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QHniteti &fates' Court of appeals' For the Second Circuit UNITED STATES OF AMERICA, Appellant,
-againstLAWRENCE DICRISTINA, Defendant-Appellee,
STEFAN0 LOMBARDO, also known as MITZIE, Defendant.
On Appeal From The United States District Court For The Eastern District of New York BRIEF OF AMICUS CURIAE CHAMATH PALIHAPITIYA IN SUPPORT OF DEFENDANT-APPELLEE
March 28, 2013
Lisa S. Blatt Matthew C. Phillips R. Stanton Jones ARNOLD & PORTER LLP 555 Twelfth Street, NW Washington, DC 20004 (202) 942-5000
[email protected]
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TABLE OF CONTENTS . .. TABLE OF AUTHORITIES ...................................................................................... 11 IDENTITY AND INTEREST OF AMICI CURIAE ................................................. 1 ARGUMENT .............................................................................................................. 3 I.
THE SAME SKILLS CONTRIBUTE TO SUCCESS FOR POKER 3 PLAYERS AND INVESTORS ........................................................................
11.
OUTCOMES IN BOTH POKER AND INVESTING ARE PREDOMINANTLY DETERMINED BY SKILL, NOT CHANCE .............. 16
CONCLUSION ........................................................................................................... 19 CERTIFICATE OF COMPLIANCE CERTIFICATE OF SERVICE
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TABLE OF AUTHORITIES
Ian Ayres, SUPERCRUNCHERS: WHYTHINKING-BY-NUMBERS IS THENEW WAYTOBE SMART(2008) .................................................................................. 5 Rich Blake, Wall Street Traders Go All In For Poker, ABC NEWS(Dec. 7, 2009), http://abcnews.go.com/Business/wall-street-traderspoker/story?id=9260685 ........................................................................... 7, 17-18 Rachel Croson & James Sundali, The Gambler's Fallacy And The Hot Hand: Empirical Data From Casinos, 30 J. RISK& UNCERTAINTY 195 (2005), available at http:Ncbees.utdallas.edu/-crosonr/researc[3 l].pdf ..........9 Bob Frick, How Poker Can Make You A Better Investor: Learn To Avoid Emotional Traps By Playing A Little Texas Hold 'Em, KPLINGER(Jan. 7, 2010), available at http://www.kiplinger.com/article/investing/TO31C000-SO01-how-poker-can-make-you-a-better-investorht .........................7-8 Bob Frick, How Texas Hold 'Em Simulates Investing: Both Are Based On Incomplete And Unfolding Info/mation, KIPLINGER(Jan. 7,2010), available at http://www.kiplinger.com/article/investing/T052-C000S001-how-texas-hold-em-simulates-investing. .......................................... 13 Robert C. Hannum & Anthony N. Cabot, Toward Legalization of Poker: & REV. J. 1 The Skill vs. Chance Debate, 13 UNLV GMINGRESEARCH (2012) ................................................................................................................. 17 Denis J. Hilton, The Psychology of Financial Decision-making: Applications to ~ r a d i n g , ' ~ e a l iand n ~ ,Investment ~ n a l ~ s i2sJ., OF BEHAVIORAL FIN. 37 (2001) .............................................................................................................. 8 Carrie Hojnicki, The 22 Biggest Poker Players On Wall Street, B u s ~ E ~ ~ INSIDER (July 10, 2012), available at http://www.businessinsider.com/the-22-biggest-poker-players-on-wallstreet-20 12-7?op=1 ............................................................................................ 17 Robert Huber, Beating the Odds - Susquehanna International - Jeff Yass, PHILADELPHIA MAGAZWE(September 2009), available at http://www.phillymag.com/articlesibeating-the-odds....................................... 18
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Lucas Kawa, The 13 Poker Concepts That Every Investor Needs To Know, BUSINESS INSIDER(Dec. 5,2012), available at http://www.businessinsider.com/poker-truths-investors-need-to-know2012-12?op=1 .................................................................................................... 10 Letter from Warren Buffett, Chairman of the Board, Berkshire Hathaway Inc., to Shareholders of Berkshire Hathaway, Inc. (2012), available at http://www.berkshirehathaway.cqm/letters/2012ltr.pdf .................................... 14 Steven D. Levitt, Thomas J. Miles & Andrew M. Rosenfield, Is Texas Hold 'Em a Game of Chance? A Legal and Economic Analysis, 101 10, 17 GEORGETOWN L. J. 581 (2013) ..................................................................... Steven Levitt & Thomas J. Miles, The Role of Skill versus Luck in Poker: Evidencefrom the World Series of Poker, J. OF SPORTSECON.(2012) .............17 Nathaniel Popper, Trading Firms Put Their Money on Poker Experts, LOS ANGELESTMES (May 16,2010), available at http://articles.latimes.com/20 lO/may/16/businessAa-fi-poker-traders20100516 ............................................................................................................ 