"Billionaire Plays Her Cards Right in Online 'Gray Market'" from the Los Angeles Times, Sunday November 27, 2005. ©2005 Los Angeles Times. Reprinted with permission.
Billionaire Plays Her Cards Right in Online 'Gray Market'
November 27, 2005
Home Edition, Main News, Page A-1
By Joseph Menn, Times Staff Writer
Ruth Parasol has made a fortune selling vice to the masses.
Through phone sex, then Web porn and most recently online poker, the 38-year-old lawyer has leveraged a succession of new technologies to become a self-made billionaire whose net worth rivals those of Internet entrepreneur Mark Cuban and Las Vegas mogul Steve Wynn.
Like Cuban, Parasol was quick to recognize the Internet's power to transform daily life. And like Wynn, she understood the financial upside of gambling -- even though the Justice Department says most of her customers are breaking the law when they ante up at Parasol's PartyPoker.com.
But unlike Cuban and Wynn, who have grown famous, few outside the porn or gambling industries have heard of Parasol, a mother of two from Marin County who shuns publicity and lives in the Mediterranean tax haven of Gibraltar.
In industries full of sharpelbowed men and sometimes shady characters, Parasol stands out. People who know her describe Parasol as "drop-dead gorgeous," a tough negotiator and a skillful investor who uses her legal training to navigate at the fringes of the law.
Before founding PartyPoker, Parasol spent years bankrolling or advising some con men and shysters, but she has never been accused of a crime or questioned by law enforcement. Associates describe her as perennially happy and even bubbly, a licensed pilot with an instinct for getting in early and profiting from what one of her legal advisors calls "gray-market opportunities" before the rules of the game change.
That Parasol would become one of the wealthiest women in the world with a net worth of $1.8 billion -- ranking alongside Cuban and Wynn, among others, at 164th on the Forbes list of the 400 richest Americans -- shocks few who knew in her high school. At the exclusive Marin Academy, Parasol was known as "Ruthie Ruthless" and posed for her senior portrait in a fur coat with the caption "Diamonds Are a Girl's Best Friend."
Students debated how seriously she took that slogan, but none doubted her brains or ambition.
"She's an amazing woman," said venture investor Cheray Unman, a friend from age 14. "She's very, very smart."
Although the Justice Department says Internet gambling is as illegal as it is popular, most of the $8.2 billion that analysts estimate the industry raked in last year came from the United States. Firms such as Parasol's Gibraltar-based PartyGaming, which has half the online poker market, escape U.S. jurisdiction by incorporating and operating in countries where gambling is lawful.
Some legal experts say Parasol risks arrest if she returns to the United States, and her company warned in paperwork before its initial public offering in the summer that a concerted U.S. effort could shut it down. But law enforcement agencies have shown no inclination to attack.
Lax enforcement has allowed sites such as PartyPoker.com to thrive and grow -- analysts project that annual revenue from online gambling will reach $22 billion by 2009.
Because global regulations are patchy, myriad complaints to federal and state authorities go nowhere, and gamblers stand little chance of recovering money lost to cheating or other scams. Entrepreneurs with unsavory pasts are attracted by such legal ambiguities and face no competition from the blue-chip companies that helped clean up Las Vegas.
A former top U.S. bookie, Ronald "The Cigar" Sacco, founded a pioneering Costa Rica-based betting service called BetCRIS. Sacco's record includes more than a dozen convictions on gambling, money-laundering and other charges.
Then there's Charlo Barbosa, a Vancouver, Canada, man who started publicly traded Poker.com Inc. before being accused of selling online porn services via software that charged unwitting long-distance subscribers as much as $7.39 a minute. The Federal Trade Commission sued and won a settlement stopping the practice.
Operators such as Sacco and Barbosa give some outsiders pause.
"With all gambling, there's an element of trust involved," said David G. Schwartz, director of the University of NevadaLas Vegas Center for Gaming Research.
At PartyPoker.com, as at other sites, users download free software, then establish a betting account with their credit card and an electronic payment service. Players choose from a variety of card games. Winnings are credited to their accounts and losses are deducted.
To ease the concerns of investors and players, PartyPoker parent PartyGaming stresses that it is licensed and regulated by the government of Gibraltar and that it has hired respected managers and directors from mainstream industries. On its June debut on the London Stock Exchange, PartyGaming was valued at $8.5 billion.
Parasol has no executive role in the company, but the 32% stake she kept with her husband, Russell DeLeon, along with the shares they sold when their company went public, gave them a sudden combined fortune of $3.6 billion.
Parasol declined interview requests for this article.
"What she's decided to do is remain fairly private," said her spokesman, Jon Mendelsohn.
The oldest of three daughters, Parasol was born into an unconventional family, even by the relaxed standards of Marin County in the 1960s. Her father, Richard, is a heavy-set, flamboyant Holocaust survivor who loves boating and the opposite sex. He sometimes cruises San Francisco Bay on a speedboat with topless women.
Richard Parasol declined to comment, other than saying, "I'd like to help you, but I can't."
With an unassuming Swedish mother running the household, Parasol family life "was like an Ingmar Bergman movie and a Woody Allen movie at the same time, with a little Hugh Hefner thrown in," said Ruth Parasol's youngest sister, Ricarda, who fronts a goth rock band. Their middle sister is a registered nurse.
