Fraud protection company iovation has been granted a Nevada Gaming License giving it the ability to offer its cyber security software, including the location assurance services for which it required a gaming license, to online gaming sites across Nevada.
With the approval, the Portland, Ore.-based company is hoping to distance itself from its reported connection to one of the biggest frauds in online poker history — a connection that the company describes as an unfortunate myth.
“The main advantage of the gaming license is that iovation can now better serve its customers, but an added bonus is that any potential clients who might have shied away from business with us in the past can now see that an independent organization that conducted the deepest possible investigation into the company came up with exactly zero evidence of wrongdoing,” said Greg Pierson, CEO of iovation, in an interview with GeekWire on Monday afternoon.
The fraud that has haunted iovation, resulting in over $20 million stolen from players, involved online poker site UltimateBet. The site’s gaming platform and security software were contracted from a company called ieLogic, of which Pierson was the co-founder and CEO. After selling ieLogic, Pierson founded a new company called iovation, focused specifically on fraud protection, which also provided software to UltimateBet throughout the poker site’s lifetime.
In news coverage, Pierson is sometimes linked to UltimateBet management — mistakenly, iovation says. A spokeswoman for iovation said that Pierson “was never employed by UltimateBet in any way.” The company says his only connection was through his software, as both iovation and ieLogic provided security technology of different sorts to UltimateBet.
Pierson told GeekWire that he has not been asked by reporters in the past to confirm details of his connection to UltimateBet, so mistakes abound in coverage of his company. He believes that most of his negative press is from online poker blogs, “eager for scandal and run by conspiracy theorists.”
A report published by the Kahnawake Gaming Commission said that Russell Hamilton, a major shareholder in the company that controlled UltimateBet and former World Series of Poker champion, began to use a special mode built into the gaming software called “God Mode” to cheat players by seeing their hole cards during live gameplay. While Hamilton was named as the primary perpetrator of fraud, 31 other individuals were also involved, the gaming commission’s report said. Online poker players discovered the scandal when they realized that a few accounts were vastly outperforming others with highly improbable win-rates.
Since iovation provided fraud protection services to UltimateBet at the time of the scandal, Pierson was asked about his involvement in the use of God Mode for cheating. Pierson stated that his former company ieLogic, which by then had been sold to Excapsa Software, had added the software feature known as God Mode at the request of the client to allow UltimateBet operators to monitor game play. Through the sale of ieLogic, Pierson became a minority shareholder in Excapsa, though he says he had no control over company management and was not aware of its internal affairs.
More importantly, Pierson said that iovation’s fraud management services, which were being used by UltimateBet at the time of the fraud, were only able to check consumer access to UltimateBet’s online channels and could not protect from insider fraud. Though his company had created God Mode, Pierson denied any knowledge of or responsibility for its later internal misuse, though many dispute that this could be the case.
The Kahnawake gaming commission investigated the case and found evidence that UltimateBet had been used for cheating as early as June 2003, when ieLogic (and Pierson) were still in charge of all of UltimateBet’s gambling and security software. Pierson disputed these dates, saying that while 2003 is when when God Mode was developed and when Hamilton first started playing on the site, abnormal winning percentages and transactions didn’t start to appear until 2006, well after Excapsa had acquired ieLogic and Pierson’s role in UltimateBet had shifted to monitoring exclusively consumer fraud rather than its internal security. He noted that he knew the dates well, since the gaming commission later called upon iovation’s data on consumer logins to uncover links between fraudulent accounts, once it appeared that there had been an abuse of God Mode.
The Makar Tapes
In 2013, tapes of a meeting between Pierson and the alleged UltimateBet cheater, Hamilton, were released to an online forum, reportedly leaked by Travis Makar, a former computer programmer for UltimateBet who served as Hamilton’s personal assistant. Nobody knows who made the secret tapes, Pierson said, though some speculate that Hamilton made the tapes in an attempt to protect himself in the event of legal complications since they contain promises from UltimateBet management about how they would approach the fraud. On the tapes, Hamilton confesses to cheating players out of money, though he estimates that it was only around $10 million — less than half the amount for which the Kahnawake Gaming Commission would find UltimateBet liable.