18 Rob Russell, Investing Like A Poker Player, MONEY(May 17,2012), available at http://money.usnews.com/money/blogs/the-smarter-mutualfund-investorl2012/05/17/investing-like-a-poker-player ................................8- 10 Jack D. Schwager, THENEWMARKET WIZARDS:CONVERSATIONS WITH AMERICA'S TOPTRADERS (reprint ed. 1994) ................................................... 10 Hersh Shefrin, How Psychological Pigalls Generated the Global Financial Crisis, THEFW.PROF'LS'POST(201 I), available at http://post.nyssa.org/nyssa-news/2011/12/how-psychological-pitfallsgenerated-the-global-financial-crisis.ht ........................................................... 9 Jason Zweig, How to Ignore the Yes-Man in Your Head, WALLST.J . (Nov. 19,2009), available at http://online.wsj.com/article/SB100014240527487038116045745336800 37778184.html .................................................................................................. 8-9
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IDENTITY AND INTEREST OF AMICI CURIAE' Amicus curiae, Chamath Palihapitiya, is the Founder and Managing Partner of the Sociali-Capital Partnership.
Founded by Mr. Palihapitiya in 2011,
Sociali-Capital is a highly successful venture capital fund that identifies and incubates companies with the potential to revolutionize the healthcare, education, and financial services sectors.
Mr. Palihapitiya and Sociali-Capital take an
unusually bold and calculated approach to identifying and nurturing innovative new companies. The fund focuses on long-term concepts, particularly those that have the potential to achieve philanthropic goals.
Moreover, Sociali-Capital
operates like an investor collective, rather than a typical venture capital firm, in which a group of managers typically administers the wealth of nameless investors. As a result, some of the most prominent technologists and industry insiders in the country have partnered with and invested in the fund. Mr. Palihapitiya's pioneering approach and skill in identifying investment opportunities has led to extraordinary success for Sociali-Capital. One investment alone, in a social networking tool for businesses called Yammer, yielded more than
'
No party's counsel authored this brief in whole or in part. No party or a party's counsel made a monetary contribution intended to fund the preparation or submission of this brief, and no person other than Amici or their counsel made such a monetary contribution. All parties have consented to the filing of this brief.
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$80 million in profits. And in March 2013, Social+Capital raised more than $275 million for a second fund, further demonstrating its success and profitability. In addition to his career as a venture capitalist and investment professional, Mr. Palihapitiya is also a superb poker player who competes against professional poker players from around the world in marquee poker tournaments. In 201 1, Mr. Palihapitiya placed 10lst out of 7,000 in the main draw of the World Series of Poker. In 2012, Mr. Palihapitiya placed 11th out of 1,001 in a World Series of Poker event. Since 2011, Mr. Palihapitiya has won more than $160,000 in poker tournaments sanctioned by the World Series of Poker or the World Poker Tour. Mr. Palihapitiya's unique perspective as both a preeminent investor and poker player provides him with special insight into the striking similarities between the two activities. Mr. Palihapitiya understands, from his own personal experience in both investing and poker, that successful investors and poker players rely upon the same skills, and that skill-not
chance-predominantly
determines outcomes
in both activities. Because the Government defines "gambling" so broadly that it could encompass activities like investing, Mr. Palihapitiya has a strong interest in seeking to have this Court affirm the district court's decision that poker, like investing, is a game of skill, not of chance.
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ARGUMENT The similarities between poker and investing are many and manifest. Two key similarities demonstrate the connection between the two activities. First, the same skills contribute to success in both activities, as successful investors and poker players skillfully interact with other participants, exercise remarkable personal discipline, amass a body of specialized knowledge regarding probability and statistics, and implement all of those skills instantaneously under tense conditions. By contrast, gambling games such as blackjack and sports betting do not share these distinguishing traits with investing or poker, and have little in common with either activity. Second, skill clearly predominates in determining outcomes in both activities, as studies repeatedly and conclusively establish that skilled players consistently outperform others, and skilled participants often thrive in both fields simultaneously.
