Stars Group Off the Hook for $870 Million as Appeals Court Shoots Down ‘Absurd’ Kentucky Clawback Lawsuit

Posted on: December 23, 2018, 09:14h. 

Last updated on: December 23, 2018, 09:14h.

Shares in PokerStars parent The Stars Group shot up nearly eight percent on Friday after a panel of Kentucky appellate judges called a fine imposed on the group in 2015 “an absurd and unjust result.”

The Stars Group
Kentucky’s use of a weird 18th century law to claim PokerStars owed it $870 million was laughed out of an appellate court on Friday, putting to bed an eight-year legal battle between the state and the online poker giant. (Image: The Stars Group)

The panel reversed a 2015 judgment by Judge Thomas Wingate which held The Stars Group liable for $870 million — allegedly the amount gambled and lost by Kentucky residents on PokerStars between 2006 and 2011.

In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act but PokerStars continue to accept US bets up until April 2011 when it was closed down by the Department of Justice.

Obscure Law

The State of Kentucky initially sued PokerStars in 2010 using a 200-year-old gambling claw-back law — the Loss Recovery Act (LRA) — which was designed to protect the families of destitute gamblers. Kentucky initially sought $290 million, but later decided to triple the figure. Interest has been building on the fine ever since at a rate of around $8.7 million per month.

At the time trading as Amaya Gaming, The Stars Group argued that the amount gambled by customers in Kentucky on PokerStars was far, far less than the figures claimed by the state, which had been unable to identify any specific individuals who had lost money on the site at all.

The appellate panel sided with the company and emphasized that the LRA was not meant to be used in this way. Instead, it was “intended to promote natural persons who had knowledge of specific instances of illegal gambling to file suit to assist the Commonwealth in enforcing its anti-gambling regulations,” wrote the judges.

“[For the LRA to be used in this way] it would mean that any private person with knowledge of the general nature of Appellants’ electronic gaming format could allege an LRA claim in a wholly conclusory and generic fashion and walk away a billionaire without ever having identified a single gaming transaction with specificity,” they continued.

Kentucky Cash Grab

Kentucky went after several online poker groups in 2010, including PartyPoker and FullTilt, who unsuccessfully tried to have the case dismissed on the grounds that Kentucky had no standing to sue.

When Party merged with bwin in 2011 the combined company paid the state $15 million to make the case go away.

In 2012, the state received a $6 million payment from the federal government from assets seized from Full Tilt, which had collapsed a year earlier. This helped fend off action that would have stalled the remissions process for FullTilt’s former players, who were left out of pocket when the company went under.

The Stars Group inherited the lawsuit — and later the fine — when it acquired PokerStars in 2014 for $4.9 billion.

“We applaud the decision of the highly-respected three-judge panel of the Kentucky Court of Appeals,” stated Marlon Goldstein, Executive Vice President & Chief Legal Officer of The Stars Group, in an official statement. “The merits of the case prevailed, and we look forward to putting this matter behind us as we sharpen our focus on executing on our growth strategy going forward.”