when you talk about the market, i believe you're spot on. >> i love it. thank you so much. every night we watch you. i have learned and earned. >> all right. another whole set of data coming up. this time from the fed. i don't think the fed will matter all that much this time because it is an earnings period and we know there's a bit of a slowdown in the u.s. all that said, have to be back on this taper watch. there's always a bull market somewhere, i promise to try to find it for you. i'm jim cramer and i'll see you tomorrow. is the richest sporting competition in the world, and yet it pales in comparison to the 1/2 million people who are gambling on the internet right now, even though it's illegal and unregulated in the u.s., which partly explains how a few cheaters were able to steal more than $20 million playing poker online. >> if you can see everybody's cards in poker, you could be the worst poker player in the world up against the best poker player in the world, and you're gonna beat them just about every time. [stopwatch ticking] >> gentlemen and ladies, place your bets. let the games begin.

[cheers and applause] >> that's what i'm talking about! >> whoo! >> steve wynn is the man with the midas touch who added glamour to the gambling industry. >> if you're gonna start a gambling joint, start a gambling joint. >> he transformed las vegas into an international tourist spot, but the odds haven't changed. >> the only way to win in a casino... >> is to own one. >> own one. >> unless you're very lucky. [stopwatch ticking] >> internet gaming is illegal in the united states and absolutely thriving. >> yes! >> right now, as you watch this story, 70,000 people are gambling on party poker, and that's just one site. >> there will be more online poker games per day at the end of this year than all of the casinos in the entire world put together. >> welcome to 60 minutes on cnbc. i'm steve kroft. by some estimates, gambling in this country is a nearly

$100-billion industry. it attracts everyone from flamboyant businessmen to nefarious conmen. while the odds are heavily stacked against them, for millions of americans, gambling remains enormously popular, even in these hard economic times. in this episode, charlie rose will profile steve wynn, who many credit with the resurgence of the las vegas strip. and later, lesley stahl will take us to the world of internet gambling, which is against the law, yet is thriving in this country. but first, my report about one of the biggest scandals in the history of online gambling. a small group of people managed to cheat players out of more than $20 million, and it would have gone undetected if it hadn't been for the players themselves, who used the internet to root out the corruption. as a joint investigation by 60 minutes and the washington post revealed in 2008, it raises new questions about

the integrity and security of the shadowy and highly profitable business that operates outside u.s. law. >> moneymaker puts his name amongst the greatest players in the game! >> if you had to pick the moment that the poker boom began, it was probably the day an unknown accountant named chris moneymaker won $2.5 million at the 2003 world series of poker. suddenly, every amateur with a hat, sunglasses, and a stack of chips saw themselves as the next big moneymaker. nearly 7,000 people competed in this year's tournament for $180 million in prize money, but the fever has spread far beyond las vegas. it is the richest sporting competition in the world, and yet all of this pales in comparison to the 1/2 million people who are playing on the internet right now in the unregulated world of online poker. as we learned in this tutorial, all you have to do to play is log on to the worldwide web,

click your way onto an online gambling site, open an account with your credit card, choose your game, and pull up a seat at a virtual table. >> so, like, these people could be playing from anywhere in the world. they could be here in the united states. they could be, you know, in india. they could be in south africa. >> we should tell you that this $18-billion industry is illegal in the u.s., but the ban is almost impossible to enforce since the internet sites and the computers that randomly deal the cards and keep track of the bets are located offshore, beyond the jurisdiction of u.s. law enforcement. and unlike land-based casinos, there is almost no official regulation, enforcement, or supervision. but it hasn't stopped thousands of mostly young men from making this their livelihood. todd witteles, a former computer scientist turned poker pro, says you no longer have to go to vegas to find a high-stakes game. >> here, you could do it from your own living room. you don't have to get dressed. you don't have to anything. you can just--it's right there

