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Esports, Skins Betting, and Wire
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Sam C Ehrlich
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[2017] 8 GLR : HOLDEN AND EHRLICH : ESPORTS AND WIRE FRAUD
esports, skins
betting, and
wire fraud
vulnerability
JOHN T. HOLDEN AND SAM C. EHRLICH
Downloaded by FLORIDA STATE UNIV from www.liebertpub.com at 09/03/20. For personal use only.
John T. Holden, JD, PhD, is a visiting scholar in the Department of Sports Management at Florida State University in
Tallahassee, Florida.
Sam C. Ehrlich, JD, is a doctoral student in the Department of
Sports Management at Florida State University in Tallahassee,
Florida.
INTRODUCTION
sports are now entering at least their fourth
decade and are accessible internationally
thanks to widespread global high speed Internet access.1 The increasing recognition
of esports in North America as a legitimate
force in the sporting and entertainment markets follows years of acceptance in other markets, such as
those in South Korea.2 Consequently, the growth of
E
Keywords: esports, wire fraud, skins betting, corruption, cryptocurrency, CS:GO
DOI: 10.1089/glr2.2017.2183 © 2017 Mary Ann Liebert, Inc.
1
See Donghun Lee and Linda J. Schoenstedt, Comparison of eSports and Traditional Sports Consumption Motives, 6 ICHPER-SD JOURNAL OF RESEARCH IN
HEALTH, PHYSICAL EDUCATION, RECREATION, SPORT & DANCE 39 (2011). Lee and
Schoenstadt differentiate between what they call the arcade era and the Internet era,
though for the purposes of this article, this distinction is not meaningful though our
focus would fall within the authors’ “Internet era.” It is important to note that this
article is focused on the application of the federal wire fraud statute, but recognizes
the fact that other federal and state level statutes, including the Wire Act, 18 U.S.C.
§ 1084 (1961) or the Illegal Gambling Business Act, 18 U.S.C. § 1955 (1970), are
potentially relevant. Though the application of the Wire Act may hinge on whether
esports are considered to be a sport. See John T. Holden, Anastasios Kaburakis, and
Ryan M. Rodenberg, The Future Is Now: Esports Policy Considerations and
Potential Litigation, 27 J. LEGAL ASPECTS OF SPORT 46 (2017).
2
See Sean Comerford, International Intellectual Property Rights and the Future of
Global “E-Sports,” 37 BROOK. J. INT’L L. 623 (2012). Comerford noted that South
Korea has the most advanced esports infrastructure including a dedicated broadcast
partner. See also John T. Holden, Ryan M. Rodenberg, and Anastasios Kaburakis,
Esports Corruption: Gambling, Doping, and Global Governance, 31 MD. J. INT’L L.
(2017), available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2831718.
3
For instance, market research company SuperData estimated that the industry
received $892.8 million in revenue in 2016 with projected growth showing the
industry passing $1 billion in revenue by 2019. eSports Market Report 2016,
S UPER DATA, https://www.superdataresearch.com/market-data/esports-marketreport-2016/. Whereas the skins gambling industry discussed infra was estimated to be worth up to $7.4 billion in 2016. See Joshua Brustein and Eben Novy-
ancillary betting markets has followed. One particular sub-segment of the betting market eclipses the
value of the esports North American market itself:
the skins betting market.3 The esports betting market
can be segmented into 1) the market that accepts real
money wagers on esports competitions, and 2) the
market that uses virtual weapons skins from games
like Counter-Strike: Global Offensive (CS:GO) to
fuel an abundance of different gambling options,
ranging from esports sportsbook betting to the acceptance of wagers on virtual coin flips.4
Weapons skins are decorative, and often garish, cosmetic ascriptions to knives and weapons within CS:
GO. While skins-like tradable items are available in
other popular games, including Defense of the Ancients 2 (DotA 2), the focus of this article is on
CS:GO skins.5 The emergence of the skins betting
industry raises an important question: Does the skins
betting industry violate federal or state gambling
laws?6 The question has become more prescient
given a series of cases involving social casino games
where a variety of federal courts have declined to extend gambling laws to transactions involving ingame currencies.7 The application of most gambling
laws to skins betting appears to be questionable—
absent a finding that skins constitute something of
value or a prize.8 Despite this, prosecutors seeking
Williams, Game-Maker Valve Moves to Choke Off $7.4 Billion Gambling Market,
BLOOMBERG (July 13, 2016 6:18 PM), https://www.bloomberg.com/news/articles/
2016-07-13/game-maker-valve-moves-to-choke-off-7-4-billion-gambling-market.
4
See generally WILL GREEN, NARUS ADVISORS, SKINS IN THE GAME: THE SIZE OF ESPORTS
SKIN BETTING IN 2016, ITS CONVOLUTED CLOSURE, AND HOW IT COULD SHAPE THE FUTURE
OF ESPORTS WAGERING (2016), available at http://www.esportsbettingreport.com/sites/
skin/.
5
Both CS:GO and DotA 2 are manufactured by Valve Corporation and utilize the
Valve-owned Steam platform to facilitate the transfer of skins and in-game items.
See Games, About, VALVE (2017), http://www.valvesoftware.com/games/.
6
See generally John T. Holden, Anastasios Kaburakis, and Ryan M. Rodenberg,
The Future Is Now: Esports Policy Considerations and Potential Litigation, 27 J.
LEGAL ASPECTS OF SPORT 46 (2017).
7
See Soto v. Sky Union LLC, 159 F. Supp. 3d 871 (N.D. Ill. 2016); Philips v.
Double Down Interactive, LLC, 173 F. Supp. 3d 731 (N.D. Ill. 2016); Ristic v.
Machine Zone, No. 15-cv-8996, 2016 WL 4987943 (N.D. Ill. 2016); Dupee v.
Playtika Santa Monica, No. 1:15-cv-1021, 2016 WL 795857 (N.D. Ohio 2016);
Mason v. Machine Zone, 851 F.3d 315 (4th Cir. 2017); see also Kater v. Churchill
Downs, Inc. No. 2:15-cv-00612-MJP, 2015 WL 9839755 (W.D. Wash. 2015).