I.
THE SAME SKILLS CONTRIBUTE TO SUCCESS FOR POKER PLAYERS AND INVESTORS Professional poker players and professional investors alike have observed
that the same set of skills contribute to success in both pursuits. Successful participants in both fields are able to interact skillfully with other participants and accurately evaluate their opponents' circumstances. The successful participant must also exercise great personal discipline, dispassionately assessing strategy and risk while exercising control over emotional impulses and biases. In both fields,
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participants must accumulate a body of specialized knowledge regarding probability and statistics, and must be able to dynamically adjust their calculations. And these skills must be successfully implemented in split-second decisions often under immense pressure.
1.
Skillful interactions with other participants contribute to success in
both poker and investing. The fundamental talent driving these interpersonal relationships is the ability to accurately assess a counterparty's status and negotiating position, often under conditions fraught with pressure and risk. Investors must be able to evaluate the negotiating positions of counterparties to obtain favorable terms for investment transactions. For example, by skillfully evaluating a potential venture capital investment opportunity, an investor could determine that a company's principals lack the acumen to execute a concept that holds potential only on paper. Similarly, poker players must engage in complex person-to-person interactions and adjust their betting decisions and game play accordingly.
This requires, among other things, an understanding of human
psychology, patience, a perceptive nature, sensitivity to the importance of timing and pacing, keeping in mind the bigger picture, a strategy for action based on one's observations of other participants, a process for achieving a favorable result based on observation and past experience, and an ability to behave in a controlled and intentional manner.
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In addition to assessing counterparties, successful poker and investment professionals are also able to recognize and exploit their opponents' mistakes and irrational behavior.
In both fields, other participants often do not behave
rationally, either because they lack or have misinterpreted therelevant information, have emotional reasons for acting, or do not have the experience to make sound decisions. Investors often strive to identify opportunities in the market created by the irrational behavior of other investors. See, e.g., Ian Ayres, SUPERCRUNCHERS: WHY THINKING-BY-NUMBERS IS THE NEW WAYTO BE SMART148-149 (2008) (quoting hedge-fund manager's comment that "[wle make our fortunes by identifying small imperfections in the marketplace. things and
* * * If we can discover these
* * * throw massive resources at these opportunities, fleeting and small
though they may be, we end up making lots of money before the efficiency of the marketplace closes out that opportunity"). In poker, small imperfections in the marketplace arise as the skillful player recognizes his opponent's irrational behavior and the reason for the behavior. By accurately assessing counterparties, the successful player will discern profitable opportunities that a less skillful player would overlook, and by capitalizing on those imperfections, he can, like a hedgefund manager, maximize his return. By contrast, in pure games of chance, like roulette, there is no room to negotiate, no interaction with other players, and no ability to manipulate odds or
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exploit mistakes.
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Similarly, in blackjack there is no peer-to-peer interaction.
Participants play against the house, and the house in turn plays by a pre-established set of rules that do not vary, regardless of the player's actions. The size of the wager is determined at the beginning of the game and can be modified in only a very limited manner, based entirely on the cards and not on the strategy of other players or the house. In poker, on the other hand, the amount of the wager increases during the game, and part of the skill is not only knowing when to continue playing and when to fold, but whether and how much to bet if not folding. As another example, in sports betting, the sports bettor is unable to assess the counterparty's status or negotiating position through complex interpersonal interactions. A bookmaker is not like a counterparty in a negotiation or an adversary at the poker table because bookmakers do not act irrationally and are not subject to the influence of face-to-face interactions. The typical bettor has no ability to "bluff' a bookmaker. Instead, only an exceedingly small number of sports bettors-who
have massive bankrolls and clout--can actually manipulate
the betting line. They are not typical sports bettors. Indeed, the Government cited only one individual who has managed to beat the system in this way, and a respected bookmaker, when asked if there were any other sports gamblers like him, said "[nlo one close, no one close." Gov't Br. 31-32 (citing a 60 Minutes story about Bill Walter). Moreover, even an unusually knowledgeable sports bettor
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cannot affect the likelihood that a particular side will win a sporting event. The end result is still left entirely to chance. 2.