on your computer. >> witteles says online poker is much different: faster, more aggressive, and less personal. you're not looking at somebody sitting across the table. you're just playing the cards that tumble out of the computer. >> not only are you not looking at your opponents; you're not looking at the cards being dealt. you're not looking at who's dealing them to you. so you don't know if the whole thing is legitimate, even if all the players sitting with you are just as legitimate as you are. maybe the whole game isn't. >> and as witteles found out, it wasn't, at least on a popular internet site called absolute poker. his suspicions were first aroused in a high-stakes game of texas hold 'em against what he thought was an incompetent and lucky amateur using the screen name grey cat. >> this grey cat person was new, and at first, he seemed like a live one. he seemed terrible. he seemed to play crazy. it seemed like he was giving his money away. except the only thing was, he wasn't losing. he was playing in a style that was sure to lose, but he was killing the game day after day. >> while witteles was losing $15,000 to the apparent novice,

other high-stakes players began to notice improbable and endless winning streaks on absolute poker's sister site ultimate bet. david paredes, a harvard grad who has made enough money playing poker to pay off his law school loan and live in an expensive new york apartment, got fleeced by a player called nio nio. how much did you lose? >> i'm probably down somewhere in the range of $70,000 to that particular player. >> anybody lose more than you? >> yes, there were a number of players who lost more than me, in the range of $250,000, $90,000, $70,000, $210,000. >> serge ravitch, another lawyer turned poker pro, began using a software program called poker tracker to review thousands of old hands. >> what i saw did not make any sense. this account was simply winning too much money for the type of game that he was playing. and he was doing it by never having the worst hand. when the other person was bluffing, he would always go all in.

when the other person had some kind of made hand, he would always fold. >> it was like he knew what everybody's cards were. >> exactly. >> if you can see everybody's cards in poker, you could be the worst poker player in the world up against the best poker player in the world, and you're gonna beat him just about every time. >> soon the internet poker forums, chat rooms, and blogs were atwitter with fresh reports about suspect players. and when absolute poker and ultimate bet failed to respond to complaints, the online poker community undertook its own investigation. >> we knew for sure there was cheating going on. we just didn't know who was responsible yet. [stopwatch ticking] >> as we'll see, the investigation paid off, leading first to costa rica and then ultimately to a tiny nation thousands of miles to the north that most people have never heard of, when 60 minutes on cnbc returns. my customers can shop around--

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>> as i reported in 2008, an investigation into a $20-million online poker scam was leading to a specific player who had an uncanny ability to win even while holding the worst hands. the most likely explanation seemed to be that someone had gotten access to an administrative or security account at absolute poker and ultimate bet that would have allowed them to see all of the cards in the game as they were being played. somebody with access to a server, a computer server that would give that information to them in real time? >> yes. >> so either a really good hacker or somebody on the inside? >> exactly. >> late last year, the poker sleuths got lucky. when one of the players requested the hand histories of a suspected cheater known as potripper, someone at absolute poker inadvertently sent them an excel spreadsheet with 65,000 lines of data that include all of the cards that had been played in thousands of games

against hundreds of potripper's opponents. it allowed michael josem, an australian computer security expert, to re-create some of the hands as the cheater would have seen them and turn them into a video, which he posted online along with a statistical analysis of the cheater's win rate. >> so what we have here is, we have a whole lot of people in the middle, which is pretty normal. they lose a bit, or they win a bit. a few people got lucky for a bit. a few people were losing a lot of money. right up here, in the very top right-hand corner, we have the cheater. we did the mathematical analysis to find that they were winning at about 15 standard deviations above the mean, which is approximately equivalent to winning a one-in-a-million jackpot six consecutive times. now, this sort of stuff just doesn't happen in the real world. >> but more importantly, the excel spreadsheet also listed the user account and the i.p. address of the suspected cheater, which the sleuths traced to the computer modem of an absolute poker employee. the company, which is headquartered in this shopping

mall in costa rica, was finally forced to acknowledge that a former employee had cracked their software code and cheated online players by looking at their cards. but what really made the victims angry was that absolute poker cut a deal with the cheater to protect his identity, in exchange for a full confession of how he did it. >> here, these people stole millions of dollars from their customers, from their best customers, from the high-limit players of the site, and in the official report released about what happened, not only did nobody get into any kind of legal trouble, their names weren't even publicized. >> but in the murky world of internet poker, there was precious little the players could do about it. the companies were located in costa rica, and they couldn't really complain to u.s. authorities because online gambling is illegal. the only pretense of supervision--and the players' only hope--lay with a tiny nation thousands of miles to the north that hardly anyone had ever heard of. the virtual poker games are actually run on computer servers from this canadian indian