8
While the appearance of a market rate for skins would lead some to determine that
skins are a thing of value akin to money, this fact has not been adopted by U.S.
courts to date, though the United Kingdom Gambling Commission has recommended that such a view be adopted in the UK. See UNITED KINGDOM GAMBLING
COMMISSION, VIRTUAL CURRENCIES, ESPORTS AND SOCIAL CASINO GAMING—POSITION
PAPER (Mar. 2017), available at http://www.gamblingcommission.gov.uk/PDF/
Virtual-currencies-eSports-and-social-casino-gaming.pdf (hereinafter UNITED
KINGDOM GAMBLING COMMISSION).
HOLDEN AND EHRLICH : ESPORTS AND WIRE FRAUD : [2017] 8 GLR
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to deter fraud possess a handy statutory tool within
their utility belt, a Swiss army knife of statutes called
the federal mail and wire fraud statutes.9
Indeed, the wire fraud statute was recently used as a
means of prosecution involving one in-game currency.10 Anthony Clark was charged with one count of
violating the federal wire fraud statute for his actions
in developing a scheme to fraudulently obtain FIFA
coins, a type of in-game currency within the popular
FIFA video game series.11 The prosecution alleged
that by manipulating the game to award Clark and
his co-conspirators FIFA coins at a faster rate than
regular game play, they had fraudulently obtained
the game maker Electronic Arts’ (EA) property.12
The defendants would then sell the FIFA coins on
a secondary market, generating millions of dollars
in profits.13 The defendant’s assertion that he had
not fraudulently obtained any property because
EA’s terms of service determined that the FIFA coins
had no value was found to be unconvincing, as was
the argument that EA had not been dispossessed of
their property because at all times the FIFA coins remained on EA’s accounts.14 While the Clark case did
not implicate an operator, the case appears to have
found that at least some aspects of in-game currencies may constitute things of value, and thereby trigger the application of the wire fraud statute.
FIFA coins were also the currency of choice for gambling operators Game Gold Tradings Ltd., a UKbased company that was recently fined by the
UK’s Gambling Commission for operating an illegal
gambling company.15 The company, run by two YouTube personalities, accepted bets on virtual FIFA
9
See 18 U.S.C. § 1341 (2008); 18 U.S.C. § 1343 (2008).
10
See U.S. v. Clark, 4:16-cr-00205-O (N.D. Tex. Dec. 11, 2016).
11
Indictment, U.S. v. Clark, 4:16-cr-00205-O (N.D. Tex. Aug. 16, 2016).
12
Id.
13
Id.
14
Motion for a Judgment of Acquittal or, Alternatively, Motion for a New Trial, U.S.
v. Clark, 4:16-cr-00205-O (N.D. Tex. Dec. 11, 2016). With various motions pending
prior to sentencing, the 27-year-old defendant was found dead, leaving his motions
for a new trial unresolved. See Brian Day, Whittier Man Found Dead While Awaiting
Sentencing in $16 million “FIFA Coin” Fraud Case, WHITTIER DAILY NEWS (Mar. 22,
2017), http://www.whittierdailynews.com/general-news/20170322/whittier-manfound-dead-while-awaiting-sentencing-in-16-million-fifa-coin-fraud-case.
matches and paid winnings in virtual currency that
could be cashed out for fiat currencies via third-party
money-changers.16 While gambling sites using various in-game currencies exist for a variety of video
game offerings, the dominant in-game virtual currency market leader is CS:GO skins.
SKINS BETTING AND RESULTING
SCANDALS
CS:GO skins betting originated on August 14, 2013,
when Valve, the makers of CS:GO, announced the
“Arms Deal Update,”17 which added decorative
weapons skins to the game. The skins could be obtained from crates that dropped during game play
and opened with a virtual key; as well as through direct purchase from Valve’s Steam Marketplace, or
through trades with other players.18 The ability to
trade and freely transfer skins via Valve’s Application
Program Interface (API) is one of the factors that
have made skins so popular. Additionally, the API
is essential for the birth of the secondary skins-based
gambling market. Because players can freely exchange the skins, they can function like a currency.19
The tradability of skins created a cottage market of
secondary sites where users could buy, trade, and
sell skins and crate keys.20 The transferability of skins
and market pricing enabled entrepreneurs to fill a void
in the marketplace and begin accepting skins-based
wagers on professional CS:GO matches.21
The first major scandal to result from the skins-based
gambling industry took place roughly a year after the
2013 Arms Deal Update, when a professional match
gambling-guilty-fine-nepenthez-fut-galaxy/. Fiat currencies refer to currencies
that are back by a government, as opposed to something else of value (e.g., gold).
See Jason Hall, Fiat Currency: What It Is and Why It’s Better Than a Gold
Standard, MOTLEY FOOL (Dec. 6, 2015), https://www.fool.com/investing/general/
2015/12/06/fiat-currency-what-it-is-and-why-its-better-than-a.aspx.
17
Eric “Xenon” Yu, The Start of It All: Skin Gambling, UNIKRN (Jul. 15, 2016),
https://news.unikrn.com/article/6/the-start-of-it-all-skin-gambling/.
18
Joshua Gulick, Valve Arms Deal Update Revamps Counter-Strike: Global Offensive Arsenal, HOT HARDWARE (Aug. 14, 2013), https://hothardware.com/news/
valve-arms-deal-update-revamps-counterstrike-global-offensive-arsenal.
19
See Samit Sarkar, How Do Counter-Strike: Global Offensive Skins Work?,
POLYGON (Jul. 11, 2016 10:30AM), https://www.polygon.com/2016/7/11/
12129136/counter-strike-global-offensive-cs-go-skins-explainer.
15
20
16
21
See Arjun Kharpal, YouTube Star Fined $114,000 for Running FIFA Video Game
Gambling Site Used by Kids as Young as 12, CNBC (Feb. 8, 2017 3:31 AM), http://
www.cnbc.com/2017/02/08/fifa-gambling-site-used-by-kids-youtube-star-fined.html.
