Carolyn Kaster / AP file

National security adviser Tom Donilon speaks during the daily news briefing at the White House in Washington on Thursday, May 17, 2012.

Chinese leaders must address cybersecurity threats emanating from their country on “an unprecedented scale” or risk weakening the economic relationship between Beijing and the United States, White House national security adviser Tom Donilon said Monday.

“U.S. businesses are speaking out about their serious concerns about sophisticated, targeted theft of confidential business information and proprietary technologies through cyberintrusions emanating from China on an unprecedented scale,” said Donilon.  “The international community cannot afford to tolerate such activity from any country.”

The remarks, delivered to The Asia Society in New York, are the first by a White House official to specifically name China as a threat to U.S. cybersecurity.

Though Donilon focused mainly on the danger to U.S. businesses, he did acknowledge the risk such an attack could pose to U.S. national security.  He said that the issue has become “a key point of concern and discussion with China at all levels of our governments” and that President Barack Obama has vowed to do what is necessary to protect America’s interests against cyberattacks.  

During last month’s State of the Union address, Obama highlighted how vulnerable America’s financial institutions, power grid and air traffic control systems could be to an attack.  The president, who has signed an executive order to help address those concerns, called on Congress to pass comprehensive legislation that would better secure online networks to help protect against attacks.

The president never mentioned China during his high-profile address.

But on Monday, Donilon was much more direct, detailing three requests for Beijing, including recognition of the severity of the problem, “serious steps” to address it and establishing guidelines of acceptable norms in the digital realm.   

“Both countries face risks when it comes to protecting personal data and communications, financial transactions, critical infrastructure, or the intellectual property and trade secrets that are so vital to innovation and economic growth,” said Donilon.

James Lewis, a cybersecurity expert at the Center for Strategic and International Studies, said Donilon’s remarks indicate an aggressive shift in how the administration deals with China. It is a pivot, Lewis said, that comes as more and more data pours in pointing to China as the biggest culprit behind cyberattacks.

“The atmosphere has just changed; the data is overwhelming,” he said.

Lewis said protecting digital institutions is more diplomatically framed as an economic issue instead of a security one to avoid stirring threats of military action. Still it is significant the debut of the administration’s sterner policy came from the president’s top security adviser, he said.   

A report released in February by a private security firm found a Chinese military unit hacked more than 140 businesses, mostly inside the United States.  It’s a claim the Chinese government denies.

Media giants The New York Times and Wall Street Journal say they had been hacked for months and through an investigation with the FBI, traced the intrusions back to China.  The Wall Street Journal said the hacking was aimed at monitoring the newspaper’s China reporting, a claim that the spokesman for the Chinese foreign ministry called “irresponsible.”

White House spokesman Jay Carney said cybersecurity will be one of the priorities the president addresses with congressional leaders when he visits Capitol Hill this week.

And the United States is not alone. European countries have suspected China has infiltrated their computer systems as well.  Nations could retaliate with sanctions against Beijing.

“It’s become a problem that China can’t ignore without harming their economy,” said Lewis.

Michael Francis Mcelroy / Zuma Press

Aaron Swartz, a noted Internet freedom ''hacktivist,'' died Friday at his apartment. He was 26. He was due to begin a federal trial next month on charges he downloaded millions of academic papers and meant to distribute them for free.

In the 24 hours since Aaron Swartz, a prodigy programmer turned Internet folk hero, hanged himself in his New York apartment, his family and a close friend and mentor have not only expressed devastation – they have been angry.

“Aaron's death is not simply a personal tragedy,” his family wrote in a statement. “It is the product of a criminal justice system rife with intimidation and prosecutorial overreach.”

Swartz, who helped to create RSS at age 14, was indicted in 2011 on charges alleging he improperly downloaded more than four million articles from JSTOR, an online system for archiving academic journals. Swartz argued for transparency -- JSTOR costs more than $50,000 for an annual university subscription -- but court records show that the federal government believed he had, among other felonies, committed wire fraud and computer fraud and unlawfully obtained information from a protected computer.

JSTOR ultimately backed Swartz. But his family’s statement was unflinchingly critical of the Massachusetts Institute of Technology, the Cambridge, Mass., university where Swartz had allegedly registered a ghost computer to download the records:

Decisions made by officials in the Massachusetts U.S. Attorney's office and at MIT contributed to his death. The US Attorney's office pursued an exceptionally harsh array of charges, carrying potentially over 30 years in prison, to punish an alleged crime that had no victims. Meanwhile, unlike JSTOR, MIT refused to stand up for Aaron and its own community's most cherished principles.

JSTOR paid tribute to Swartz in a statement on its front page, saying it regretted being drawn into the case because the organization's "mission is to foster widespread access to the world’s body of scholarly knowledge."

"At the same time, as one of the largest archives of scholarly literature in the world, we must be careful stewards of the information entrusted to us by the owners and creators of that content," the statement said. "To that end, Aaron returned the data he had in his possession and JSTOR settled any civil claims we might have had against him in June 2011."  

Swartz’s family described him as entirely committed to social justice. He helped to defeat an Internet censorship bill and “he used his prodigious skills as a programmer and technologist not to enrich himself but to make the Internet and the world a fairer, better place.”

Swartz, 26, hanged himself in his New York apartment on Friday, his family confirmed. 