reservation outside of montreal. it's all licensed by a sovereign tribe of the mohawk nation that has no experience in casino gambling and doesn't have to answer to canadian authorities. the grand chief is mike delisle. is internet gambling illegal in canada? >> yes, but we're not canadians. we're a member of the haudenosaunee five nation confederacy, and we're mohawk kanien'keha'ka people. we're not canadian. >> and that legal distinction has allowed the kahnawakes to rake in millions of dollars a year by licensing internet gaming sites and housing their computer servers on the reservation. they now register and service more than 60% of the world's internet gaming activity from this highly protected and nondescript building that used to be a mattress factory. we drove by with the washington post's reporter gil gaul. >> this is nondescript. >> this takes nondescript to an entirely different level. >> yeah, it does. >> the operation is overseen by the kahnawake gaming commission, whose three commissioners

operate out of this building. it meets in secret, is independent of tribal leaders including chief delisle, and its investigation of absolute poker and ultimate bet have been neither transparent nor particularly aggressive. a lot of the players who were cheated suspect it's because the owner of the discredited sites is joe norton, a former grand chief of the kahnawakes, who helped establish the gaming commission that cleared him of any wrongdoing in the scandal. the commission fined the two sites a total of $2 million, ordered them to repay the losses to players who were cheated, but absolute poker and ultimate bet are still in business. look, here you had a gaming commission. it was originally set up by joe norton. and his two companies come before the board, and they get a slap on the wrist. >> well, i don't think it's a slap on the wrist. we are comfortable in saying that through the gaming commission, they have done the investigation, saying that he didn't have a part in the cheating scandal. >> why didn't the commission suspend his license?

>> well, they were afraid that if that was happened and the rug was pulled out from under them, so to speak, that the players wouldn't be paid. >> neither the gaming commission nor joe norton would talk to us, but in a statement, the companies said they were victimized by insiders and former employees and accepted blame for overlooking the security problems with its software. the only clarity in the investigation was provided by frank catania, a former director of new jersey's gaming enforcement division, who was hired by the tribe to look into the cheating that the players themselves helped expose. >> we owe it to the players themselves for finding this out. >> catania found that the scam at ultimate bet went on for four years and says the mastermind appears to have been a former giant in the world of poker. >> do you know who did the cheating? >> well, the one name has already been released by the kahnawake gaming commission. that's a fellow by the name of russ hamilton. >> a former champion at the world series of poker? >> that's right.

>> in 1994, russ hamilton won $1 million and his considerable weight in silver for winning the main event at the world series of poker. according to the gaming commission, hamilton and five unnamed conspirators used multiple screen names and accounts to cheat online players out of more than $20 million. and so far they seem to be getting away with it. because of jurisdictional issues, no criminal charges have been filed, and no one even seems to be conducting a criminal investigation. >> we're willing to work in collaboration with anyone who wants to bring these people to justice. >> in this case, you have somebody who you know was cheating. it's like the person's gotten away with it. >> i believe that anyone else, named or not, will be brought to justice if they can be found. that's really the defining factor. >> but we didn't have that much trouble locating hamilton. he seems to be holed up at his home in las vegas behind the security gates of an exclusive golfing community. hi, is russ there?

we called his house and were told by a woman that answered the phone that he would be back in a little while. we left a message, but he hasn't returned the call. if you hadn't investigated this on your own, you think it would still be going on? >> i'm sure it would be going on. the people who did this were very greedy and very blatant. but the scary thing is, there may be other accounts out there like this, maybe even on other sites that are not being done with the same sort of recklessness. and maybe this has been going on on more than just absolute poker and ultimate bet. maybe it's going on in several other places, and maybe it's even still going on on these sites. >> i'm sure there are people out there right now figuring out, "here's a way we can do it again." >> since this report first aired, the kahnawake gaming commission issued a report and concluded that russ hamilton was involved in multiple cheating incidents. his lawyers, however, deny the accusations. the gaming commission also required ultimate bet to refund a total of $22 million to defrauded players, an increase