Mark Walton, YouTubers Fined for Running Illegal FIFA 17 Gambling Site, ARS
TECHNICA (Feb. 8, 2017), https://arstechnica.com/tech-policy/2017/02/fifa-
See Yu, supra note 17. The first such bet was accepted by CSGO Lounge, who
limited initial wagers to a total of four skins with each skin having a maximum
value of $60. See id.
Id.
567
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568
[2017] 8 GLR : HOLDEN AND EHRLICH : ESPORTS AND WIRE FRAUD
between iBUYPOWER and NetcodeGuides.com was
fixed.22 The details of the fixed match alleged that
players of iBUYPOWER had used pseudonym accounts on CSGO Lounge to place high value bets
against their own team.23 In response to the matchfixing incident, Valve banned seven players from
competing in future Valve-sponsored events, with
other leagues honoring the Valve suspensions.24 It
was reported that one of the banned players had
made maximum bets on nine different accounts
against iBUYPOWER, potentially resulting in a
windfall of more than $10,000.25 Although the facilitation of the fix by using skins and pseudonyms was
a secondary storyline in this incident, the iBUYPOWER fix would be the first high-profile instance
of betting-related corruption involving skins. Additionally, another pivotal event for skins betting would
emerge with the launch of OPSkins, a foreign exchange type site that allowed people to sell their
skins, for the currency of their choice to be deposited
into a bank of their choice via PayPal.26
Once it was possible to turn skins into currency that
could be used to purchase real-world items, the foundation was laid for the launch of a full-blown online
gambling industry.27 The ability to spend skins on
any gambling activity users desired allowed websites
to begin recruiting high-profile esports celebrities to
endorse their sites and differentiate them from their
competitors. One such relationship developed between the site CSGO Diamonds and Mohamad
“m0E” Assad.28 Assad would stream his gambling
on CSGO Diamonds via the streaming platform
Twitch as a means of advertising the site to his followers.29 On the site, Assad was often prominently
featured winning virtual dice rolls. However, after
22
Andy Chalk, Valve Bans Seven CS:GO Pro Players from Tournament Play for
Match Fixing, PC GAMER (Jan. 26, 2015), http://www.pcgamer.com/valvesuspends-seven-csgo-pro-players-for-match-fixing/.
23
24
27
Id.
HonorTheCall continued his role as an unofficial
guardian of skins gambling integrity when he
30
Id.
31
Id.
Id.
33
Id.
See Angus Morrison, CSGO Lotto Investigation Uncovers Colossal Conflict of
Interest, PC GAMER (Jul. 4, 2016), http://www.pcgamer.com/csgo-lottoinvestigation-uncovers-colossal-conflict-of-interest/.
34
Id.
35
Yu, supra note 17.
Id.
36
Id.
28
Will Green, Skin Betting Scandal Gets Deeper, as Gambler Said He Kept $91,000
from Site He Exposed, ESPORTSBETTINGREPORT (Jun. 20, 2016), http://www.
esportsbettingreport.com/m0e-kept-money-skins-site-engaged-fraud-exposed/.
29
The second major non-disclosure scandal involved the
site CSGO Lotto, which operated an online gambling
site like CSGO Diamonds.33 The CSGO Lotto scandal
involved YouTube streaming personalities Trevor
“TmarTn” Martin and Tom “ProSyndicate” Cassell,
who would broadcast their gambling activities, often
winning incredibly rare weapons skins on CSGO Lotto.34 The fortuitous success of Martin and Cassell was
called into question by fellow YouTube personality,
HonorTheCall, who examined the incorporation details of CSGO Lotto and revealed that Martin was,
in fact, listed as president and Cassell as the vice president.35 The failure of the YouTubers to disclose their
management stake in CSGO Lotto has raised many
eyebrows in the industry, and could potentially expose
the two individuals to even greater liability.36
32
25
See Nathan Grayson, Pro Teams Implicated in Huge Counter-Strike Match Fixing
Scandal, KOTAKU (Jan. 19, 2015), http://kotaku.com/pro-teams-implicated-inhuge-counter-strike-match-fixin-1680514379.
26
what appears to have been a breakdown of the business relationship, CSGO Diamonds released a statement that the website had been providing Assad with
advanced knowledge of which numbers his virtual
dice would roll in order to stream more exciting content to his followers.30 CSGO Diamonds allegedly
released the information after Assad threatened to release the information if the site did not allow him to
cash out more than $26,000 worth of virtual holdings.31 It was later revealed that Assad was to receive
ten percent of the site’s profits in exchange for 100
monthly hours of streamed gambling content.32
The breakdown of the business relationship raised
important questions regarding the legitimacy of the
information that was presented to viewers of Assad’s
streams on Twitch and whether his representations
induced others to gamble on CSGO Diamonds.
Id.
Morrison suggested that the two streamers may have run afoul of both the United
Kingdom’s Advertising Standards Authority and the U.S. Federal Trade Commission. See id. As discussed infra, CSGO Lotto’s executives may also have run
afoul of the federal wire fraud statute.
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HOLDEN AND EHRLICH : ESPORTS AND WIRE FRAUD : [2017] 8 GLR
exposed an ownership stake between members of
one of the most popular esports teams and the skins
site CSGO Wild.37 It was alleged that a member of
FaZe Clan had an undisclosed ownership stake in
CSGO Wild, which was later reported to be a sponsorship agreement.38 Despite the existence of the
agreement, videos posted to YouTube by some
FaZe Clan members did not indicate that they were
sponsored, and were purported to appear as though
there was no affiliation.39 CSGO Wild representatives have maintained that the site never altered results to favor promotors and ceased offering
contests in the United States following the issuance
of cease and desist letters from Valve.40 The relationship between some members of FaZe Clan and
CSGO Wild are less clear than CSGO Lotto and
its executive brain trust, but it still raises many of
the same potential concerns as the former scenario.
