = In contrast, it's often quite possible to know when one's behavior is unlawful.
[+] [-] jmaygarden|13 years ago|reply
[1] http://scholar.google.com/scholar_case?case=1359676152299318...
[+] [-] n3rdy|13 years ago|reply
[+] [-] Bud|13 years ago|reply
The case began in February 2011, when Stuart says he and his wife got the Kim Dotcom treatment after about 30 local Arizona law enforcement agents wearing SWAT gear and camouflage dress — some of them with bushes attached to their shoulders to blend into the woods around his house — descended on his home and threatened to send him and his wife to prison for 35 years if he didn’t cooperate.
The search warrant used in the raid said Stuart and his wife were engaged in money laundering, operating an illegal enterprise and engaging in the promotion of gambling. Stuart has tried to obtain a copy of the affidavit used to get the search warrant, but it’s currently sealed.
The conversation for the plea agreement occurred the day after the raid, when Stuart says he was still traumatized by the experience and had only rent-a-lawyers, hired quickly over the internet, to represent him. The lawyers urged him to cooperate and agree to the terms.
And then once they arrested him, this:
Stuart showed Wired a plea agreement (.pdf) signed by former Manhattan Assistant District Attorney James Meadows, which stated that he would plead guilty to second- and fourth-degree money laundering charges and assist the DA’s investigations by, among other things, “aiding in the design of software used to obtain records, usernames, passwords, and other information stored on websites using” his company’s software.
Stuart says authorities specifically told him that they would not use the backdoor themselves but that he would be expected to access the servers of online casinos and others who used his software overseas in order to retrieve the information of gamblers and bookmakers on their behalf.
“They made it clear that they would do nothing. I was expected to do everything, to modify the system to allow myself to get in to get the information they wanted,” he says. “Their whole intention was for me to retrieve information from those databases that were located in foreign countries…. They were going to use me to get to the clients…. But I’m not a hacker, I’m a software developer.”
So in other words, these guys are too lazy to do any of the hard things associated with their job: not investigating, not establishing proof, not getting a valid search warrant that passes the laugh test. So they've decided to find ways around doing their job, and get the accused to do their job for them, via SWAT teams and threats.
[+] [-] rhizome|13 years ago|reply
As an aside, this is why you first hire lawyers only to get you out of jail, after which you hire your real lawyers.
[+] [-] bostonpete|13 years ago|reply
I would have assumed this wasn't laziness, but a desire to avoid having their fingerprints on potentially illegal activities.
[+] [-] rograndom|13 years ago|reply
Not Gambling instruments:
Darts Chessboard & Chess Pieces (including checker pieces) Bowling Balls (and Bowling in general) Pool cues (and Pool tables & balls)
Gambling Instruments (possession of any of these items is a Class A misdemeanor punishable by up to 1 year in jail):
Deck of cards Dice
That makes the following games illegal:
Any card game (Poker, Blackjack, Rummy, Go Fish, Solitare) Yahtzee / Boggle Trivial Pursuit (just having the cards are OK for some reason) Candy Land (!!!)
Just to further the point, you can shoot pool, for money, and it's not gambling. But if you carry a child's boardgame into a bar, you've violated NY State gambling laws.
[+] [-] csense|13 years ago|reply
Knowing I could be arrested for this in NY makes me really not want to visit that state.
And their unconstitutional stance on gun control, but I digress.
[+] [-] caf|13 years ago|reply
[+] [-] otoburb|13 years ago|reply
[+] [-] duiker101|13 years ago|reply
[+] [-] rprasad|13 years ago|reply
Chess, bowling, pool, and darts are games of skill; all events in the games proceed directly from the player's actions. Players can play these games for money themselves but generally cross into gambling if they place wagers on games in which they are not participating.
Boggle, Yahtzee, and Candyland (among other board games) are largely or entirely based on chance (i.e,. the dice rolls). Similarly, the card games enumerated are also games of chance (because skill is not a meaningful determinant until you reach the upper echelons of players).
NY appears to have gone pretty far overboard with their enforcement of the gambling laws, but the actual laws themselves (i.e., the distinction between gambling and non-gambling) is pretty uniform across the states (excepting NJ and NV).
[+] [-] jorgeleo|13 years ago|reply
Faraday commented: "I am not guilty of the use of electricity in Guantanamo"
[+] [-] suby|13 years ago|reply
What other purpose could gambling software be used for? It's irrelevant whether it was sold to overseas countries since, given the nature of the internet, New Yorkers would have access to those sites.
I'm not saying that I think what is happening is right, I just think your comparison is unfair.
[+] [-] danielweber|13 years ago|reply
He sold gambling software while living in a state where gambling was illegal.
I'm all ears for arguments that gambling shouldn't be illegal or that prosecutors abuse their authority or many other arguments.
[+] [-] sheraz|13 years ago|reply
One hopes this guy can afford suitable counsel and get out of this without too much trouble. I sincerely hope a future victory will set a more business-friendly precedent.