from its original sanction of $6.1 million. our next story is about casino mogul steve wynn, who set off a building boom in the 1980s. las vegas became the fastest growing city in america until the recession hit it hard. now the population is in decline, and the gaming industry is in desperate shape, but the slowing economy didn't stop wynn from opening his most opulent casino-resort yet, the encore. charlie rose, who has known steve wynn both personally and professionally for about 15 years, was on hand during encore's opening night back in 2008. >> if all of our customers and friends are at the tables, gentlemen and ladies, place your bets. let the games begin. [cheers and applause] >> at 67, steve wynn is a legend in las vegas... >> if you're gonna start

a gambling joint, start a gambling joint. >> the man with the midas touch who added glamour to the gambling industry. >> isn't this fun? >> it's perfect. >> even in this recession, thousands came to try their luck at his new casino. >> that's what i'm talking about! >> whoo! >> encore cost nearly $2.3 billion, a risky bet in a bad economy. why, in this economic environment, would you open a hotel? >> well, i'll tell you right now that if i had any idea this-- i wouldn't, if i had a choice, but this project was started four years ago. these things have a huge lead time. >> the gambling industry has been battered by the recession and taken the city of las vegas down with it. some casinos stand half built. unemployment is over 10%. and while steve wynn has had to slash employees' pay and lower room prices, he plows ahead, doing whatever it takes to get customers to his new hotel. >> this is encore.

[dramatic orchestral music] ♪ >> and, yes, he really was sitting on top of the building. >> next time, we do this in the lobby. >> the encore is connected to his other las vegas hotel, the wynn, and he has a third in macau, china. inside, his hotels are fantasy lands for well-heeled adults. he brought gourmet restaurants and high-end shopping to the strip. his hotels may be extravagant, but his business strategy is conservative. his company is not highly leveraged and has over $1 billion in cash to help ride out the recession. i want to understand a bit about the casino business. >> so do i. [laughter] [babbles] >> the only way to win in a casino... >> is to own one. >> own one. >> unless you're very lucky. >> and, he says, even when people are lucky, they usually gamble away their winnings. you have never known, in your entire life,

a gambler who comes here and wins big and quits. >> walks away. never. >> you know nobody, hardly, that, over the stretch of time, is ahead? >> nope. >> the customer's loss is steve wynn's gain. he's a billionaire. but he isn't all that interested in gambling. his passion is creating the resorts. >> are you satisfied with the way the light is hitting our flowers? >> he works closely with his design team and signs off on nearly every detail. >> i love this restaurant, roger. >> why do you focus so much on how it looks? >> i can't help myself. it's a sickness. my doctor says if i take my medication, i'm no danger to anybody but myself. i can't help it. >> and that brings you the greatest joy. >> yes. >> the person who knows him best is his wife and business partner of 41 years, elaine wynn. and although the wynns have filed for divorce, they say she will remain part of the

business and on the board of directors. what is it that he has? >> he brings a businessman's intelligence and awareness of what it takes to make a property successful, and yet he can put that on a side shelf and go crazy making the most extraordinary environments. he understands innately what the public will respond to. >> and what the public will pay for. does the money matter a lot? >> it enables him to have a kind of freedom. there's rich freedom and poor freedom, you know? you can be a ski bum and a beach bum. >> that's poor freedom. >> that's poor freedom. steve likes... >> both: rich freedom. [stopwatch ticking] >> wynn's rich freedom has allowed him to amass an extensive collection of fine art, but as we'll see, he also has a degenerative disease which is slowly eating away at his ability to enjoy

those great works of art, when 60 minutes on cnbc returns.  

