Free Fatal System Error by Joseph Menn Page B

she got the settlement money out of Warshavsky, Parasol set up her first online poker business, Starluck Casino, which would grow into the multibillion-dollar sensation PartyGaming Plc., the parent of PartyPoker.

    By 2001 Ruth Parasol’s Caribbean casinos said they were handling 3 million visitors a day. But the combined company known as IGlobalMedia had also attracted complaints, especially about the house’s frequent wins at blackjack and its roulette promotions, which offered double payouts for anyone betting on a single number.

    Mysteriously, customers said, they would never win with that number, even if they played hundreds of times. After a while, the ranks of Parasol critics grew to include industry opinion leaders like Las Vegas actuary and casino consultant Michael Shackleford, also known as the Wizard of Odds. “My results clearly showed they weren’t fair,” Shackleford said. IGlobalMedia executives didn’t deny it, instead saying they had changed their ways. “We recently had our software developers run analysis on our games, and they did find some bugs and they have corrected them,” Chief Operations Officer Mario Wells wrote to a mathematician who complained.

    The big breakthrough for Parasol was her early realization that Texas Hold ’Em could erupt in popularity. “IGlobalMedia casinos were low budget and not very reputable, but they made a good decision to go into the poker market while it was still young,” Shackelford said. “Kind of like eBay, they cornered the market.”

    With card games, PartyPoker didn’t have to cheat. It took a small percentage of every pot, known as the rake. That made it the only sure winner in every hand. It was the perfect formula for investors: the only challenge was getting as many players to wager as much as possible.

    Just being early wasn’t enough. Parasol had to promote her websites and draw in surfers, even if it meant paying a lot to other sites that referred them. For that, she turned to allies from her porn days. Later, when PartyPoker owner PartyGaming went public, its prospectus briefly noted that Parasol had been involved with “adult sites.” It said nothing about her partnerships with a series of rip-off artists who deceived tens of thousands of consumers and bilked investors out of tens of millions of dollars. Parasol’s personal spokesman, Jon Mendelsohn, said she “severed her ties” to the porn business in about 1995.

    But Parasol kept at least her personal connections. She stayed in touch with Ian Eisenberg and others well known to law enforcement. She was also friends with Habari, close enough friends to give him a big hug when they saw each other at a Las Vegas porn-business convention. She recommended Habari for a crucial job near the top of the PartyGaming hierarchy. Once there, he oversaw a plan to provide PartyGaming’s interface to other poker sites, so people who thought they were playing at Empire Poker or other competitors were really spending their money at PartyPoker. He controlled where PartyPoker spent its massive advertising budget, mostly online, and compensated other websites based on how many players they converted. He also gave some a cut of whatever the players eventually lost at PartyPoker, a brilliant move that cemented PartyPoker’s lead and left hundreds of thousands of people trying their luck at a company with the barest of regulatory oversight. In its prospectus, PartyGaming credited its dominance over competitors largely to the online sales and marketing campaign.

    In separate industry presentations during 2005, the thirty-eight-year-old Habari was identified as director of marketing at PartyPoker and director of online marketing at PartyGaming. But because of Habari’s past, the company decided he wasn’t the sort of person they wanted on the roster when it came time to court investors at the mammoth initial public offering (IPO), former employees said. Habari left full-time employment at