Lawrence Lessig, a Harvard Law School professor who described himself as a mentor and close friend to Swartz, took to Tumblr to express his own raw emotions. He wrote that Swartz's actions may not have been ethical, but the government's response was overly aggressive:

From the beginning, the government worked as hard as it could to characterize what Aaron did in the most extreme and absurd way. The “property” Aaron had “stolen,” we were told, was worth “millions of dollars” — with the hint, and then the suggestion, that his aim must have been to profit from his crime. But anyone who says that there is money to be made in a stash of ACADEMIC ARTICLES is either an idiot or a liar. It was clear what this was not, yet our government continued to push as if it had caught the 9/11 terrorists red-handed.

A spokeswoman for the U.S. Attorney's Office told Reuters that officials wanted to respect the family's privacy and did "not feel it is appropriate to comment on the case at this time." Reuters and The Associated Press reported that they could not reach MIT for comment.

Lessig described Swartz as brilliant, funny, “a soul, a conscience, the source of a question I have asked myself a million times: What would Aaron think?”

He concluded his piece: “We need to get beyond the ‘I’m right so I’m right to nuke you’ ethics that dominates our time. That begins with one word: Shame.”

Related: NYT: Aaron Swartz, precocious programmer and Internet activist, dies at 26

Lake County Sheriff's Office

Justin Slavinski was arrested in Florida after allegedly soliciting a law-enforcement officer posing as a 14-year-old South Carolina girl.

Authorities in Florida say a man arrested in an undercover child porn sting may have tried to lure as many as 40 girls he met online to have sex with him.

A search of Justin Slavinski’s computer turned up numerous photographs depicting child porn, the Florida Department of Law Enforcement said.

At a press conference Tuesday in Orlando, Florida investigators appealed for possible victims to come forward.

“Cases of this nature are always disturbing, but I find this one particularly heinous,” said Florida Department of Law Enforcement Commissioner Gerald Bailey.  “I urge anyone with information about this investigation to contact FDLE Orlando Regional Operations Center.” 

Slavinski, 32, of Apopka, Fla., was arrested on Thursday on warrants out of South Carolina alleging soliciting a minor via the Internet to engage in sexual activity, transmission of materials harmful to a minor, and lewd and lascivious behavior. He was being held in the Lake County Jail in Tavares, Fla., pending extradition to South Carolina.

Slavinski works as a computer programmer at a hospice in Tavares, authorities said.

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He came under investigation in South Carolina during an undercover probe of child porn on the Internet, said Carrie Cuthbertson, a spokeswoman for the Georgetown County (S.C.) Sheriff’s Office.  A warrant was issued for him after he solicited a law-enforcement officer posing as a 14-year-old girl on a social-networking site in March, Cuthbertson said.

Florida Department of Law Enforcement

Undated photo of Justin Slavin that Florida law-enforcement officials say he sent of himself over the Internet.

Slavinski is believed to have sent more than 27,000 electronic messages, including obscene pictures, to minors since 2005, Florida investigators said.

“Agents have developed information that Slavinski has been in contact with as many as 40 young females throughout Florida over the Internet. FDLE is conducting an investigation to see if any of these girls are the victims of a crime.  Additional charges are anticipated,” authorities said in a press release.

Florida officials have so far found three children — two 14-year-olds and a 17-year-old girl — in Central Florida who have received pornographic images or other obscene material from Slavinski, FDLE spokeswoman Susie Murphy said, The Orlando Sentinel reported. 

Florida Department of Law Enforcement

Another undated photo that Florida law-enforcement officials say Justin Slavinski sent of himself over the Internet.

Investigators also found videos of Slavinski performing a sex act on himself and lewd photos, as well as child porn, on his seized computers and external hard drives, Murphy said, according to the Sentinel.

It’s not known if Slavinski actually met any of the minors he allegedly communicated with online.

“There’s no timeline on Florida charges but we do anticipate charges forthcoming,” FDLE spokeswoman Gretl Plessinger told NBC News.

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Poker is mainly a game of skill, not chance, a federal judge ruled Tuesday, tossing out the conviction of a New York man who ran a poker club advertised by word of mouth and text messages.

The ruling is a legal victory for Lawrence Dicristina, a businessman who sold electric bicycles and operated a poker club in the back room of his Staten Island warehouse.

But legal experts say it also undercuts one of three federal laws used in the past to shut down online poker in the U.S. The Justice Department concluded earlier this year that another of the laws should not apply to online poker.

Dicristina was charged with violating the Illegal Gambling Business Act, a 1970s-era federal law intended to crack down on organized crime. Its definition of gambling lists several forms -- including slot machines, lotteries, and bookmaking -- that his lawyers argued were games of chance.

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Poker, they argued, is primarily a game of skill and therefore isn't covered by the federal law. On Tuesday, Federal District Court Judge Jack Weinstein agreed.

"In poker," he wrote, "increased proficiency boosts a player's chance of winning and affects the outcome of individual hands as well as a series of hands.  Expert poker players draw on an array of talents, including facility with numbers, knowledge of human psychology, and powers of observation and deception."

His 120-page opinion included charts and graphs showing how players more accomplished at such skills as bluffing consistently tend to beat inexperienced players.

What's more, Dicristina's lawyers argued, forms of gambling typically covered by federal law involve betting against casinos running the games, which manipulate the odds of winning.  A poker player, by contrast, bets solely against other players, not the house.

They also contended that most poker hands are won by inducing opponents to fold, with the cards never revealed or compared.  By bluffing, they told the judge, a player minimizes the importance of the luck of the draw.

“We have patiently waited for the right opportunity to raise the issue in federal court,” said John Pappas, executive director of the Poker Players Alliance, which aided in Dicristina’s defense and helped formulate the winning legal arguments. “Today’s federal court ruling is a major victory for the game of poker and the millions of Americans who enjoy playing it.”