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blood, liver and nervous system problems, serious allergic reactions, and new or worsening heart failure have occurred. before starting humira, your doctor should test you for tb. ask your doctor if you live in or have been to a region where certain fungal infections are common. tell your doctor if you have had tb, hepatitis b, are prone to infections, or have symptoms such as fever, fatigue, cough, or sores. you should not start humira if you have any kind of infection. ask your gastroenterologist about humira today. remission is possible. >> as charlie rose discovered, las vegas casino mogul steve wynn has expensive tastes when it comes to fine art. but he also has a limited ability to enjoy that art because of a degenerative eye condition. >> steve wynn collects beautiful, often extravagant things, from great art to big yachts to the largest pear-shaped diamond in the world. in a cruel irony, this man who pursues beauty is losing his sight. he has a degenerative

eye condition called retinitis pigmentosa. >> i was born with this recessive and rather rare condition that has diminished my vision since childhood-- night vision, when i was very young, and then peripheral vision as you get older. >> because he's losing his peripheral vision, he often leans on people to guide him. he can see what's directly in front of him, but it's like looking through a tube, and the circle keeps getting smaller. and you have an appetite for visual things. >> i do, indeed. and, you know, that's the kind of a thing that can be a source of great anxiety. you say, "well, suppose i can't enjoy the things that i love seeing so much." so there you are. that's it. you're face-to-face with the threat, the menace. i won't be able to see this at some point in the future, even though i can see it now. what this painting has is mood. >> but he says he doesn't feel sorry for himself and continues to enjoy his extraordinary

art collection. le reve. >> that's le reve, the dream by picasso. >> in 2006, wynn had a contract to sell it for $139 million, a record price for a painting. he was showing it off to some friends when... >> in gesturing to the picture, i turned to the right and caught her right on the arm and poked a hole in the picture the size of the end of my thumb. we stood there in shock. "i can't believe i've done it. oh, no, oh, no." and then i said, "thank god it was me and not someone else." >> and here is the photograph. >> there's--i don't know if you can see the picture. there's the tear right there. >> he had the picture restored, and it's no longer for sale. >> but the fact of the matter is, what stands historically is that the painting was damaged by its owner, the clouseau of collectors, wynn. but, look, people make mistakes. >> steve wynn has made few

mistakes in his business career. he grew up in the gambling business. his father, michael wynn, owned a string of bingo parlors. when steve was ten, his father took him to las vegas for the first time. it was 1952, and nevada was the only state in america where gambling was legal. >> your father... >> yeah. >> was a charming man. >> but a compulsive gambler. >> and you're in the gambling business. that's one of many ironies about you. >> it is, and it's accidental, but it is an irony. my father had a terrible problem with gambling. he was a guy that enjoyed that activity so much that he lost control of it. >> michael wynn died during heart surgery at age 47, leaving the family with a gambling debt of $350,000. steve wynn took over the family business, made a success of it, and paid back the money his father owed. >> i would give anything for a half hour or 15 minutes

with my father, to walk him through anything that good fortune has allowed to come my way these past 40 years. >> and have him stand outside and look on the building, and it says... >> ah, wynn. he changed his name. [laughs] when he was a kid, he was weinberg. >> in fact, you were born weinberg. >> and then he changed it when i was about six months old. >> steve and elaine wynn moved to las vegas in 1967. his career took off when he invested in the golden nugget and added hotel rooms to the casino. >> hi, i'm steve wynn, and this is one of the beautiful suites in the golden nugget of las vegas, which as... >> he became its president by the time he was 31 and convinced frank sinatra not only to sing but to appear in a series of commercials. >> hi, mr. sinatra. i'm steve wynn. i run this place. >> you see i get enough towels. >> the golden nugget became wynn's golden egg. las vegas was just a bunch

of casinos in the 1980s when steve wynn built the mirage, the first luxury resort on the strip. outside, a volcano exploded every 15 minutes. inside, he hired siegfried and roy to perform. next door, he built another hotel and brought cirque du soleil to las vegas for the first time. the strip wasn't just about gambling anymore, and steve wynn was hailed as a visionary. >> i've been given too much credit for that, really. if you look at las vegas in the 1980s, there hadn't been anything built since 1973 new. and so the city was in a time warp. and, as has so often been the case, in the valley of the blind, the one-eyed man is king. >> so you had an idea, and you were king. >> yeah, all of a sudden, i looked like i was a rocket scientist. >> not a rocket scientist but a showman. >> captain of the britannia!