Personal discipline is another skill that is essential to maximize
success in both poker and investing and is vital to the development and execution of strategies, ongoing risk management, and emotional control. See, e.g., Rich Blake, Wall Street Traders Go All In For Poker, ABC NEWS (Dec. 7, 2009),
http://abcnews.go.com/Business/wall-street-traders-poker/sto?id=9260685 (quoting the cofounder of a day trading firm: "Roulette, blackjack, those are based more on luck. But with a game like No Limit Texas Hold 'Em, you need patience and discipline, or in other words the exact same skills needed to be a good trader."). Consistent emotional control is critical for investors, who must avoid "emotional investing" and remain level-headed at all times to ensure that future investment decisions are not driven by an emotional reaction to past results. Poker players, too, must make rational decisions in the face of disappointing results (rather than "going on tilt7'-playing
too aggressively, often in anger), and must
bluff in appropriate circumstances in order to maximize profits. And just as an investor's discipline can be stretched to the limits by exhausting negotiating sessions or nerve-racking situations, the demanding conditions of a poker tournament-tense
situations stretching over hours and even days-further
test the
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endurance of a player's emotional discipline. Accordingly, "[s]uccess at both investing and gambling, it turns out, has much to do with controlling emotions." Bob Frick, How Poker Can Make You A Better Investor:
Learn To Avoid
Emotional Traps By Playing A Little Texas Hold 'Em, KIPLINGER(Jan. 7,2010), available
at
http://www.kiplinger.com/article/investing/TO31-C000-S001-how-
poker-can-make-you-a-better-investor.html; Rob Russell, Investing Like A Poker Player,
Money
(May
17,
2012),
available
at
http://money .usnews.com/money/blogs/the-smarter-mutual-fund-
investor/2012/05/17/investing-like-a-poker-player ("Investing, like poker, should be emotionless. The hardest thing for novice and expert traders is to not let their emotions get the best of them, causing them to deviate from their disciplined strategy."). Personal discipline also affects the ability of a player or investor to view risk objectively and make rational, calculated decisions. Studies clearly demonstrate that inexperienced or unskilled participants in both fields are subject to several types of biases in judgment and decision-making. See, e.g., Denis J. Hilton, The
Psychology of Financial Decision-making: Applications to Trading, Dealing, and Investment Analysis, 2 J.
OF BEHAVIORAL FIN.37,37-39(2001); How
Poker Can
Make You A Better Investor, supra. A participant who becomes overconfidenteither in winning a particular hand or successfully investing in a particular stock-
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often suffers from confirmation bias, ignoring negative information or evidence that his strategy will result in loss.
See, e.g., The Psychology of Financial
Decision-making, supra, at 37-39; Jason Zweig, How to Ignore the Yes-Man in Your
Head,
WALL
ST.
J.
(Nov.
19,
2009),
available
at
http://online.wsj.com/article/SB 10001424052748703811604574533680037778184 .html. Likewise, an inexperienced or unskilled participant is likely to be swayed by recency bias or pattern thinking, and, based on recent successes, depart from established methods to take on more risk. See, e.g., Rachel Croson & James Sundali, The Gambler's Fallacy And The Hot Hand:
Empirical Data From
Casinos, 30 J. RISK & UNCERTAINTY195, 196 (2005), available at http://cbees.utdallas.edu/-crosonr/researc[3 1].pdf. The irrational decisions that triggered the global financial crisis in 2008 illustrate the risks of undisciplined decision-making.
Hersh Shefrin, How
Psychological Pitfalls Generated the Global Financial Crisis, THEFIN. PROF'LS' POST (201 I),
available
at
http://post.nyssa.org/nyssa-news/2011/12/how-
psychological-pitfalls-generated-the-global-financia1-crisis.html. The resulted from a globally accepted-but
crisis
ultimately incorrect-belief
that the U.S.
housing market could never experience a significant decline.
Id. ("specific
psychological phenomena-reference
point-induced
optimism, overconfidence, and categorization-were
risk seeking, excessive at work").