Of the three tapes that are publicly available, Pierson says he is only on one of them, though others allege otherwise. On at least one tape, though, Pierson is heard saying that, had the gamers who broke the scandal looked further back into UltimateBet’s history, they would have discovered more extensive fraud. He also discusses specific strategies to minimize Hamilton’s financial liability, which Pierson said was “unfortunate wording” when taken out of context. According to Pierson, he had been asked to speak to Hamilton to reassure him that the owners of UltimateBet — clients of iovation — would not try to wrangle more money from Hamilton than he owed to defrauded players. This is what he was trying to communicate on the tapes, not that he wanted UltimateBet to avoid repaying players, as his comments are sometimes cast, he said.
In an e-mail exchange with GeekWire, an iovation spokeswoman said, “At no point did Mr. Pierson intend to help limit the payback of funds to defrauded players. To the contrary, he was only assisting his client in determining the true scope of the losses that were actually related to the fraud.”
Ultimately, the Kahnawake Gaming Commission decided to fine UltimateBet the sum of $1.5 million and ordered it to pay back $22.1 million to players. No judgment was made against ieLogic or iovation.
Gamers who were burned on UltimateBet have long been suspicious of iovation’s ability to successfully prevent fraud, given that the UltimateBet cheating took place when iovation was providing the company with fraud management services — though iovation says it never promised to monitor insider fraud and in fact has no software to do so, since that is not their focus. The online poker community has reacted with alarm to perceived attempts by iovation to reinsert itself in the online poker world.
In 2013, iovation had a contract with a client who owned an online gambling site, Ultimate Poker (of no connection to Ultimate Bet). Due to the volume of complaints from users once Ultimate Poker’s use of iovation fraud management services was uncovered, Ultimate Poker terminated their partnership with the company that had contracted iovation’s services. “We understand that there were concerns among some of our customers and we hope this makes our players feel more comfortable,” read Ultimate Poker’s statement regarding the split. However, Pierson noted that after Ultimate Poker severed the contract, their partner continued to work with iovation for years afterward.
In fact, iovation says it has lost very few clients over its time as a company, with a customer retention rate of 98 percent, according to its website. Currently, iovation says it employs a team of 115 and serves hundreds of customers. The company is #55 on the GeekWire 200 ranking of the Pacific Northwest’s privately held tech companies.
The company raised $18 million in two rounds of funding, the latest of which closed in 2009, from four investors — Sapphire Ventures, Intel Capital, Epic Ventures, and Global Founders Capital. For six straight years, the company has made the Inc. 5000 list of America’s fastest-growing private companies based on revenue growth.
The Nevada Gaming License will allow iovation to continue to serve its customers by providing location verification — proof that individuals logging into gaming sites are located in jurisdictions where gambling is legal, Pierson said. The license is the result of two attempts by iovation to get approval from the Nevada Gaming Commission. The company was not denied in its first application, Pierson said, but rather was asked to submit to a more thorough investigation into its past after it passed a lower level security clearance. iovation agreed and a larger investigation into its background was launched, costing the company upwards of $500,000, Pierson said. At the end of the two-year process, however, iovation was unanimously approved for its Nevada Gaming license.
“This most recent licensing approval will provide opportunities for iovation to expand into verticals requiring a Nevada license with some of the largest publicly-traded licensees operating in the gaming space,” an iovation spokeswoman said. “Now that Nevada’s regulatory body has completed its comprehensive review of the company and its management, we look forward to extending our services into this highly regulated and respected market.”
Pierson says that he hopes any potential clients anxious about iovation’s past will take the license as the final proof that he and his cyber security company weren’t to blame for the UltimateBet cheating.
“This has been the issue that will never die,” said Pierson of the UltimateBet scandal in an interview with Gaming Intelligence. “If large publicly-listed companies and their compliance officers are happy that Nevada has checked this box, then all the time, effort and expense of this investigation will have been worthwhile.”