ready, aim, fire! [explosions booming] >> when he imploded the old dunes hotel in 1993, the event became a steve wynn extravaganza live on television. [cheers and applause] out of the ashes, he built the bellagio--at the time, the most expensive hotel in the world. he sold the bellagio and mirage resorts in 2000 and pocketed more than $600 million. by then, las vegas was calling itself the entertainment capital of the world. steve wynn is known for his charm, but he's also known for his explosive temper. >> i wish that i was a more considerate person, and to the extent that i demonstrate consideration for other people, at my age, i wish that i had gotten to that point earlier.

>> he got to this state of self-awareness with the help of a friend, the dalai lama. >> he says to me, "when you get angry"--i'll do an imitation-- "when you get angry, when you lose your temper, when you think that you shout and react in a poor way to other people, it is a result of a false sense of yourself, an inflated sense of yourself that is worthless." i'm steve wynn. >> and what keeps steve wynn on top while other casino moguls are tottering near bankruptcy is that he never gambles with his own bottom line, and he has always been driven by a single vision. >> to see if i could do--if i could make people go, "wow," to see if i could create a place that it was a wonderland, that it was better than the outside world, where everything--like joel grey said

in cabaret: "inside, everything is beautiful. even the girls are beautiful. even the band is beautiful." that seemed like such a fun way to spend your life. >> since we first aired this story, steve wynn's personal wealth has declined from $3.9 billion to $1.9 billion. but despite the downturn in his individual fortunes, wynn reportedly spent a record $33 million recently at christie's in an auction for a rembrandt. [stopwatch ticking] our next story features an illegal activity engaged in by millions of americans willfully every day: the shadowy, multibillion-dollar world of online gambling, when 60 minutes on cnbc returns. >> dealer wins. ♪

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>> the point of making something illegal is to warn people away from doing it and then penalize them if they do it anyway. in the united states, the law is pretty clear about internet gambling; it's illegal. but try telling that to millions of americans who do it on hundreds of websites to the tune of billions of dollars every day. the fact is, internet gaming is illegal in the united states and, as lesley stahl reported, absolutely thriving. >> in the virtual casinos of the internet, you can bet on anything. spin the wheels on slot machines and roulette... >> 16, red. >> roll the dice in backgammon and craps... [dice rattling] >> 11. >> wager on any sport, or take a seat at partypoker.com. you're playing against

real people. ruffneck might be in china, dottie in california. right now, as you watch this story, 70,000 people are gambling on party poker, and that's just one site. >> there'll be more online poker games per day at the end of this year than all of the casinos in the entire world put together. it's a huge business. >> nigel payne runs sportingbet, one of the world's biggest online gambling companies. >> i don't need a hotel. i don't need any croupiers. i don't need any cocktail waitresses. i don't have to comp any drinks. i don't have to comp any hotel rooms. >> you can play in your jammies. >> you could. >> you don't have to put makeup on. >> you don't. >> don't have to have your hair done. you don't even have to leave your den or your college dorm. >> so click up here to get started. >> just tap in a credit card or bank account number. you'll be betting in five minutes. >> dealer wins. >> internet gaming companies will make $10 billion in profit

this year. they're all based overseas, but as much as 80% of their traffic and profit comes from the usa. >> i believe there's about 12 1/2 million americans today use internet gambling in its widest form. that's a hell of a lot of consumer power. >> so much power that america's gaming industry, which has long opposed internet gambling, is shifting its position. >> i think the issue is very simple: that you should license it, regulate it, and tax it. >> terry lanni, the ceo of mgm/mirage. he says if his company could offer internet gambling, it could instantly double its $8 billion a year revenue. >> if we could add our brand and the credibility of a publicly traded united states gaming company, this could be a vast business. >> but mgm/mirage is shut out because the government says a law banning sports betting over the phone also bans all gambling on the internet. obviously, it hasn't stopped