Weinstein noted that poker has a long history in the United States, "embraced by many of our political leaders and other public figures," including former Supreme Court Justices William O. Douglas, "a regular at President Franklin Roosevelt's poker parties," and Fred Vinson, who played the game with President Harry S. Truman.

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Legal experts said Tuesday's ruling could undercut the ability to restrict online poker and could encourage Congress to pass pending legislation that would permit the game to be played online under federal regulation.

In Tuesday's ruling, Weinstein said federal prosecutors can still use racketeering laws to go after games run by organized crime figures. And he said states can prohibit poker under their own laws.

Pete Williams is NBC News' justice correspondent.

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N.J. Sex Offender Internet Registry

The poster child of sex offenders who altered their digital identity is Fran Kuni, who changed his name to Jamie Shepard and was able to get a job as a U.S. Census worker in New Jersey before being busted by a mom who recognized him when he knocked on the door of her home.

Nearly one in six convicted sex offenders is using sophisticated techniques invented by identity thieves to avoid their legally mandated registration requirements, a new study has found. These digital absconders might be able to avoid post-incarceration restrictions by living near schools and playgrounds, and could possibly gain employment working with children.

The study, conducted by Utica College and funded by the U.S. Justice Department, estimates that roughly 92,000 of the 570,000 registered sex offenders across the country are systematically manipulating their names, birthdays, Social Security numbers and other personal identifiers so they can live as they want while appearing to satisfy court-imposed or statutory restrictions.

"These are offenders who are flying under the radar and authorities don't know it," said Don Rebovich, the Utica professor who directed the study. "The authorities really don’t have the resources to keep on checking on these people. Offenders find where the vulnerabilities are in the system and exploit them."

These digital absconders create two obvious problems. Communities expend energy and resources dealing with offenders who aren't really there -- local police knock on doors and send notices to warn neighbors; public listings are published on the Internet. And sex offenders live where they please as normal adults, without any protective measures kicking in.

"In the worst-case scenario, by thwarting registration requirements, they could potentially have easier access to children," said Staca Shehan, director of case analysis at the Center for Missing and Exploited Children, who is familiar with the study. "(In) those jurisdictions that have residency restrictions that would not allow (offenders) to live within distance of a school, daycare or park, (they) could avoid that type of requirement."

While the study found that an average of 16.2 percent of sex offenders manipulate their identities nationally, some states fared worse: Louisiana, Washington, D.C., Nevada, Tennessee and Delaware all had digital absconder rates of higher than 25 percent.

Officials in Tennessee, Nevada and Delaware challenged the study's conclusions and complained that they had not been contacted by the researchers for additional information that might have clarified the results; officials in the other states did not immediately respond to requests for comment.

'Strategic' manipulation
Shehan said there are generally two kinds of sex offender absconders: those who simply fail to keep their records current, and hope they fall through the cracks; and those who are more systematic in their evasion, intentionally altering their identities so they can circumvent the restrictions. 

"That takes a lot more thought," she said. "They are much more strategic about what they are doing ... and so that's much more concerning."

In one celebrated case of sex offender identity manipulation, a convict named Frank Kuni changed his name to Jamie Shepard and was able to get a job as a U.S. Census worker in New Jersey. Kuni was recognized by a mom after he knocked on the door of her Pennsauken home, and he was later sentenced to three years in prison. Kuni’s case attracted national headlines because of the fear it created surrounding temporary Census workers.

The Utica study, believed to be the first attempt to quantify these more strategic absconders, was conducted by Utica College's Center for Identity Management, set up to examine a variety of identity issues in the digital age. Rebovich is director of the center.

It's well known that some sex offenders neglect their registration requirements, dropping off the grid and accepting only cash-paying jobs to remain hidden. But the Utica study found something more subtle, and perhaps more disturbing -- sex offenders who appear to be satisfying their registration requirements while living a digital double life.

In a parallel survey of 223 law enforcement agencies from 46 states, Utica found that awareness of ID-theft style registry evasion was low -- only 5 percent of respondents said they knew of an identity manipulation case within their jurisdiction. 

And nearly 40 percent of the agencies responded that they had zero absconders, suggesting some law enforcement agencies are unaware of the problem.

The power of the Utica study lies in the use of sophisticated algorithms developed by private firm ID Analytics, a fraud-fighting company used by many large banks and other financial institutions. ID Analytics receives more than 1 billion credit applications and other credit-related events from clients every year. It uses sophisticated software to track the behavior of identity thieves across the credit system, and can find fraud that individual firms miss. It knows, for example, if a criminal uses a systematic series of birthdays or addresses on a set of credit card applications at various banks in an attempt to evade fraud detection. The ID Analytics tool has enough data that it can generally tell the difference between honest typographical errors and systematic fraud attempts. 

ID Analytics ran sex offender data through its massive database of credit-related events, and found evidence of rampant identity manipulation among the offenders.

Kristin Helm, a spokeswoman for Tennessee's sex registry, challenged the study's findings, saying that fewer than 1 percent of that state's sex offenders are absconders. Criminals have always used false identities to try to evade police, but law enforcement systems are geared to handle that issue, she said. "Fingerprints obtained by law enforcement identify individuals regardless of a name or Social Security number," she said, adding that names sometimes change for legitimate reasons, too, such as marriage. 

But Stephen Coggeshall, chief technology officer for ID Analytics, said his technology is well-versed in screening out mundane reasons for identity changes and finding patterns that specifically indicate active evasion is taking place.