On a smaller
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scale, investors must limit losses and maximize gains through the skillful assessment of risk. Russell, supra. ("Casinos and Wall Street have one thing in common: They can't control when you cash in and get up from the table. The most important thing you can do as a trader is limit your losses. In other words, when you place a trade, know your exit strategy."); Jack D. Schwager, THE NEW MARKETWIZARDS:CONVERSATIONS WITHAMERICA'STOPTRADERS(reprint ed. 1994) (quoting Jeff Yass of Susquehanna International Group) ("The basic concept that applies to both poker and option trading is that the primary object is not winning the most hands, but rather maximizing your gains."). In poker, the discipline to avoid psychological pitfalls and to assess risk dispassionately manifests itself in the strategic decision to either fold or stay in a particular hand. "The best poker players lose more hands than they win, but they limit their losses by folding early on, and the big money is made on winning hands when the odds are in their favor." Russell, supra. Accordingly, the best poker players in the world fold over 90% of their starting hands. Lucas Kawa, The 13
Poker Concepts That Every Investor Needs To Know, B u s m s s INSIDER(Dec. 5, 2012), available at http://www.businessinsider.com/poker-t~s-investors-needto-know-2012-12?op=1. By contrast, a less-skilled player who "plays more hands to completion (rather than folding early) and who bets more liberally accrues more losses." Steven D. Levitt, Thomas J. Miles & Andrew M. Rosenfield, 1s Texas
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Hold 'Em a Game of Chance? A Legal and Economic Analysis, 101 GEORGETOWN L. J. 581,585 (2013). Unlike in investing and poker, personal discipline does little or nothing to change the odds of winning in gambling games. In games of chance, discipline affects only whether a person opts to play or not to play; it cannot affect the end result. And once the participant opts to play a game of chance, discipline does not affect the outcome; results are completely out of the participant's hands. In both poker and investing, a skilled participant plays for long-term gains, understanding that profit derives from a multitude of complex decisions based on ever-changing circumstances. This is simply not the case for gambling.
3.
The successful investor and poker player must also accumulate
specialized knowledge of probability and statistics. A poker player must be able to calculate the probabilities of winning based on his own cards and the likely cards held by his opponents. The skillful player's calculations are sensitive to his assessment of his opponents' positions, based on experience and complex interpersonal interactions. He must also determine the "pot odds" by comparing the amount he will win against his likelihood of winning and by adjusting those odds to incorporate the future betting he predicts will occur. These calculations must all be performed instantaneously, without betraying emotional or physical
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response. His knowledge of statistics further enables him to analyze his play after the fact to determine strengths and weaknesses and improve his game. An investor similarly must understand probabilities and statistics in order to calculate the expected value of holdings based on his knowledge of all factors affecting those holdings.
He must also compare the risks involved against
potential rewards to make appropriate investment decisions. And he must analyze those decisions after the fact to identify weaknesses and adjust his investment strategy. By contrast, any knowledge of probability and statistics can only help participants in gambling games, in a simplistic manner with very little effect on outcomes. For pure games of chance, the odds generally remain the same. So the chance of winning a slots game or roulette bet remain constant, and knowledge of that fact does nothing to minimize or affect the odds. Similarly, in blackjack, there is a single statistically optimal option for any given distribution of cards. Although
it is helpful to be aware of the optimal strategy, it is unnecessary for a player to actively calculate probabilities during the game, and he is unable to affect ultimate outcomes. In sports betting, a bettor may think his knowledge of probability helps him select games to bet on, but his ability to use that knowledge to win is virtually nonexistent because bookmakers set the line so that the typical bet essentially stands a
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50-50 chance of succeeding. Moreover, 'once the final wager is placed and the sporting event begins-the loses-there
result of which determines whether the bettor wins or
is nothing left for him to do. Whether he wins or loses is out of his
control; he must passively await the outcome of a game that he is not involved in. 4.
Finally, a skillful player and investor must be able to successfully
implement knowledge and utilize the aforementioned skills.
After gathering
information and assessing his counterparties' positions, poker players must make a number of split-second decisions regarding all aspects of game play based on incomplete and unfolding information. This process mirrors investor decisionmaking in a variety of contexts. See, e.g., Bob Frick, How Texas Hold 'Em Simulates Investing: Both Are Based On Incomplete And Unfolding Information, KIPLINGER
(Jan.