u.s. citizens from doing it, but it has stopped u.s. companies from offering it. >> the vast majority of wagers that are placed on the internet now are done offshore and illegally. and i, for one, think that to enact laws that you can't enforce makes no sense whatsoever. >> lanni and mgm/mirage set up their own offshore gambling website a few years ago, but to stay within the law, they could only accept bets from gamblers outside the u.s. >> we just didn't make any money; that was the problem. >> so you shut it down. >> we did. >> it's all very odd. >> well, no, it is odd. there's no doubt about that. i mean, there's gaming in every state but two states in the united states. if it's legal there and if it's regulated and taxed and we're comfortable with it there, why don't we allow it also in the area of internet where people--so much commerce is going through the internet right now? it makes no sense. >> even so, no one in congress is pushing for legalization. in fact, senator jon kyl,

republican of arizona, is going the other way. he has a bill to really crack down on what he calls a "social pathology." >> it's so easy to do. it's so easy for kids to do. it's so addictive. and it has been frequently demonstrated that there's a lot of graft and corruption in this. >> kyl's bill aims to choke off the money by prohibiting all u.s. banks and credit card companies from handling any online gambling transactions. >> even if you curtail the credit cards, people who want to do this are gonna find a way. >> we may not be able to stop it all, but if we can stop the major part of it that's coming from offshore, i think we will have done something very, very good. >> kyl bristles at how today law enforcement does nothing to go after offshore operators. this is a big convention of the international gambling industry going on in las vegas, and there is an entire pavilion devoted just to internet gaming. and many of those companies and their top executives

are here. how can this be so open if what they're doing is illegal? why doesn't the fbi and the justice department just come and get them? >> the justice department says, "we have lots of other priorities," and they're right. >> steve lipscomb is founder and ceo of the world poker tour tv show, which helped fuel the craze for internet gambling. >> you and i don't want them chasing after the guys who are putting online poker. we want them to make sure that the next terrorist attack is not likely to happen. so i believe their priorities are straight. it's simply that by not enforcing, they're making it entirely inequitable. >> now, explain that. >> they keep the legitimate companies out of the business, and all of that goes to offshore companies that in no way can be regulated. >> or taxed. >> or taxed. [stopwatch ticking] >> as we'll discover, those offshore gambling companies even advertise here in the u.s., and it's all perfectly legal, when 60 minutes on cnbc returns. [ horn honks ]

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>> as lesley stahl reported in 2005, even though online gambling is illegal here in the united states, millions of americans continue to do it in the comfort of their own homes by way of offshore companies. >> those offshore companies are so brazen; they advertise. there are airborne banners,

magazine ads, and commercials all over cable tv. how can a cable network air an ad for an illegal activity? it's all in the fine print. >> it's fun. it's free. it's the world's largest poker school. >> this is not an ad for paradisepoker.com-- where you can gamble-- but for paradisepoker.net, which they call an educational site. >> you can play for free on those sites and learn about how to play poker. >> and "dot net" can advertise 'cause there's no money. it's not gambling. >> correct. >> but with identical logos and brand names, the obvious goal is to draw people from the free "dot net" site over to the real gambling "dot com" site. so partypoker.net, i mean, any idiot knows that if you want to gamble, you just go partypoker.com. anybody knows that. even i know that. all of it seems such a sham,

all of it. >> they are certainly spending a lot of money to educate people about the game of poker. >> many of those being educated are kids, and many of them then try to play for real. jon kyl says that's the biggest danger in online gambling. >> our kids have access to the internet. they're frequently not supervised. and you can run up a huge debt on your folks' credit card very, very quickly. >> to test that, we gave alex hartman, the 16-year-old son of this story's producer, his dad's mastercard. why can't a 16-year-old just pretend he is his father? you know, he can go online. he's got his father's credit card, and he reads you off all the numbers. >> that 16-year-old has got to give me four to five pieces of information about him relative to his bank account, his personal details, where he lives and other things. so i can be 99% comfortable that this 16-year-old doesn't even get through my front door. >> this is his front door.