In addition to the misrepresentations as to the ease
with which individuals are able to win on various
gambling sites, another prominent incident involved
the use of malware associated with certain skins sites
that have been linked to reports of users’ entire inventories of skins being wiped out.41 The connection
of this malware to betting site CSGO Double raised
additional concerns. Due to the apparent illicit nature
of the activity, users can be apprehensive to report
their losses.42 Reports of theft by malware is an additional issue related to the skins industry; indeed, in
the case of theft involving malware, the fact pattern
possesses similarities to the Clark case.43 A series of
37
Allegra Frank, Pro Gamers Called Out in Latest CSGO Betting Site Controversy,
POLYGON (Jul 21, 2016 5:45PM), https://www.polygon.com/2016/7/21/12250184/
faze-clan-csgo-wild-youtube-sponsorship.
38
Id.
civil lawsuits have been filed against Valve and various CS:GO gambling sites, which allege a variety of
claims including one that sites like CSGO Lotto
knowingly accepted wagers from children, and these
cases have largely been voluntarily dismissed or
forced into contractually compelled arbitration.44
In addition to the civil lawsuits, at least one regulator
has taken a public interest in the skins gambling market. The Washington State Gambling Commission issued a letter to Valve demanding, amongst other
things, the game maker cease facilitating the skins
gambling industry.45 Valve responded to the regulator articulating the company’s position that the Gambling Commission had failed to allege that Valve was
in violation of any law.46 Following Valve’s response
to the Gambling Commission, there has been no
indication that the Washington State Commission,
nor any other U.S.-based commission or regulatory
body, are conducting ongoing investigations into
skins gambling. Indeed, skins gambling itself might
not be against the laws of most states, no court has
indicated otherwise, but there remains the possibility
that the misrepresentations and efforts to illegitimately dispossess people of their skins may implicate at least one federal statute.
WIRE FRAUD
U.S. prosecutors and regulators are in a less flexible
scenario than other regulators, confined to interpretations of virtual currencies that are more narrow than
CSGOLotto, Inc., No. 2016-031827-CA-01 (Jan. 20, 2017). Valve was granted a
motion on April 3 in G.G. v. Valve to compel arbitration. Order Granting Defendant’s Motion to Compel Arbitration, G.G., et al. v. Valve Corporation, No.
2:16-cv-01941-JCC (W.D. Wash. Apr. 3, 2017).
45
39
Id.
40
Id.
41
See John Leyden, Trojan-filled Chrome Extensions for Steam Boil Off Gamers’
Assets, THE REGISTER (Jan. 20, 2016), https://www.theregister.co.uk/2016/01/20/
steam_chrome_extension_scam/.
42
Id.
43
For additional background on the malware thefts see Bart Blaze, Chrome Extension Empties Your Steam Inventory, BLAZE’S SECURITY BLOG (Jan. 19, 2016),
https://bartblaze.blogspot.com/2016/01/chrome-extension-empties-your-steam.html.
44
McLeod v. Valve Corporation, No. 3:16-cv-01018-AWT (D. Conn. June 23,
2016); Kamenkovich, et al. v. CSGOLotto, Inc., No. 2016-031827-CA-01 (MiamiDade Cty. Dec. 12, 2016); G.G. et al. v. Valve Corporation, No. 2:16-cv-01941-JCC
(W.D. Wash. Dec. 20, 2016). McLeod was transferred to the Western District Court
in Washington, then dismissed based on lack of jurisdiction under the Class Action
Fairness Act. McLeod v. Valve Corporation, et al., No. C16-1227-JCC, 2016 WL
5792695 (W.D. Wash. 2016). Kamenkovich is awaiting decision on a motion to
dismiss filed by the defendants. Motion to Dismiss, Kamenkovich, et al., v.
See Colin Campbell, Washington Gambling Commission Demands End to Valve
CS:GO Skin Gambling, POLYGON (Oct. 5, 2016 2:14 PM), https://www.polygon
.com/2016/10/5/13176244/washington-gambling-commission-demands-end-tovalve-cs-go-skin. The Washington State Gambling Commission noted in their letter
to Valve CEO Gabe Newell that “it is well known that there are third party websites
offering illegal gambling activities where ‘skins’ are used as consideration to enter
the illegal gambling contests.” The Washington State Gambling Commission went
on to demand “cease violating Washington State gambling laws,” though there was
not a reference to a specific statute. Letter from David E. Trujillo, State of Washington Gambling Commission to Gabe Newell, Valve Corporation, Re Cease
Facilitating Gambling Activities through Valve Corporations Steam Platform, (Sep.
27, 2016), available at http://www.esportsbettingreport.com/wp-content/uploads/
2016/10/WSGC-Valve-letter-09-27-16.pdf.
46
Colin Campbell, Valve Fires Back at Washington State Gambling Commission
Over CS:GO Betting, POLYGON (Oct. 18, 2016 12:32PM), https://www.polygon
.com/2016/10/18/13318326/valve-fires-back-at-washington-state-gamblingcommission-over-cs-go-betting. This response came after the company issued
cease and desist letters to various gambling sites. Id.