"This goes way beyond typos," he said. "These are people who have slightly adjusted or substantially adjusted their personally identifiable information for a reason. They are actively doing so, and we are observing them use these aliases relatively recently."

Nevada spokeswoman Julie Butler also questioned the validity of the study, which she had not seen. She said that Nevada uses fingerprints to track sex offenders, so identity manipulation techniques would be ineffective.

"Our registry is fingerprint-based. We don't base it on date of birth, or Social Security number, or name," Butler said. "They can put down their name as whatever and we still have them in the database."

But Coggeshall responded that even in states which use fingerprint identification, an identity manipulator would only be discovered when trying to engage in an activity – such as becoming an elementary school teacher – which triggers a fingerprint evaluation. 

"In general it doesn't help you track where they are or if they're living under an alias at an unregistered location," he said. "It can help to find sex offenders as they enroll in certain groups, but many … groups don't routinely fingerprint new enrollees."

SSNs connected to multiple people
Two years ago, using this tool on a database of Social Security numbers, ID Analytics found that rampant evidence of identity theft: 5 million SSNs were connected to three or more U.S. adults in credit applications, and 140,000 were associated with five or more people, indicating almost certain fraud. The tool can also track individual identity manipulators, as ID Analytics calls them, as they attempt various frauds across an array of credit issuers.

This tool was turned on the sex offender registry problem at the invitation of Utica College in Utica, N.Y., beginning last year. ID Analytics took a large sample -- nearly 100,000 -- of the 570,000 active registered sex offender records and ran them through its credit application database, looking for signs of manipulation.

The findings were disturbing. In Louisiana, the study found, nearly two-thirds of offenders' records showed signs of manipulation. Rebovich theorized that Louisiana's problem might stem from the aftermath of Hurricane Katrina, which gave some people a golden opportunity to drop off the grid.

Officials in Louisiana did not immediately respond to requests for comment.

In many cases, the study found, the steps criminals take are subtle -- changing an address from "440 Monroeville Road" to "434 Monroeville Road," for example. In fact, in the majority of cases, digital absconders were much more likely to move across town than across the country. Absconders who fake their address are six times more likely to remain in the same state than to cross state lines, the study found, and 90 percent of those who remain in state stay within 40 miles of their original registered address. In many cases, the data shows, those addresses belong to a family member. That might allow absconders to show up on a moment's notice at their registered address in case local police do a random check, Rebovich said.

But the address change could also allow them to apply for jobs and housing they would otherwise be unable to qualify for, he said.

While half of the manipulations involve bad addresses, plenty of other types of evasion are going on, the study found. One subject studied had five names, three Social Security numbers and four dates of birth, for example.

About 10,000 offenders had used at least four different Social Security numbers, Rebovich said. The evidence indicates this was usually done to evade the court registration requirements rather than commit financial identity theft, the study found.

One reason sex offenders seem to get away with evasion is that registration requirements are set by states and vary widely. In some states, convicts merely send updates through the U.S. mail to state officials, and are subjected to little, if any, verification. In others, officers try to check on sex offenders, but ofter are assigned hundreds, or even thousands of offenders, to track.

In other states, such as Florida, there are strict requirements and frequent random inspections, Rebovich said. That shows up in the data -- Florida's digital absconder rate is about half the national average, at 9.4 percent.

The study was funded by the Justice Department's Bureau of Justice Assistance, which plans on issuing a comprehensive report later this fall. Requests for comment from the Department of Justice went unanswered.

'System is never going to be perfect'
Shehan, of the Center for Missing and Exploited Children, said she didn't believe that the potentially high rate of digital absconders means the entire sex offender registry program is broken. In fact, she said the situation has improved since passage of the Child Safety and Protection Act of 2006, which instituted some national standards on offender registries.

Still, she said it's important that states move to biometric identifiers, such as fingerprints, to maintain more accurate records of offenders and their whereabouts.

"Criminals are constantly thinking of ways to beat the system," she said. "The system is never going to be perfect."

Rebovich is hoping the study will spur new methods for checking up on sex offenders, including techniques that would seem familiar to those who work in financial fraud. In a model developed by Utica and ID Analytics, offenders could be given a score, similar to a credit score, which would rate the likelihood that identity manipulation was occurring. 

"We are trying to develop a predictive model," he said. "So we can turn it into an alert system, so states can do this in real time, if they want to."  

Coggeshall said such an alert system would have helped police track down Frank Kuni before he was able to get a job with the Census Bureau.

"In retrospect, we know there are things we would have been able to observe" he said.

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Traffic on Tropicana Avenue in Las Vegas, Nevada, passes in front of the MGM Grand.

SAN FRANCISCO -- To prime itself for the U.S. debut of legal online poker, MGM Resorts International, owner of such Las Vegas Strip monuments as the MGM Grand, the Bellagio and the Mirage, wanted a partner that knew the ropes.

So last October it hooked up with Bwin.Party Digital Entertainment Plc, a London-listed, Gibraltar-based specialist that rakes in more from Web betting than any other publicly traded company. MGM Resorts took 25 percent of a new venture 65 percent owned by Bwin.Party, with smaller Las Vegas casino operator Boyd Gaming getting the remaining 10 percent.

Reuters

MGM Resorts International CEO Jim Murren attends a news conference in Hong Kong on May 19, 2011. Murren says his company's online poker tie-up with Bwin.Party, backed by onetime phone-sex and porn entrepreneur Ruth Parasol, gives it a competitive edge.

"We'll be out of the gate as soon as anybody," MGM Resorts Chief Executive Officer Jim Murren boasted to investors in February. 

