Does Poker Staking Constitute a Securities Transaction?

If you followed my posts on the Business Law Prof Blog and/or the Akron Law Café before I arrived here, then you know that I am a fan of poker.  In fact, I have blogged more than once about my desire to cobble together a “Poker for Law Students” course.  I have also blogged previously about whether poker-staking constitutes a securities transaction.  I was reminded of all of this when I came across a story in today’s Wall Street Journal about how many of the professional players planning to play in tomorrow’s “One Drop” $1 million buy-in tournament (10% of each buy-in goes to the “One Drop” charity, which seeks to provide access to safe water worldwide) are selling large pieces of themselves to get into the action.  

I won’t repeat what I’ve said before on this topic (that’s what the links are for), but a couple of things in the WSJ article did jump out at me that I thought warranted some additional comments.  First, one of the players in the story reportedly set up an LLC (“One Drop Investments LLC”) to help organize the financing of his poker buy-in.  Second, there is apparently at least one investment fund (“Arial Ventures, LLC”) dedicated to investing in poker players.  Here is a description of the fund that you’ll find here:

Arial Ventures is a poker backing company – an organization that invests it’s [sic] capital and shares in earnings with some of the top poker players in the world, in some cases household names who have each earned millions of dollars of tournament prize money. The company was founded by and is run by two veteran entrepreneurs and one of the most respected professional player/coaches in poker today.

Now, I have no idea whether any of these folks are aware of their potential liability under, for example, Rule 10b-5, or whether they have looked into their potential registration obligations, but my guess is they haven’t.  Given that I believe there is a strong case to be made for poker-staking qualifying as an investment contract under the securities laws, I think this might be a significant oversight.

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