An officer of a St. George bank was arrested Friday morning as part of a federal criminal indictment involving the processing of illegal online gambling payments, a case that also involves prominent Utah businessman and philanthropist Jeremy Johnson.
John Campos, vice chairman of the board and part-owner of SunFirst Bank, was arrested in St. George and is to appear Monday before a federal magistrate there.
Campos was alleged to have made a deal with a processor for two of the three largest online poker companies to use the bank to accept payment from gamblers in exchange for a $10 million investment in SunFirst and a $20,000 bonus to him for consulting services.
Arrested in Las Vegas was Chad Elie, a businessman with ties to Johnson. Johnson was not named in the indictment but in documents in another case, Elie said Johnson approached him in 2009 and said he had a trusted relationship with SunFirst Bank that they could use to process payments on behalf of Elie's clients, who the indictment says were online poker companies.
A 2006 law makes it a federal crime for gambling businesses to knowingly accept most forms of payment for illegal Internet gambling. Because of the law, Internet gambling companies that are located overseas concocted various schemes to use separate processing companies to hide the purpose of the payments from U.S. customers, the indictment says.
Elie and Johnson, known for his philanthropy efforts in Haiti and for use of his helicopter to aid Utah law enforcement efforts, together with a man named Andrew Thornhill, approached Campos in the fall of 2009. That came after the poker companies PokerStars, Full Tilt Poker and Absolute Poker decided they needed "transparent processing" when previous schemes involving credit cards and electronic checks kept getting shut down by Visa, MasterCard and banks.
"As a result of his trusted relationship with SunFirst, Johnson represented to me that he was in a unique position to ensure that I could successfully process for my online merchants," Elie said in a declaration for a lawsuit he filed against Johnson for allegedly denying him at least $10 million in profit from their joint venture.
Campos agreed to the scheme, though the indictment and a complaint do not say any other bank officials knew of the connection to gambling operations.
"Campos, while expressing 'trepidations' about gambling processing, proposed in a September 23, 2009, e-mail to accept such processing in return for a $10 million investment in SunFirst by Elie and Elie's partner, which would give Elie and Elie's partner more than 30 percent ownership of the bank," according to the indictment.
The $10 million was not invested in SunFirst, according to its attorney, Loren Weiss of Salt Lake City, though the indictment says Elie and the partner did put in $3.4 million in December of 2009.
The arrangement led Thornhill, a representative of an Australian processing company who was not indicted, to tell an associate "things are going well with the bank we purchased in Utah and my colleagues and I are looking to purchase another bank for the purpose of repeating our business plan," the indictment says.
SunFirst processed over $200 million in payments for PokerStars and Full Tilt Poker through Nov. 9 of last year, earning it about $1.6 million in fees, according to the indictment.
Weiss said no one else at SunFirst knew of the relationship with the gambling companies and the bank had no connections with them but rather with the processors.
"They had no relationship with poker," he said.
Bank customers said Friday afternoon they had not heard of the arrest of Campos. Some did not think it would affect their relationship with SunFirst.
In December, the Federal Deposit Insurance Corp. ordered SunFirst Bank to stop providing payment services to companies controlled by Johnson.
That was after Johnson was sued by the Federal Trade Commission. The suit in federal court in Las Vegas alleges Johnson, his iWorks company and related entities defrauded online customers in a scheme in which they paid a minimal fee for information and services but then were billed as much as about $60 a month for services they had not knowingly agreed to.
Johnson's companies took in about $350 million and he pocketed more than $48 million from the businesses, according to the FTC.
An e-mail to Johnson's attorneys in Las Vegas seeking comment on the gambling indictment had not been returned as of early Friday evening.
Court papers in the FTC case show that he lost at least $2.8 million gambling in Las Vegas, where he was a frequent customer at Wynn Las Vegas, the MGM Grand, other MGM Resorts properties, and that he also gambled online at fulltiltpoker.com, as well as in Reno and Mesquite.
In a deposition in January, Johnson told an FTC attorney he used money from his companies to gamble, but that after he shut them down because of the lawsuit he no longer had that income and "it's been a really good cure for me, my addiction."
"So do you feel like you were addicted to gambling before?" asked Collot Guerard, the FTC attorney.
"I did use that word, didn't I? I guess so," said Johnson.
According to the indictment, PokerStars is based on the Isle of Man, Full Tilt in Ireland and Absolute Poker in Costa Rica.
"These defendants concocted an elaborate criminal fraud scheme, alternately tricking some U.S. banks and effectively bribing others to assure the continued flow of billions in illegal gambling profits," said Prett Bharara, the U.S. Attorney for the southern district of New York, in a statement. "To circumvent the gambling laws, the defendants also engaged in massive money laundering and bank fraud."
Reporter Mark Havnes contributed to this story.
How it worked
It is illegal in the U.S. to process credit card and other payments meant for online gambling.
As a result, overseas poker companies have relied on third-party processors that constructed elaborate facades to hide the money's destination. They created dozens of fictitious online sites, such as flower sellers and pet supply stores, that made it appear payments came from retail sales.
When banks halted processing those transactions, the companies turned increasingly to electronic checks.
Banks and federal authorities began to catch on to the e-checks, too, freezing and seizing funds from the accounts, so the poker companies engaged in a strategy of "transparent processing."
That strategy involved not lying to banks, and apparently led to the alleged agreement to invest in SunFirst Bank in return for processing payments.
Source: Federal indictment