Online expertise isn't the only thing that distinguishes Bwin.Party. In 2009, an earlier incarnation of the company paid $105 million while admitting to U.S. prosecutors it had run an illegal gambling operation and engaged in bank and wire fraud.

Among its principal backers: a California-born woman who made a fortune in phone sex and Web pornography businesses that, like the pioneering online-gambling company that became Bwin.Party, faced multiple allegations of wrongdoing.

MGM Resorts' choice of Bwin.Party as a partner while applying for online poker licenses in Nevada might seem unusual. It isn't. The alliance reflects the calculated risks that major casino operators, Native American tribes and social-gaming giants Zynga and Facebook are weighing as they angle for a slice of a market valued at billions of dollars a year. 

Caesars Entertainment Corp is prepping for online poker by tying up with an Israeli company that in 2007 acknowledged settlement talks with the U.S. Justice Department over alleged breaches of anti-gambling laws.

A group of Native American tribes in California has signed up to use software from another Israeli company, run by a man who served prison time for stock manipulation and bribery. Another tribe last week announced a deal with Bwin.Party.

Zynga, eager to convert some of its tens of millions of virtual poker enthusiasts into cash gamblers, also has been in talks with Bwin.Party and others that have had brushes with the law, according to people familiar with the matter.

Meanwhile, offshore gambling outfit PokerStars is considering buying its chief offshore rival, Full Tilt, and making a run at the U.S. market even though founders of both were indicted by the Justice Department last year on charges of illegal gambling, bank fraud and money laundering, according to people familiar with the situation. 

All this comes as Nevada prepares to license the first online poker operators and software suppliers late next month -- and as California, New Jersey, Iowa, Massachusetts, Delaware and other states debate similar moves.

Many of the cash-starved states, encouraged by intensive industry lobbying, have felt freer to act since December, when the Justice Department declared that one federal anti-gambling law, the Wire Act, would no longer be enforced beyond sports betting.

But casino operators, Indian tribes and Internet powers bent on offering online poker lack experience delivering it. Online poker is a business that involves processing billions of dollars worth of bets and battling the fraudsters, cheats and robot-player software that can ruin the games. Hence the casinos are cozying up to some tech-savvy offshore partners whose pedigrees might give regulators pause. 

Most states have "suitability" rules designed to keep crooks out of the gambling industry. Nevada requires that successful license applicants and their large shareholders possess "good character, honesty and integrity." Nevertheless, the big casino operators and their offshore partners are betting that regulators will look favorably on their license applications for two good reasons: tax money and high-tech jobs.

Early indications are that they are right.

At a hearing on a Caesars deal with the Israeli company last year, Mark Lipparelli, chairman of Nevada's Gaming Control Board, said: "I don't think as we look at companies that we can have perfection as the standard, because I think that would be a disservice to the state in attracting business here." The board unanimously recommended approval of the venture.

Gambling foes warn that states are putting fiscal worries ahead of public safety, exposing a huge and vulnerable population to the potential for compulsive betting. "The governments are so desperate for revenues that they will partner with these lawbreaking outfits," said Les Bernal, executive director of the nonprofit Stop Predatory Gambling Foundation in Washington, D.C. "They will create addiction in order to feed off of it." 

Porn and cards
Jim Ryan, co-chief executive officer of Bwin.Party, acknowledged in an interview that when the company was looking for U.S. partners, its history was a chief concern of MGM Resorts and other U.S. companies. 

Reuters

Jim Ryan, co-CEO of Bwin.Party Digital Entertainment, sits on a discussion panel during the GiGse online gaming convention at the Westin hotel in San Francisco on April 24.

"Suitability is the very first question on all of their minds," he told Reuters during a recent business trip to San Francisco.

It's easy to see why. 

Bwin.Party grew out of PartyGaming, a brainchild of San Francisco-area native Ruth Parasol, who has a history as colorful as Las Vegas. After earning a law degree, Parasol first prospered in the 1990s through 1-900 phone-sex and other services that were sued by multiple states for aggressive billing and collection practices. In North Carolina's suit, the judge ordered a company she co-founded to pay $270,000 in damages.

Then Parasol put her money behind Internet Entertainment Group, which gained notoriety for releasing an early Pamela Anderson sex video and promising an initial public offering that never happened. Employees accused the company of routinely overbilling customers, and Chief Executive Seth Warshavsky fled to Thailand as authorities investigated. Warshavsky didn't respond to an interview request.

Parasol managed to emerge unscathed, and in 1997 founded Starluck Casino in the Caribbean, providing online gambling to customers in the U.S. and elsewhere. The company had a big hit with its PartyPoker website, which became the dominant force in U.S. online cards, and then renamed itself PartyGaming.

Parasol, who has been living in Gibraltar for most of the past decade, declined requests for an interview.

In 2005, PartyGaming's IPO became the largest London had seen in four years, valuing the company at more than $8 billion. Just then, debate over the U.S. legal status of online gambling flared.

Poker players sue to get to bottom of online cheating scheme

The Justice Department had long argued that Internet poker violated the Wire Act and other federal and state laws. Despite the success of PartyGaming and other offshore companies, no U.S.-based companies offered alternatives for fear of prosecution. 
In 2006, Congress clarified the matter by passing the Unlawful Internet Gambling Enforcement Act, or UIGEA, explicitly barring processing interstate or international poker transactions where state laws forbade such gambling. PartyGaming responded by pulling out of the U.S., leaving two-thirds of its players behind to be claimed by privately held offshore companies.