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570
[2017] 8 GLR : HOLDEN AND EHRLICH : ESPORTS AND WIRE FRAUD
those of other countries, thereby potentially negating
one or more elements required for an activity to be
considered gambling: chance, prize, and consideration.47 In some scenarios, prosecutors may be
able to rely on the federal wire fraud statute, a statute
that punishes fraudulent activity transmitted by wire,
radio, or television.48
“could not lose.”55 The defendant’s request for a
new trial for prosecutorial misconduct was denied
in part due to “overwhelming evidence” presented
by the government that the defendant “(a) knowingly
agreed to participate in the scheme to defraud and (b)
engaged in the overt act of inducing victims to play in
the rigged card game.”56
The wire fraud statute has been used to prosecute individuals for a variety of offenses, including insider
trading,49 fraudulent real estate transactions,50 and
smuggling.51 The legal theory created by the wire
fraud statute has five recognized elements: (1) the
use of mail or wire communications in foreseeable
furtherance of (2) a scheme to defraud (3) involving
a material deception (4) with the intent to deprive another of (5) either property or honest services.52 The
use of the mail or wired communications “need not
be an essential element of the scheme” so long as
the use of the mail or wire communications “is incidental to an essential element of the scheme.”53 The
wire fraud statute also creates criminal liability for
individuals aiding and abetting, conspiring, and attempting wire fraud, and opens the doors for prosecutors to also apply charges that require a predicate
criminal offense, including charges under the Racketeering Influenced and Corrupt Organizations
(RICO) statute.54
One challenge in proving a wire fraud claim—particularly in the context of esports skins betting—is
proving that the victims relied on the defendants’
fraudulent actions or assertions. While reliance is
not a statutory element of the wire fraud statute,
courts have required its showing when wire fraud
is alleged as a RICO predicate.57 For example, in
In re: Mastercard, a group of plaintiffs sued Mastercard and Visa claiming, in part, that the credit card
companies had committed wire fraud by providing
access to credit for illegal gambling through the issuance of credit cards that could be used to purchase
gambling “credit” on illegal gambling websites.58
However, the Fifth Circuit rejected this argument
on the grounds that the defendants had not shown
that they relied on any representations by the credit
card companies in making their decision to gamble.59
While the dismissed lawsuits have relied on federal
and state laws other than the wire fraud statute,
case law suggests that skins betting websites like
CSGO Lotto, CSGO Wild, and CSGO Diamonds
may be vulnerable to prosecution for wire fraud. In
U.S. v. Xiong, a defendant was convicted of conspiracy to commit wire fraud and interstate transportation in furtherance of a gambling scheme after
inducing victims to participate in a rigged blackjack
card game scheme by promising them that they
47
For instance, the U.K. government issued a white paper in March 2017 suggesting that in-game items should constitute a thing of value, subject to license
requirements when in-game items are treated like money. See UNITED KINGDOM
GAMBLING COMMISSION, supra note 8. See also John T. Holden, Trifling and
Gambling with Virtual Money (Working Paper 2017).
48
49
50
51
52
Similarly, any prosecution of the skins betting websites for wire fraud would have to show that the bettor specifically relied on the fraudulent actions of the
websites; namely, the failure of the websites to disclose ownership and business interests of the personalities who were promoting the websites on their
YouTube channels. At the same time, Valve will
likely be able to avoid liability based on this element
as their role in skins betting is like the role of the
credit card companies in the Mastercard case; they
provide access to currency, but it will be difficult
to prove that their actions in doing so induced reliance by those engaging in skins betting.
53
Id. at 3. See also John T. Holden, Will F. Green, and Ryan M. Rodenberg, Daily
Fantasy, Tipping, and Wire Fraud, 21 GAMING L. REV. & ECON. 8, 13 (2017).
54
Doyle, supra note 52, at 9–10, 14. See also Holden, et al., Daily Fantasy, Tipping,
and Wire Fraud, supra note 53, at 8.
55
18 U.S.C. § 1343.
262 F.3d 672, 673–674 (7th Cir. 2001).
56
See Carpenter, et al. v. U.S., 484 U.S. 19 (1987).
Id. at 676.
57
See Neder v. U.S., 527 U.S. 1 (1999).
In re Mastercard Intern. Inc., 323, F.3d 257, 263 (5th Cir. 2002).
58
See Pasquantino, et al. v. U.S., 544 U.S. 349 (2005).
Charles Doyle, Mail and Wire Fraud: A Brief Overview of Federal Criminal Law,
CONG. RES. SERV. 1–27, 2 (July 21, 2011).
Id. at 260.
59
Id. at 263.
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HOLDEN AND EHRLICH : ESPORTS AND WIRE FRAUD : [2017] 8 GLR
While the reliance element may add an additional
hurdle to the use of the wire fraud statute in civil
RICO prosecutions, it would have no effect in criminal prosecution as the Supreme Court has rejected
the reliance element of wire fraud in the context
of criminal cases. The court has found that “the
common-law requirements of ‘justifiable reliance’
and ‘damages’” in common-law fraud “plainly have
no place in the federal fraud statutes.”60 As the element of reliance requires, in a sense, actual “reliance,”
prosecution of a fraudulent scheme with this element
would require a successful scheme. But as the court
observed, “[b]y prohibiting ‘the scheme to defraud,’
rather than the completed fraud, the elements of reliance and damage would clearly be inconsistent
with the statutes Congress enacted.”61 Thus, websites
like CSGO Diamonds, CSGO Lotto, and CSGO Wild
could face criminal prosecution for their action under
the wire fraud statute even without proof of a successful scheme—and Valve could face prosecution even
despite the Mastercard precedent—if the government
can prove the statutory wire fraud elements.
of the wire fraud statute, as inducing players to gamble through fraudulent statements would constitute
an attempt by the potential defendants as “a scheme
to defraud” with “intent to deprive” gamblers of their
CS:GO skins. The first element is similarly easy, as
several cases have shown that Internet transfer qualifies as “wired communications” for the purposes of
wire fraud.63
APPLICATION OF THE WIRE FRAUD STATUTE
TO ESPORTS SKINS BETTING
However, some of these scandals do show patterns of
rigging the game for the YouTube personalities in
question, or at least raise questions about whether
only the winning plays were broadcast. For example,
the CSGO Diamonds scandal revealed that Assad
had been provided with advanced knowledge of
which numbers his virtual dice would roll,64 and
the CSGO Lotto65 and CSGO Wild66 scandals revealed that the personalities had ownership or sponsorship stakes in the respective websites. The former
situation is clearly a case of “rigging” the game,
while the latter cases still raise significant questions
about whether the personalities were selective in the
video recordings that they chose to broadcast on their
channels. It could be possible for the government or
plaintiffs to show a fraudulent inducement in this
Based on the wire fraud statute and its prior application, prosecutors could potentially have a strong case
against the skins betting operators involved in recent
scandals. Such prosecution would likely fit the pattern
of the Xiong case discussed above.62 Like the defendant in Xiong, the websites (using YouTube personalities as their agents) could be found to have knowingly
induced players to gamble on their websites through
promises of easy winnings, while not disclosing that
their own “winnings” were a result of their direct
stakes in the websites they were gambling on.