payne's company owns paradise poker, and it appears that he's right. something made the computer suspicious about alex. warnings kept popping up: "you must be 18 or older." and then he was rejected. but then alex did what most kids would: he tried another site and another. on the third try, without any questions about his age, he was approved. in five minutes, alex was playing roulette. >> place your bids, please. >> in ten minutes... >> all right, all black. >> he was 100 bucks in the hole. >> [groans] [laughs] no... >> here's what i'm thinking, that the pool of potential underaged gamblers is so much more enormous for you, the online company, than it is for the casino. >> without a doubt. which is why we have to be 20 times better. but it's also why we also have to be regulated.

unless you force companies to have these procedures, you're letting them all in. >> payne argues that if the u.s. legalized i-gaming, all of the problems associated with gambling could be better controlled. let's talk about then addicted gamblers, obsessive gamblers. >> yeah. >> this is a huge problem for online gambling. they can just be at work. they can be home. it can be any hour of the day. >> mm-hmm. i think it's a huge problem for all gambling, full stop, including internet. >> okay, but even worse for your form of it. >> no, no. >> well, why not? >> better for my form of it. imagine you're an addicted gambler. you try and reload your account too quickly because you're playing too quickly. stop. i've got a closed loop of data. i can actually track what you're doing. >> so some outfit in aruba decides that somebody is gambling too much on their website. what are they going to do? knock on somebody's door and say, "you know, we think you're gambling a little bit too much

on our line here. you probably ought to knock it off"? that's not gonna happen. >> even if you legalized it, you couldn't regulate it? >> most of this is done in foreign countries. we don't have jurisdiction in foreign countries. so even if we try to create some kind of standards, it's not to say that it's going to be enforced by a foreign government. >> in other words, anybody can put up a site. >> exactly so, and you wouldn't have any idea of who they are, what kind of information they're extracting from you, and whether they're ever gonna pay you off if you ever win. >> it is a relatively straightforward thing to get rid of those companies. consumers vote with their feet. >> you think they're that sophisticated? >> absolutely. if you're gonna give me $100, you're handing over $100 to a picture on a computer screen, trust is an immense factor. if you say to an american consumer, "this site is trusted and licensed and this one isn't," i promise you, within 12 months, the problems that you're referring to will have disappeared or significantly reduced because customers will have voted with their feet. >> 64 countries already license online casinos,

and they're not just a bunch of banana republics. >> the united kingdom has passed laws to enact internet gambling. the united kingdom expressly allows united kingdom operators to take bets from american citizens. >> it's written down that this is legal for you to do. >> absolutely. >> even though they know our government considers it illegal. in other words, "in your face, america." britain has become the new center of i-gaming. several companies, including payne's, are traded on the london stock exchange and pay british taxes. >> we've calculated that were america to have regulated this industry in 2004, the american states would have earned $1.2 billion in tax. >> if it were legal, could they tax you? >> absolutely. >> a british company? >> absolutely. and we would pay it, and we have volunteered to pay it, because this is an industry that has to be regulated. >> mgm/mirage's lanni believes it will be regulated. when?

>> oh, i wish i would ask you that, if you can tell me when. i don't know. i think it's when an enlightened president with an enlightened attorney general says, "it's legal in all these states. we tax it. we regulate it. let's do it, and let's do it for the internet." >> put yourself ten years forward. you think people are gonna stop gambling? >> [giggles] >> seriously? >> never. >> do you think the internet's suddenly going to go away? so what are we going to do in ten years time, when this industry is ten times bigger than it is today? and i often say to people, "please give me one solid, plausible argument why you shouldn't regulate it." there's millions of arguments-- >> 'cause it's bad for you. >> is it bad for you? >> yeah, it's--it's-- >> to regulate it? if you regulate it, you control it. if you regulate it, you set limits. is that bad? when the comparator is, "ah, just let them do what they want," is that really bad? i don't think it is. >> since this story first aired, the u.s. offshore internet gambling market has only grown and, by some estimates, now exceeds $5.4 billion a year.

the big casinos are starting to embrace the idea of online gambling, and in 2009, representative barney frank of massachusetts sponsored a bill which would legalize online poker. that bill has cleared committee but has yet to be voted on by the full house. that's this edition of 60 minutes on cnbc. i'm steve kroft. thanks for joining us. captioning by captionmax www.captionmax.com at farmers we make you smarter about insurance,

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