The law didn't snuff out online poker in the U.S. as players migrated to other offshore providers. Research firm H2 Gambling Capital estimates the U.S. accounts for about $400 million of global annual online poker revenue of nearly $5 billion, or 8 percent. Depending on how many states ultimately legalize online cards, that share could rise to as high as 28 percent in five years, the company says.

PartyGaming's problems didn't end when it left the United States. In 2008, co-founder Anurag Dikshit pleaded guilty to gambling via the wires in federal district court in New York. He forfeited $300 million and agreed to cooperate with prosecutors, leading PartyGaming itself to settle in 2009. The company paid $105 million to avoid prosecution for pre-UIGEA violations. Dikshit couldn't be reached. His lawyer didn't return calls seeking comment. 

In 2010, prosecutor Arlo Devlin-Brown told the court that the probe was continuing and referred to documents under seal. He recently told Reuters he could not comment further, leaving open the possibility that Parasol could be charged if she returns home to the United States. 

PartyGaming's fortunes recovered as it began to focus on non-U.S. customers. Last year it bought rival Bwin Interactive of Austria and changed the merged company's name to Bwin.Party, with annual revenue of 691 million euros, or $902 million. 

During the merger talks, the regulatory suitability of PartyGaming and Parasol became an issue. Parasol and her husband, Russell DeLeon, agreed that the board could force them to restructure their more than 13 percent stake in the merged company or sell it if "required by any gaming regulatory authority in connection with business opportunities," according to merger documents filed with regulators. 

That clause wouldn't apply, however, if the licensing process is "more burdensome to the principal PartyGaming shareholders than the licensing requirements currently imposed by the state of Nevada." That means the couple's stake could, in effect, block deals in states with tougher standards. Bwin.Party's Ryan said he couldn't imagine the couple standing in the way. DeLeon couldn't be reached for comment.

Now partnered with MGM Resorts, Bwin.Party has applied for a Nevada license to offer Internet poker software and services. Co-CEO Ryan said the joint venture will handle all U.S. games where players pay to play and can cash out their winnings. 

In the meantime, he said, Bwin.Party will promote its brands through a social game, to be announced soon, without the ability to cash out. Ryan said negotiations with Facebook, a likely game platform, are continuing.

Facebook declined to comment. MGM did not respond to repeated interview requests about its choice of Bwin.Party.

'Prettiest girl in town'  
One of Bwin.Party's top rivals is also listed in London but based in Israel. That company is 888 Holdings, founded by a dentist inspired to put poker on the Net after a 1996 trip to Monte Carlo. The late Aharon Shaked and his brother Avi mortgaged their homes to fund the company, and their families and a co-founding family still have majority control.

In 2006, 888 joined PartyGaming in pulling out of the U.S. market. But for a time before that, 888's Casino-on-Net gambling website was among the top 10 buyers of banner ads aimed at U.S. home Internet users, reaching more than 10 percent of them in a single week, according to Nielsen/NetRatings.

In 2007 the company acknowledged it was in settlement talks with the Justice Department over suspected breaches of pre-2006 anti gambling laws. No charges were filed.

The 888 deal with Caesars that Nevada regulators approved last year was a trial run of Caesars-branded online poker in the British market, where such games have been legal for years. Caesars, operator of the Strip's Caesars Palace, Harrah's and Rio, has since expanded its relationship with 888, agreeing to use its software in the United States once states approve.

Ambitions are running high at 888. "The most exciting market opportunity for the industry must be that of the States, and we are definitely the prettiest girl in town, with everybody keen to have discussions with us," 888 Chief Executive Officer Brian Mattingley told investors last month. Officials at 888 declined interview requests, as did those at Caesars.

Lipparelli, the Nevada Gaming Control Board chairman, said scrutiny of the initial Caesars venture was lower than what it would have been for a U.S. venture. He said current investigations of Bwin.Party, 888 and more than 20 other license applicants would be far more rigorous than anything the overseas outfits had experienced in their home countries. "Some will probably not make it through," Lipparelli said. 

He said confessions of pre-2006 wrongdoing wouldn't automatically prevent licensing, though. Gambling executives say they expect smooth sailing in Nevada because regulators want to add local technology jobs. Concern about past lawbreaking "has all gone away," one casino executive said. 

One big test could come in the case of PokerStars, based in the Isle of Man, and Full Tilt Poker, based in the Channel Islands, which together snapped up most of the U.S. market after the 2006 law was passed and PartyGaming ran for the exits.

Last year, on an April day known in online poker circles as Black Friday, federal prosecutors unsealed indictments alleging illegal gambling, bank fraud and money laundering against the founders of PokerStars and Full Tilt. Preet Bharara, U.S. Attorney for the Southern District of New York, said Full Tilt had operated as a Ponzi scheme, relying on new players' deposits to cover payouts to older customers while executives and advisers took hundreds of millions of dollars from player accounts.

The indictments prompted Wynn Resorts Ltd to drop a weeks-old "strategic relationship" with PokerStars. The main owner of Station Casinos, which serves Las Vegas locals at 11 casinos off the Strip, abandoned a similar tie-up with Full Tilt. Neither Nevada company returned calls seeking comment.

Full Tilt has shut down while it negotiates with the Justice Department. But PokerStars remains the biggest site worldwide, with what others in the industry believe tops $1 billion in annual revenue. It harbors hopes that a deal with prosecutors could pave the way for a return to the U.S. 

People familiar with the situation say that as part of the settlement talks with the Justice Department, PokerStars is considering buying Full Tilt and refunding U.S. players hundreds of millions of dollars missing from their accounts. PokerStars confirmed the settlement talks but declined to comment on Full Tilt or its American aspirations. Full Tilt officials couldn't be reached for comment. 