7,
2010),
available
at
http://www.kiplinger.com/article/investing/T052-C000-S001-how-texas-hold-em-
simulates-investing.htm1 ("How does this simulate investing? Think of your first two cards as a potential investment -- say a stock, mutual fund or bond. *
* * Every
time community cards are shown, you get more information about your hand, which is just like getting more information about your investment."). Frequently the goal in investing is to recognize market imperfections before other investors do and the market normalizes. In other words, like in poker, the goal is often to outwit other participants before they catch on to the strategy or become aware of
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pertinent information. For example, a value investor may obtain quantitative data through stock screens or fundamental analysis, but the information is incomplete and constantly unfolding. The investor must accurately and dynamically analyze that incomplete information and determine the odds of success.
A skillful poker player must also implement his knowledge of statistics to manage levels of risk and learn from his past performances. He must manage overall risk by determining an appropriate bankroll relative to the limit levels at the table, and his hand-by-hand risk by evaluating how the game has evolved in relation to the money in the pot and the bets necessary to stay in the hand. Investors similarly must manage their overall capital in relation to trade sizes, and their investment-by-investment risk based on the capital invested and the position's expected performance. In addition, both poker players and investors are able to assess and learn from performance data, which enables them to identify problems with strategies and help improve future results. For example, almost every annual Berkshire Hathaway shareholder letter from Warren Buffett analyzes the previous year's performance data, including investing blunders or strategic failures, in order to learn from mistakes and maximize future returns. See, e.g., Letter from Warren Buffett, Chairman of the Board, Berkshire Hathaway Inc., to Shareholders of Berkshire
Hathaway,
Inc.
@ow,
http://www.berkshirehathaway.com~letters/2012ltr.pdf.
available
at
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Conversely, games of chance by their very nature do not require participants to implement knowledge or execute skills. To the extent these skills factor in at all, they do so at a much less sophisticated level. For instance, in sports betting, the bettor certainly makes use of knowledge accumulated about teams, players, etc., but that information informs only the decision whether to participate by betting on a particular team. There is no skill required to execute that decisionand, as noted, the bookmaker sets the line to counteract bettors' knowledge so that the typical bet amounts to a 50-50 coin flip. In contrast, a poker player must use negotiating skills to implement his knowledge during complex interpersonal interactions-and
that knowledge can actually help him achieve more success in
the game. Also, in sports betting, and unlike in poker and investing, a participant's use of knowledge when deciding to place a bet is a one-time decision that cannot affect the ultimate outcome of the game, which is out of the bettor's hands. By contrast, wagering is a central skill of poker and investing. It is an iterative and evolving process that influences ultimate outcomes. Wagering in investing and poker involves multiple iterations of betting whereas sports betting typically does not. A poker player has five rounds to bet, and an investor can similarly decide when to buy, when to sell, and in what quantity. Thus both are iterative processes where the participant continuously manages his level of investment in response to new
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information, seeking to maximize profit. By contrast, the typical sports-bettor makes a one-time bet that either pays off or doesn't. Moreover, the act of investing and wagering in poker actually influence outcomes, whereas the act of betting in sports betting does not. In poker, wagering can determine whether a player wins or loses if he is able to induce all of his opponents to fold (which is the most common result). Similarly, investing has a real effect on the actual performance of companies. After all, companies sell stock to acquire capital to grow their businesses, and stock price can have a significant effect on a company's fortune. Conversely, a sports bettor's "investment" does not do anything to aid the team he bets on. Sports betting would be like investing only if you bet on the Yankees by buying their stock, so that the Yankees could use your investment to improve their team. And it would be like poker only if betting on the Yankees could cause the Red Sox to fold before a game was played.
11.
OUTCOMES IN BOTH POKER AND INVESTING ARE PREDOMINANTLY DETERMINED BY SKILL, NOT CHANCE The second key similarity between investing and poker is that outcomes are
predominantly determined by skill, even though both activities involve some element of chance. Chance of course plays a role in both poker and investing. In poker, that element of chance stems from the random draw of cards. In investing, chance comes from unexpected market events that cannot be anticipated.
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However, in both poker and investing the role of skill is the primary determinant of victory or defeat. Participants in both activities who are serious about honing their skills are able to consistently make money, demonstrating that skill predominates over chance. This is because more skilled poker players substantially outperform less skilled players. Levitt, Miles & Rosenfield, supra, at
585 ("The empirical evidence suggests that skill is the primary factor determining the distribution of player returns in no-limit Texas Hold 'Em."); Steven Levitt & Thomas J. Miles, The Role of Skill versus Luck in Poker: Evidence from the World Series of Poker, J. OF SPORTSECON. (2012); Robert C. Hannum & Anthony N.