After high school, Ruth went to the Jesuit-run University of San Francisco and then to law school at Western State University in Fullerton. She worked briefly in a personal injury law practice before joining her father in a business that handled billing for phone-sex lines.
She became a fixture at adult-industry gatherings.
"When I was coming up in '98 and '99, I would see Ruth at all the trade shows and we would hang out," said Evan Horowitz, who heads an online porn network called XPays. "I remember her being very bubbly and happy and nice. I should have dated her."
In the 1990s, Parasol advised Seattle phone-sex entrepreneur Ian Eisenberg. He went on to mail fake "rebate" checks for $3.50 to millions of households. The fine print said that by cashing the checks, recipients agreed to pay as much as $29.95 a month for Internet service. The Federal Trade Commission sued and won an order for $17 million in reimbursement.
Parasol and an Eisenberg protege named Seth Warshavsky then invested millions of dollars in phone-porn companies that were sued by North Carolina and Nevada authorities for alleged improper billing and collection practices that included threatening to seize a person's property.
In North Carolina's case, a judge ordered a firm co-founded by Parasol to pay $270,000. The Nevada case was dropped after the company filed for bankruptcy protection.
In one of their ventures, Parasol and Warshavsky were part-owners of a 1-900 and long-distance operation called Starlink Communications. Starlink's former president, George Holland, said he met Parasol only twice.
Before their first meeting, he said, he assumed that any woman in the "99% male" phone-sex industry would be a crone. Instead, he found himself in the room with a quiet and extremely well-dressed young brunette.
"She was drop-dead gorgeous," Holland said.
As federal rules about phone calls became stricter, the companies went out of business. Warshavsky changed his approach to Web pornography.
By January 1996, Richard and Ricarda Parasol owned 49% of a holding company that funded Warshavsky's best-known venture, Internet Entertainment Group, which distributed a sex video made by actress Pamela Anderson and rocker Tommy Lee.
Ruth Parasol co-founded IEG, according to a person close to her, but Mendelsohn said she held stock in it only briefly.
Ruth's father and sister sued Warshavsky in June 1996, claiming he reneged on an agreement to buy out their share of the business. Ruth negotiated a settlement, according to the family's attorney in the case, Bradley Keller.
"She got a good deal," Keller said. "She got their dough out and moved on down the road."
Some who dealt with Warshavsky were less fortunate. In a later case, several former staffers accused him of routinely overbilling IEG customers. Facing large unpaid debts, Warshavsky eventually fled to Thailand. He could not be reached for comment.
Even before the Warshavsky deal fell apart and competition in Web porn intensified, Ruth Parasol was wondering what the next big thing would be. She started asking experts where an online casino might be legal.
In 1997, Parasol established her first gambling operation, in the Caribbean. Beginning with five employees, Starluck Casino used software from another company to offer virtual slot machines, blackjack and other Las Vegas-style games. The company grew into a network of sites under the name iGlobalMedia, which ultimately became PartyGaming. By 2001, Parasol's casinos were handling 3 million visitors a day.
But iGlobalMedia also attracted customer complaints on online message boards, especially about its blackjack and 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.
"My results clearly showed they weren't fair," said Las Vegas actuary and casino consultant Michael Shackleford, who calls himself "the Wizard of Odds."
Mendelsohn acknowledged that the chances had tipped too much toward the house, but he said that was because of software flaws, not rigging. Shackleford hasn't objected to the card games that now account for most of PartyGaming's revenue, but Schwartz, of the Center for Gaming Research, said a history of disputes should give players pause.
As the company grew and prepared for its public offering, Parasol kept up her connections to porn specialists, including the controversial Yishai Habari, a major Internet traffic broker.
Habari was appreciated by porn publishers for paying handsomely when they referred Web surfers his way. From January to May this year, as PartyGaming was trying to build its share of the online poker market ahead of its IPO, Habari directed the company's successful Internet marketing program, which pays other websites to refer players.
About five years ago, though, Habari was directing traffic to porn websites that were part of a $650-million billing scam prosecutors described as the most profitable enterprise under the control of New York's Gambino crime family.
According to interviews with a dozen government officials, business partners and employees of the once wide-ranging operation, Habari sent people to porn websites that asked for credit card numbers -- ostensibly to ensure that viewers were at least 18 -- and then racked up bogus charges. Habari's company operated from the same floor as one of the Mafia fronts.
Federal prosecutors brought charges in 2003, and a mob captain, a soldier and four associates pleaded guilty in February. Habari was not named in the indictment. Parasol's spokesman said that when she suggested her old friend Habari for a top job at PartyGaming, she believed that Habari had been only "a consultant to a consulting firm that provided services" to the Gambino operation.
Habari did not respond to several requests for comment. He left PartyGaming in the spring.
I. Nelson Rose, a professor at Whittier Law School in Costa Mesa and an authority on Internet betting, said that PartyGaming may have had some problems in the past. But he said Parasol herself had always struck him as classy and above reproach. He has advised Parasol for more than a decade and had lunch with her this year in Europe.
Asked why Parasol partnered with some shady characters, Rose said maybe it was because "the gray-market opportunity," as he put it, was vast.
Given what he called the risky legality of PartyPoker, Rose said, "I don't know if she can ever come back to the U.S." On the other hand, he said, "it's great to be a billionaire."