'Concerned about probity'  
In California, casinos and gambling-software companies already are scurrying for deals with the tribes and others that would be eligible for direct licenses under a bill pending in the state senate. Caesars manages the Rincon tribe's Harrah's casino and is hoping to build on that with software from 888. 

A coalition of tribes and card rooms known as the California Online Poker Association has signed up to use software from Playtech Ltd, a London-listed British company. About 40 per cent of Playtech is owned by Teddy Sagi, an Israeli billionaire who pleaded guilty to stock manipulation and bribery in 1996 in a scandal known as the Discount Affair. He was sentenced to nine months in prison. Playtech didn't respond to a request for comment.

The tribes are aware of the risks of choosing partners that won't satisfy the state Justice Department, which the current bill would empower to approve license applications.

"We are very, very concerned about probity," said Joaquin Fletcher, president of the Pechanga Development Corp, owner of the Pechanga Resort and Casino in Temecula, California. "We don't want whoever we pick to just create more nightmares down the road." 

Similar concerns are on the minds of social media companies.

Zynga, the dominant provider of recreational games on Facebook, has 36 million monthly average users of its Texas HoldEm Poker, the second most popular game on Facebook after its CityVille, according to market research firm AppData.

The card game doesn't require regulation because players don't receive cash payouts, though they often pay for extra chips to play with. Those virtual chip purchases have made the game one of Zynga's top earners and opened the company's eyes to the potential of the real thing. 

Lazard Capital Markets said in March that it expected Zynga to move "aggressively" and capture an extra $100 million in annual profit by offering online poker with cash payouts and prizes. 

Zynga has held talks with Bwin.Party, 888, multiple California tribes and card rooms, and the big brick-and-mortar casinos, people familiar with the discussions said. The company might experiment first with poker in well-regulated overseas markets such as the United Kingdom, they said. Zynga declined to comment.

The gambling majors have seen the promise of social networking as well. MGM Resorts, like Bwin.Party, is planning its own game without cash payouts but with social networking built in. Caesars recently bought game application developer Playtika, which has a popular free slot machine app on Facebook called Slotomania, and it launched a Caesars-branded casino game suite there, too. 
Despite the enthusiasm, the risks of a regulatory, legal or public-relations setback for Zynga and Facebook are substantial, even if they partner well. 

With millions of free players, "it's very likely these people can be converted" to playing for real money, said one longtime offshore poker executive. "But do they want a headline saying some kid lost $10,000 playing poker on Facebook?"

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A day after the state's top court found that simply viewing child pornography wasn't a crime in New York, two legislators said Wednesday that they would soon introduce a measure to make it one.

The state Court of Appeals — the equivalent of the Supreme Court in most other states — ruled Tuesday in the case of a college professor whose work computer was found to contain illegal images that "merely viewing Web images of child pornography does not, absent other proof, constitute either possession or procurement," which are illegal under state law.

Viewing child porn on the Web 'legal' in New York, state appeals court finds

"Rather, some affirmative act is required (printing, saving, downloading, etc.) to show that defendant in fact exercised dominion and control over the images that were on his screen," Senior Judge Carmen Beauchamp Ciparick wrote for a majority of four of the six judges.

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The ruling generated headlines and opposition across the country. Patrick Trueman, president of the conservative institute Morality in Media and director of the Child Exploitation and Obscenity Section of the U.S. Justice Department during the Reagan administration, called on state authorities to take over all child pornography cases "until this opinion is overturned." 

Wednesday, two lawmakers from Brooklyn — Sen. Martin Golden, a Republican, and Assemblyman Joseph Lentol, a Democrat — said they planned to introduce a bill within the next few weeks that would prohibit "knowingly accessing" child pornography "with intent to view."

"Federal regulations are already in place to see that those who access child pornography face the stricter standards of the law," Golden told Reuters on Wednesday. "New York must adopt these same policies."

The decision Tuesday didn't free the defendant. Instead, it dismissed one of the two counts of promoting a sexual performance of a child and just one of dozens of counts of possession of child pornography on which James D. Kent was convicted. The court upheld the other counts against Kent, an assistant professor of public administration at Marist College in Poughkeepsie, N.Y.

Kent — who said at his sentencing that he "abhorred" child pornography and argued that someone else at Marist must have placed the images on his computer — was sentenced to one to three years in state prison in August 2009.

The decision turned on the question of whether accessing and viewing something on the Internet is the same as possessing it. In essence, the court said "no."

The court noted that possessing or procuring child pornography is illegal, but the majority said that it was up to the Legislature, not the courts, to decide whether it's also illegal to passively view it online, without taking any other action. 

The practical effect, wrote Judge Victoria A. Graffeo — who concurred with the result but disagreed with the majority's reasoning — is that "the purposeful viewing of child pornography on the Internet is now legal in New York."

You can read the full ruling here, in .pdf form.

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Viewing child pornography online isn't a crime, the New York Court of Appeals ruled Tuesday in the case of a college professor whose work computer was found to have stored more than a hundred illegal images in its Web cache.

M. Alex Johnson is a reporter for msnbc.com. Follow him on Twitter and Facebook.

The court dismissed one of the two counts of promoting a sexual performance of a child and one of the dozens of counts of possession of child pornography on which James D. Kent was convicted. The court upheld the other counts against Kent, an assistant professor of public administration at Marist College in Poughkeepsie, N.Y.