Cabot, Toward Legalization of Poker: The Skill vs. Chance Debate, 13 UNLV
GAMING RESEARCH & REV. J. 1 (2012). For example, a study of participants in the 2010 World Series of Poker found "a substantial role for skill in poker," as the high-skilled players generated an average return on investment of more than 30 percent, compared to a negative 15 percent return for all other players. Levitt & Miles, supra, at 4. The differential between the high-skilled players and the rest was statistically significant and exceeded the differential observed in studies of skilled investors. Id. Because of the overlapping skill sets of poker and investing, in many instances the most skilled participants can make a living from both poker and investing. See, e.g., Carrie Hojnicki, The 22 Biggest Poker Players On Wall Street,
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BUSINESS
Document: 77
INSIDER
Page: 22
(July
10,
03/28/2013
2012),
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available
at
http://www.businessinsider.com/the-22-biggest-poker-players-on-wall-street-2O127?op=1; Blake, supra (listing professional investors who excel at poker). Indeed, several Wall Street firms, such as Susquehanna International Group, have explicitly embraced the synergy between successful poker players and successful investors: it hires poker players and requires poker training for other new hires. Robert Huber, Beating the Odds - Susquehanna International - Jeff Yass, PHILADELPHIA
MAGAZINE
(September
http://www.phillymag.com/articles/beating-the-odds;
2009), see
also
available
at
Blake,
supra
(reporting that a hedge fund requested recruits who were "proficient at online poker"); Nathaniel Popper, Trading Firms Put Their Money on Poker Experts, LOS
ANGELES
TJMES
(May
16,
2010),
available
at
http://articles.latimes.com/201O/may/16/businessAa-fi-poker-traders-20100516 (Firms "look for job candidates who are quick-thinking, have nerves of steel and a head for numbers-the
very skills that lead to success in online poker.").
Despite the striking similarities between poker and investing, the Government's definition of "gambling" is so broad that it could be read to include activities like investing. The Government asserts that "gambling" means "betting on an uncertain outcome."
Gov't Br. 21. But investing involves betting on
uncertain outcomes. Investors, like poker players, make reasonably educated
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decisions about where, when, and how much to invest. But ultimately they bet on outcomes that are uncertain and thus fall within the Government's unreasonable definition of criminal "gambling." Indeed, if the outcomes were certain, it would not be called "betting" and everyone would make money investing. No reasonable person would conclude that Congress intended to criminalize investing as unlawful "gambling."
But that is a potential consequence of the
Government's unreasonable definition of the word. Investing cannot properly be regarded as gambling, because an investor's skill overwhelmingly predominates over the element of chance in determining outcomes. In light of the similarities discussed above, the same is true of poker.
CONCLUSION For the foregoing reasons, the district court's decision should be affirmed. Dated: March 28,2013
Respectfully submitted, IS/ Lisa S. Blatt Lisa S. Blatt Matthew C. Phillips R. Stanton Jones ARNOLD & PORTER LLP 555 Twelfth Street, NW Washington, DC 20004 (202) 942-5000
[email protected]
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CERTIFICATE OF COMPLIANCE This brief complies with the type-volume limitation of Fed. R. App. P. 32(a)(7)(B) because the brief contains 4,203 words, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii). This brief complies with the typeface and type style requirements of Fed. R. App. P. 32(a)(5) and 32(a)(6), respectively, because this brief has been prepared in a proportionately spaced typeface using Microsoft Word 2007 in Times New Roman 14-point font. IS/ Lisa S. Blatt Lisa S. Blatt
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CERTIFICATE OF SERVICE I certify that on March 28, 2013, I caused the foregoing Brief of Amicus Curiae Chamath Palihapitiya in Support of Defendant-Appellee to be electronically filed via the Court's CMECF System; all of the parties listed on the attorney service preference report have been served via the Court's CMECF system.
I further certify that on March 28, 2013, I caused six (6) copies of the foregoing Brief of Amicus Curiae to be delivered via Federal Express to the Clerk of the United States Court of Appeals for the Second Circuit.
IS/ Lisa S. Blatt Lisa S. Blatt
