Utah Corruption Investigation: SunFirst Processing Threatened a Year Prior to Black Friday
New information released within a major Utah House investigative report on the activities of disgraced former state Attorney General John Swallow includes significant evidence that the SunFirst Bank online-poker processing operation created by Jeremy Johnson and Chad Elie had drawn the attention of federal officials as early as March of 2010, or months earlier than previously disclosed in any official report connected to online poker’s infamous “Black Friday.”
The report also sheds considerable new light on lobbying activities designed to create legal protection for the activity that commenced soon after the first federal inquiries into the poker processing began. The Utah report contradicts anecdotal information that was previously (and sparingly) provided by individuals connected to the lobbying, who had implied that the effort was a relatively impromptu effort designed to take advantage of a fortunate series of circumstances, including Johnson’s close relationship with the Utah Attorney General’s office.
Instead, the report concluded, the Utah lobbying — which was done both directly and indirectly and designed to benefit both the SunFirst processing operation and the online poker sites who used it — was done as a direct and immediate response to a perceived federal investigative threat.
The new information is part of the detailed 206-page report into the activities of the disgraced Swallow, who is alleged to have committed at least eight different felonies during his stint in Utah’s highest legal office. The report also offers a complete summary of how the SunFirst operation came to exist, as a way of laying the foundation for how Jeremy Johnson came to AG John Swallow, looking for legal protection.
The SunFirst Bank of St. George, Utah, was already in significantly difficulty when Johnson and Elie came calling. Johnson, who already ran significant elements of his iWorks online-marketing difficulties, already knew of these preexisting financial problems. According to the report:
In June 2009, the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions (DFI) had found “unsafe and unsound banking practices” at SunFirst because of low capital reserves. Mr. Johnson and Mr. Elie were willing to solve that capital reserve problem by investing millions of dollars in the bank — on the condition that SunFirst agree to process poker money. The bank struck an informal deal with Mr. Johnson and Mr. Elie to do exactly that in September 2009. Mr. Johnson eventually invested $4.4 million in SunFirst, mostly in the name of his brother or a family partnership.
As Elie testified in a 2012 deposition into allegedly secreted assets of Johnson’s Johnson repeatedly bragged that he had the Utah Attorney General’s office “in his pocket.” That relationship came to the test early in 2010 when federal prosecutors already chasing down previous online-poker processing trails running from Andrew Thornhill to Chad Elie became aware of Elie’s new “Elite Debit” operation at SunFirst.
The Utah report states “March of April” (of 2010) though the investigation into SunFirst must have commenced before that, perhaps only weeks after it was launched in December of 2009 — an indication that federal investigators were closing in on the poker processing long before Black Friday, and perhaps even allowed it run unimpeded for several months in hopes that the poker firms would contravene additional US banking laws, which they eventually did.
According to the report:
Just a few months into their processing of poker money, the bankers at SunFirst Bank learned their new operation was headed for trouble with federal officials. Around March and April 2010, SunFirst received subpoenas relating to poker processing from federal prosecutors in New York and Maryland. In response to the subpoenas, Mr. Johnson undertook, with the online poker industry’s support, to persuade Messrs. Swallow and Shurtleff to give the industry a formal opinion that poker was legal in Utah.
Those subpoenas were shared by SunFirst with Johnson and the online poker sites, whose response was immediate: To attempt to exploit Johnson’s relationship with the Utah AG Mark Shurtleff and Deputy AG Swallow. The Utah report continues:
On March 4, 2010, an industry lawyer sent Jeremy Johnson a five-page draft of such an opinion. All the opinion needed was Mr. Shurtleff’s signature. “Please take a look at this,” the lawyer told Mr. Johnson in an email. “We would like you to deliver this to the Utah AG and request that he meet next week T-W or Th, with me and the Executive Director of the Poker Players Alliance . . . who he already knows. Can you get this done?”
The draft opinion letter being transmitted for Mr. Shurtleff’s signature began: “This opinion letter is issued in response to your request for a legal opinion as to whether playing Texas Hold ’Em poker for money violates the Utah criminal code.” It described the rules of the game, analyzed Utah statutory and case law, and stated, “skilled poker players win more often than unskilled players.” Its last paragraph said, “Thus, under the predominance test employed by Utah’s courts, Texas Hold ‘Em poker is a game of skill rather than a game of chance, and as such does not come within the prohibitions of Utah Code § 76—10-1102.”
The poker industry believed that that conclusion would have meant SunFirst’s poker processing was legal in Utah. And, getting the state’s top law enforcement officer to sign it would have provided powerful ammunition in attempting to hold off poker and poker processing prosecutions by the federal government.
The unnamed “industry lawyer” is A. Jeff Ifrah, who previously was identified as the author of the above-referenced memo. What wasn’t publicly known as of our previous reports on the Utah lobbying, over a year ago, was the preexistence of the federal subpoenas and that the lobbying effort in whole was a direct and immediate response to that threat.
While FlushDraw previously has reported on how the Utah lobbying effort failed, additional information has surfaced in this latest report, confirming and strengthening all the industry links presented last year. We’ll return to the story there in our next feature on the Utah investigative report.