Like Xiong, the above skins betting fact patterns
would easily satisfy the second and fourth elements
60
Neder v. U.S., 527 U.S. 1, 24–25 (1999). See also U.S. v. Stewart, 872 F.2d 967,
960 (10th Cir. 1989) (“[Under the mail fraud statute,] the government does not have
to prove actual reliance upon the defendant’s misrepresentations”); U.S. v. Rowe,
56 F.2d 747, 749 (2d Cir. 1932) (“Civilly of course the [mail fraud statute] would
fail without proof of damage, but that has no application to criminal liability.”).
61
Id.
62
262 F.3d 672 (7th Cir. 2001). See supra notes 55–56 and accompanying text.
63
See generally OFFICE OF LEGAL EDUCATION EXECUTIVE OFFICE FOR UNITED STATES
ATTORNEYS, PROSECUTING COMPUTER CRIMES 109–110 (2015), available at https://
www.justice.gov/sites/default/files/criminal-ccips/legacy/2015/01/14/ccmanual.
The third element, the necessity of the scheme to involve a “material deception,” would be somewhat
trickier to prove. A prosecutor would have to show
conclusively that the defendants’ presence in creating videos to promote their skins betting websites
without disclosing their personal interests was a material reason for why the victims gambled on the
website. A key difference between the skins betting
scandals and Xiong is that no evidence exists that the
actual games were rigged against the participants as
they were in Xiong. A showing by the defendants that
the games are “rigged” in the gamblers favor would
certainly constitute a material deception as it did in
Xiong.
pdf. See also United States v. Selby, 557 F.3d 968, 978–79 (9th Cir. 2009) (defendant’s act of sending a single email was “sufficient to establish the element of the
use of the wires in furtherance of the scheme”); United States v. Drummond, 255
Fed. Appx. 60, 64 (6th Cir. 2007) (affirming wire fraud conviction where defendant
made airline reservation with stolen credit card over the Internet); United States v.
Pirello, 255 F.3d 728 (9th Cir. 2001) (affirming sentence of defendant who used the
Internet to commit wire fraud).
64
See supra notes 28–32 and accompanying text.
65
See supra notes 33–36 and accompanying text.
66
See supra notes 37–40 and accompanying text.
571
572
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situation if the YouTube personalities were found to
have selectively broadcast only the winning rolls to
give the impression of more favorable odds, either
by direction of the websites or by their own volition.
To date, while there has been no known wire fraud
prosecution involving Internet “celebrity” endorsers,
“fake” endorsements by Internet “influencers” is a
common scam both in the United States67 and
abroad.68 Additionally, the use of celebrity-based deceptive marketing to induce consumers to act—
either through gambling or investment—is not a
new application of the wire fraud statute. In the
now infamous69 “Trump University” lawsuit involving now-President Trump, the United States District
Court for the Southern District of California refused
to dismiss a wire fraud claim against the president
for his real estate investment “school” on both Fed.
R. Civ. P. 12(b)(6) and summary judgment motions,
in part because of the president’s purported direct involvement in the selection of instructors, mentors, and
class curriculum.70 In this case, the court declined to
find that the plaintiffs’ allegations that Trump “made
repeated representations as to his participation with
Trump University beyond lending his name to the institution” constituted mere puffery, rather than fraudulent statements that would lead to liability under
RICO and the mail and wire fraud statutes.71
The Trump University case presents an interesting
parallel to the CSGO Diamonds, CSGO Lotto, and
CSGO Wild situations. In both the esports and
Trump University cases, a celebrity “figurehead”
67
See Andrew Flanagan, How Fyre’s Organizers Used “Influencers” to Market a
Festival That Didn’t Exist, NATIONAL PUBLIC RADIO (May 2, 2017, 1:39 PM), http://
www.npr.org/sections/therecord/2017/05/02/526561561/how-fyres-organizers-usedinfluencers-to-market-a-festival-that-didnt-exist; Davis Richardson, Blame the
Fyre Festival Fiasco on the Plague of Celebrity Influencers, WIRED (May 4, 2017,
10:30 AM), https://www.wired.com/2017/05/blame-fyre-festival-fiasco-plaguecelebrity-influencers/. The ringleader of the failed Fyre Festival, Billy McFarland, was arrested and charged with wire fraud on June 30, 2017. Sealed Complaint,
United States v. McFarland, No. 1:17-mj-04988 (S.D. N.Y. Jun. 30, 2017). To date,
none of the celebrity influencers involved have been met with similar fates.
68
See Andrew Weichel, Top Scams of 2016 Include Fake Endorsements from
Online “Influencers,” CTV NEWS VANCOUVER (Mar. 2, 2017, 11:38 AM), http://bc
.ctvnews.ca/top-scams-of-2016-include-fake-endorsements-from-online-influencers1.3307091.
69
See, e.g., Hanna Trudo, Trump Escalates Attack on “Mexican” Judge, POLITICO
(Jun. 2, 2016), http://www.politico.com/story/2016/06/donald-trump-judge-gonzalocuriel-223849.
70
Cohen v. Trump, 200 F. Supp. 3d 1063, 1074–75 (S.D. Cal. 2016). See also
Cohen v. Trump, 2014 U.S. Dist. LEXIS 23885, 13-cv-2519-GPC-WVG (S.D. Cal.
Feb. 21, 2014) (denying motion to dismiss).
was less than forthright about their association (or,
in the Trump case, a lack thereof) with the organization in question. In each of the four cases, the services’ promise of riches for using the service was
based in large part upon that link to the celebrity.