[+] [-] noarchy|13 years ago|reply
[+] [-] wissler|13 years ago|reply
[+] [-] Hawkee|13 years ago|reply
Maybe this was the goal all along. Simply targeting this individual is enough to permanently damage his business. It might even cause others to have second thoughts about developing gambling software. Even if this doesn't end in a conviction the landscape of online gambling software will be altered.
[+] [-] unknown|13 years ago|reply
[deleted]
[+] [-] unknown|13 years ago|reply
[deleted]
[+] [-] jcromartie|13 years ago|reply
It's alarming on the surface, but he HAD to know he was dealing with criminals with that volume of untraceable payments. I certainly don't think he should be facing criminal charges, but I can't imagine he's actually surprised.
Also, their website: http://www.extensionsoft.com/index.htm
Apparently designed in MS Word, minimal information, no product details (why not?), can't keep their own tagline straight (is it "International Software Systems" or "International Sportsbook Systems"?).
I hope it's not delving into ad hominem territory, but it's a shady website no doubt.
[+] [-] powertower|13 years ago|reply
Sending Cashier's Checks by mail is pretty much what you'd want to do in the above cases. Visa and MasterCard 6K-40K transactions aren't really going to work out for you too well coming into your PayPal account, especially from the above Countries.
You've removed all fees, all bullshit, and most of the fraud by accepting legitimate bank checks.
> That's textbook money laundering.
Money laundering is the process of concealing the source of money obtained by illicit means.
I don't think he concealed anything, nor was the money obtained illicitly. He licensed a software product.
[+] [-] betterunix|13 years ago|reply
I used to think so, but there are legitimate and perfectly legal businesses that only accept cash or teller's checks. I recently dealt with a car shipping service that demanded cash (I was suspicious too, but my car is fine and the service was prompt). Some people don't trust banks; some come from countries where banks cannot be trusted.
There is no upper bound on legal cash transactions. We have cash for a reason, and people who pay in cash (even large sums of money) should not be assumed to be criminals (despite what tyrannical forces like the DEA tell you).
[+] [-] weego|13 years ago|reply
If he was working with companies in Costa Rica then he was working with companies that are open to US citizens, which he knew because everyone does. That's why the gambling company scene in Costa Rica is so strong, it's like we like it in the US, but at a safe distance.
The idea that a supplier can be held accountable for the actions of the company they are supplying to though... well he would have to have been very closely embedded into the company for him to have had dealings with the payment processing for this to stand a real chance.
[+] [-] dsl|13 years ago|reply
[+] [-] jonknee|13 years ago|reply
[+] [-] axisK|13 years ago|reply
[+] [-] numeromancer|13 years ago|reply
This is aside from the fact that gambling is a victimless crime, and it is only made illegal to allow a government monopoly over it.
[+] [-] sbhere|13 years ago|reply
[+] [-] inetsee|13 years ago|reply
[+] [-] sleazebreeze|13 years ago|reply
[+] [-] revelation|13 years ago|reply
[+] [-] unabridged|13 years ago|reply
[+] [-] gknoy|13 years ago|reply
[+] [-] vaadu|13 years ago|reply
[+] [-] hef19898|13 years ago|reply
Let them find proof for the charges. Sad thing is that it actually hurt an otherwise legal business.
This and the whole megaupload story show very much the problem of law enforcement and the de-facto borderless nature of the internet.
[+] [-] objclxt|13 years ago|reply
That's not the case. What appears to have happened is the guy's software was sub-licensed or resold to a company that took bets from people living in the US (which is, until the US legalizes online gambling, illegal).
However, if you go by the Wired article then the Manhattan DA doesn't actually have any proof that the developer of this software knew this was going on. You can only be an accessory to a crime if you have knowledge of it: selling your gambling software to a company that you knew was running an illegal operation would be a crime. Selling it to a company that subsequently resells it to an illegal operation and doesn't tell you would not.
If you go by the Wired article what seems to have happened is the developer in question had no knowledge of this, but received some terrible legal advice advising him to sign the plea bargain.
[+] [-] betterunix|13 years ago|reply
Here's the problem: New York State runs a gambling enterprise, the lottery. The lottery is a source of revenue for the state, and it is a sneaky way to tax the poor (who are the most likely to buy lottery tickets, despite the poor odds). New York State does not want competition; they already have to put up with reservation casinos, the lotteries of neighboring states, Atlantic City, etc. The last thing they want is another gambling operation that is more exciting and has a higher profit potential.
[+] [-] n3rdy|13 years ago|reply
Those drinks are being sold to gamblers and these soft drink companies are benefiting directly from gambling proceeds!
[+] [-] frere|13 years ago|reply
[+] [-] techtalsky|13 years ago|reply
[+] [-] therandomguy|13 years ago|reply
[+] [-] MaysonL|13 years ago|reply
[+] [-] 16s|13 years ago|reply
[+] [-] nacker|13 years ago|reply
I hope the Bitcoin community is paying attention to this.
[+] [-] codesuela|13 years ago|reply
[+] [-] eriksank|13 years ago|reply
[+] [-] venomsnake|13 years ago|reply