However, where the prosecution of skins betting cases
through the wire fraud statute may break down is in
the statute’s final element: the requirement that the defendant must be looking to deprive another of “either
property or honest services.”72 Skins are originally
obtained through Valve’s “Steam Wallet” using funds
that, according to Valve’s subscriber agreement, “have
no value outside Steam and can only be used to purchase subscriptions and related content via Steam,” including skins.73 Therefore, if skins are found to be
valueless in the gambling context, skins may not be
considered property with any kind of value for the
purposes of the wire fraud statutes. 74
At the same time, “property” in the wire fraud statute
has been found to be broader than the property that
can be “gambled” for the application of gambling
laws. The Supreme Court defined this element of
the wire fraud statute in McNally v. United States
to say that “the words ‘to defraud’ commonly refer
‘to wronging one in his property rights by dishonest
methods or schemes,” and “usually signify the deprivation of something of value by trick, deceit, chicane or overreaching.”75 In that case, the court
declined to extend the rights protected by the wire
fraud statute to “the intangible right of the citizenry
to good government.”76
71
Cohen, 2014 U.S. Dist. LEXIS 23885 at *21. The parties settled the lawsuit in
March 2017. Josh Gerstein, Judge Approves $25 Million Trump University Settlement, POLITICO (Mar. 31, 2017), http://www.politico.com/story/2017/03/trumpuniversity-settlement-approved-gonzalo-curiel-236756.
72
Doyle, supra note 52, at 2. See supra note 52 and accompanying text.
73
STEAM SUBSCRIBER AGREEMENT 3(C), available at http://store.steampowered.com/
subscriber_agreement/.
74
See supra note 7 and accompanying text. The Washington State Gambling
Commission have articulated the Commission’s position that skins do constitute
sufficient consideration to implicate state gambling statutes. See Letter from David
E. Trujillo, State of Washington Gambling Commission to Gabe Newell, Valve
Corporation, Re Cease Facilitating Gambling Activities through Valve Corporations Steam Platform, (Sep. 27, 2016), available at http://www.esportsbettingreport
.com/wp-content/uploads/2016/10/WSGC-Valve-letter-09-27-16.pdf.
75
483 U.S. 350, 358 (1987), citing Hammerschmidt v. U.S., 265 U. S. 182, 188
(1924).
76
Id. at 356. Following this decision, Congress expanded the wire fraud statute to
include “honest services” with property. 18 U.S.C. § 1346 (1988). See also Skilling
v. U.S., 561 U.S. 358 (2010) (defining “honest services.”). However, skins are
clearly not a service and thus this change is not applicable to this article.
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HOLDEN AND EHRLICH : ESPORTS AND WIRE FRAUD : [2017] 8 GLR
However, this principle has been expanded to a variety of other contexts to allow for the prosecution of
fraudulent takings of intangible “property” under the
wire fraud statute.77 In United States v. Welch, the
Tenth Circuit held that “the intangible right to control
one’s property is a property interest within the purview of the mail and wire fraud statutes.”78 In Pasquantino v. United States, the Supreme Court
found that the right to be paid money—specifically
Canada’s right to uncollected excise taxes on liquor
imported into Canada—is “property” under the wire
fraud statute.79 The definition of the word “property”
also extended to the intangible rights to a cable television franchise in Borre v. United States.80 Confidential information has also been ruled to be
considered “property” for the purposes of wire fraud
prosecution.81 By contrast, however, the Supreme
Court held in Cleveland v. United States that a government’s issuance of a video poker license does not
constitute “property” under the statute.82
A wire fraud case that is perhaps most useful to determining whether video game skins may be considered property is United States v. Shoss.83 In Shoss,
two defendants were prosecuted for selling fraudulent stock certificates for companies, which were
no longer in good standing, but still had an active
identification number and ticker system on the NASDAQ stock exchange.84 After incorporating a new
company with the same name, the defendants then
worked to make it appear that the two companies
were related, giving the new company an air of authenticity despite having no underlying business
and mere puppet presidents, and then selling stock
in the new company.85
77
See generally Michael J. Hostetler, Note, Intangible Property Under the Federal
Mail Fraud Statute and the Takings Clause: A Case Study, 50 DUKE L.J. 589 (2000).
78
327 F. 3d 1081, 1108 (10th Cir. 2003).
79
544 U.S. 349, 355–56 (2005).
80
940 F. 2d 215, 219–21 (7th Cir. 1991).
81
Carpenter, et al. v. U.S., 484 U.S. 19, 26 (1987). See also U.S. v. Czubinski, 106
F.3d 1069, 1074 (1st Cir. 1997) (“The government correctly notes that confidential
information may constitute intangible ‘property’ and that its unauthorized dissemination or other use may deprive the owner of its property rights.”); U.S. v.
Martin, 228 F.3d 1, 16 (1st Cir. 2000) (“Where [confidential] information is obtained—thus depriving the rightful owner of its property rights—through dishonest
or deceitful means, the wire and mail fraud statutes may be violated.”).
82
531 U.S. 12, 20 (2000).
83
523 Fed. Appx. 713 (11th Cir. 2013).
84
Id. at 714.
After the defendants were convicted and sentenced,86 they argued on appeal that the ticker and
identification were akin to a government-issued
license—which was ruled not to be property in
Cleveland—rather than money or property as required by the wire fraud statutes.87 However, the Eleventh Circuit ruled that unlike licenses, the corporate
identities obtained by the defendants did have discernible monetary value, which was demonstrated
by “the market demand for shares in the companies
that appeared to be traded on NASDAQ.”88 This was
demonstrated by the fact that identifying information
that was fraudulently obtained did in fact have value
“in the hands of both the recipient . . . and the victim
companies.”89
Like the valueless stocks in Shoss, skins are, by the
terms of Valve’s Steam Subscriber Agreement, without any facial cash value.90 But similarly to Shoss,
skins do have value to the victims (the consumer),
who both pay for these skins and use them as
gambling “chips,” and to both Valve and the skins
betting websites, who benefit greatly from the purchase and use of these seemingly valueless items.
Regardless of the intangible and purely cosmetic
nature of these skins, they do have a meaningful value. Thus, because the wire fraud statute opens the
definition of “property” to both intangible and facially “valueless” intangible items, the wire fraud
statute may be a better option for prosecutors and
civil RICO plaintiffs than state and federal gambling statutes.
This proposition is demonstrated by the one wire
fraud case prosecuted so far that has involved seemingly “valueless” virtual items: United States v.
85
Id. at 715.
86
The lead defendant was sentenced to eighteen months in prison. U.S. v. Shoss,
8:11-cr-00366-JSM-TBM (M.D. Fla. Aug. 9, 2012) (No. 159). The co-conspirator
was sentenced to twelve months and one day in prison. U.S. v. Loisel, 8:11-cr00366-JSM-TBM (M.D. Fla. Dec. 20, 2012) (No. 219).
87
Shoss, 523 Fed. Appx. at 716–17. See Cleveland, 531 U.S. at 20. See also supra
note 81.
88
Shoss, 523 Fed. Appx. at 717.
89
Id.
90
STEAM SUBSCRIBER AGREEMENT 3(C), supra note 73. See also Mason v. Machine
Zone, 851 F.3d 315 (4th Cir. 2017) (holding that virtual gold used by the plaintiff to
“gamble” in a virtual casino could not be considered “money or any other thing or
consideration of value” under Maryland’s gambling statutes since the defendant
“retained the money . . . paid to obtain virtual gold regardless of the outcome of
[the plaintiff’s] spin of the virtual wheel.”).
573
574
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Clark.91 Like the skins obtained by skins betting
websites, the FIFA coins that Clark had fraudulently
obtained had no value according to EA’s terms of
service.92 However, the court found this unconvincing, leading to an initial conviction for the defendant.93 While the lack of a written opinion—along
with the defendants’ death before sentencing—makes
this judgment empty for the purposes of precedent,94
the Clark case does perhaps provide a preview for
what may happen if the wire fraud statutes are used
to prosecute skins betting websites and accompanying
actors.
due to their allegedly fraudulent methods of drawing
users—including children—to partake in their pseudo-gambling games.95 Indeed, as Congressman
Frank Pallone stated in a recent press release:
Gambling is taking new forms—from daily
fantasy sports, to betting on e-sports, and even
online casino games using virtual “skins” instead
of cash—that attempt to bypass the law. Current
federal gambling laws are hopelessly out of date,
leaving the American public vulnerable to unscrupulous behavior. No matter the form of the
games, we must ensure integrity, accountability,
and basic consumer protections, including appropriate age limits, are in place.96
CONCLUSION
The rate of technological advancement moves at a
lightning pace, and the more methodical pace of
the legislative process often lags. As a result, the
law governing this area has become a “Wild West”
where governance and regulation requires a wide interpretation of laws designed well before any of this
technology was even thought to be possible. Consequently, prosecutors may have found it difficult thus
far to apply most federal and state gambling laws to
skins. In turn, it is challenging to prosecute the purported misconduct of websites like CSGO Diamonds, CSGO Lotto, and CSGO Wild, who have
gained significant negative press over the past year
91
4:16-cr-00205-O (N.D. Tex. Dec. 11, 2016). See supra notes 11–14 and accompanying text.
92
Motion for a Judgment of Acquittal or, Alternatively, Motion for a New Trial,
United States v. Clark, supra note 14, at 2–3.
93
Id. See also Kali Hays, Hacker Convicted for $16M FIFA Video Game Currency
Theft, LAW 360 (Nov. 17, 2016), https://www.law360.com/articles/863560/hackerconvicted-for-16m-fifa-video-game-currency-theft. While the government did not
cite any case law in their response to Clark’s motion for acquittal to support its
proposition that FIFA coins were property, it did cite testimony from Electronic
Arts (EA) representatives stating that both EA and the conspirators “understood
that FIFA coins were ‘property’ within the meaning of the wire fraud statute.”
Gov’t’s Response to the Defendant’s Motion for a Judgment of Acquittal or, Alternatively, Motion for a New Trial, United States v. Clark, 4:16-cr-00205-O, 7–12
(N.D. Tex. Jan. 5, 2017). See also Reply Brief in Support of Motion for a Judgment
of Acquittal or, Alternatively, Motion for a New Trial, United States v. Clark, 4:16cr-00205-O, 3–5 (N.D. Tex. Jan. 11, 2017). The court did not have a chance to rule
on this proposition before Clark’s death on February 26, 2017. See Motion to
Dismiss as to Anthony Clark, 4:16-cr-00205-O (N.D. Tex. Mar. 16, 2017).
As these scandals continue to take shape, it will be
worth tracking whether prosecutors follow the lead
of the government in the Clark case and look to
use this tool against fraudulent actors in the esports
gambling market, including in the skins betting market. While the fit between wire fraud and skins betting fraud is by no means a perfect one, the “Swiss
army knife” nature of the mail and wire fraud statutes
may give prosecutors their best shot at curbing skins
betting and other bad actors associated with the unsettled frontier of the esports virtual currency-based
betting markets.97
94
See Day, supra note 14. See also supra note 14 and accompanying text.
95
See Shaun Assael, Skin in the Game, ESPN OUTSIDE THE LINES (Jan. 20, 2017),
http://www.espn.com/espn/feature/story/_/id/18510975/how-counter-strike-turnedteenager-compulsive-gambler.
96
Press Release, Comm. on Energy and Commerce—Democrats, Pallone Voices
Concern Over Rise in Unregulated Online Gambling and Underage Betting (Mar.
1, 2017), available at https://democrats-energycommerce.house.gov/newsroom/
press-releases/pallone-voices-concern-over-rise-in-unregulated-online-gamblingand-underage.
97
While the wire fraud statute may serve as a useful tool for prosecutors confined by
current state-level definitions of gambling, one alternative would be for legislators
to take an approach similar to that advocated by UK authorities and treat transactions involving items that function like money as money. See UNITED KINGDOM
GAMBLING COMMISSION, supra note 8.