Kent — who said at his sentencing that he "abhorred" child pornography and argued that someone else at Marist must have placed the images on his computer — was sentenced to one to three years in state prison in August 2009.

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The decision rests on whether accessing and viewing something on the Internet is the same as possessing it, and whether possessing it means you had to procure it. In essence, the court said no to the first question and yes to the second.

"Merely viewing Web images of child pornography does not, absent other proof, constitute either possession or procurement within the meaning of our Penal Law," Senior Judge Carmen Beauchamp Ciparick wrote for a majority of four of the six judges. 

"Rather, some affirmative act is required (printing, saving, downloading, etc.) to show that defendant in fact exercised dominion and control over the images that were on his screen," Ciparick wrote. "To hold otherwise, would extend the reach of (state law) to conduct — viewing — that our Legislature has not deemed criminal."

Read the full appeals court ruling (.pdf)

In other words, "the purposeful viewing of child pornography on the internet is now legal in New York," Judge Victoria A. Graffeo wrote in one of two concurring opinions that agreed with the result but not with the majority's reasoning.

Kent's attorney, Nathan Z. Dershowitz, told msnbc.com that he hadn't yet had a chance to talk to his client, so he couldn't discuss what they would do next. But he agreed with Graffeo that the ruling means that "in New York, there is no crime" in simply viewing child pornography. 

All of the judges agreed that child pornography is an abomination, but they disagreed whether it was necessary to "criminalize all use of child pornography to the maximum extent possible," as Ciparick wrote in the majority opinion. The majority said that was up to the Legislature, not the courts, to decide. 

Judge throws out child porn charge against Washington man

The technical details revolve around copies of deleted files that remained in the cache of Kent's Web browser, which were the basis of the two counts that were dismissed. They were discovered, along with other materials, during a virus scan that Kent had requested because his computer was running slowly.

To demonstrate possession of the images in the cache, "the defendant's conduct must exceed mere viewing," Ciparick wrote, adding that "the mere existence of an image automatically stored in a cache" isn't enough.

Furthermore, the prosecution failed to prove that Kent even knew his Web browser had a cache in the first place, writing, "A defendant cannot knowingly acquire or possess that which he or she does not know exists."

Dershowitz said the "real problem here is that legislation is not keeping up with technology," arguing that federal courts also haven't fully addressed the legal standing of images stored only in a browser cache.

The federal statute outlawing possession of child pornography — 18 USC 2252A — doesn't mention browser caches. The few cases that have examined the issue at the federal level — notably a 2002 federal appeals case involving a Utah man and a 2006 federal appeals case involving a visitor to Las Vegas — generally conclude that cached images alone can establish possession if the defendant knows about the browser's caching function.

Both courts noted that it was hypothetically possible for the defendants to be innocent if they were ignorant of the cache function. 

"Those statutes are probably not quite as incomprehensible, but they are anything but clear," Dershowitz said.

Kent's convictions on the other counts rested on other evidence, including a folder on his machine that stored about 13,000 saved images of girls whom investigators estimated to be 8 or 9 years old and four messages to an unidentified third party discussing a research project into the regulation of child pornography.

"I don't even think I can mail the disk to you, or anyone else, without committing a separate crime. So I'll probably just go ahead and wipe them," one of the messages said.

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U.S. Justice Dept.

Richard Leon Finkbiner

The owner of an Internet service provider in Indiana has been charged with blackmailing children into performing sexually explicit acts over webcams, authorities said Monday.

Richard Leon Finkbiner, age 39, of Brazil, Ind., about 50 miles southwest of Indianapolis, was charged in a federal complaint last week with sexual exploitation of children. The allegations involve two 14-year-old boys, but the FBI said in court documents that it found thousands of sexually explicit images and videos on Finkbiner's computer that suggest "several hundred" other victims.

Authorities said the "sextortion" scheme worked this way:

Using the pseudonym "Josh Swaim," Finkbiner would befriend young boys on social media and capture sexually explicit video of them they had uploaded on what they thought was an anonymous video chat site, the complaint alleges.

He would then tell them that if they didn't record more sexually explicit videos, he would release the clips online or send them to their friends, it says. 

M. Alex Johnson is a reporter for msnbc.com. Follow him on Twitter and Facebook.

In both cases the government revealed Monday, the IP address of the computer being used was tracked back to Clay County Internet in Brazil. Indiana business records list it as an Internet service provider of which Finkbiner is owner and president.

In the criminal complaint, Finkbiner is quoted as telling one victim that he was a hacker who knew how to remain anonymous, but the FBI makes it clear that he didn't, really.

"Analysis of FINKBINER's computer and other digital media uncovered thousands of video files depicting hundreds of individuals on various states of undress or engaged in sexually explicit conduct," the FBI said in court documents. "Many, if not most, of these individuals appear to be between the ages of 14-16 years of age," it said.

U.S. Attorney Joe Hogsett told reporters that Finkbiner would threaten to "make these images available to people close to [the victims], which was designed to frighten them." 

At various times, Hogsett alleged, Finkbiner threatened to out the children to their parents, friends, coaches or even pastors. The complaint adds that he also threatened to post some of the images to gay pornographic websites. 

"Only I have this link," he allegedly wrote to one victim, asking: "You want to play this game or you want to be a gay porn star?"

To another, he allegedly acknowledged, "yes it is illegal im ok with that," warning: "if u don't play I promise ill f*** ur life over...I won't get caught im a hacker I covered my tracks."

The level of terror the alleged threats caused is chillingly revealed in the transcript of an email message one of the boys sent to Finkbiner's Hotmail address: 

"All I ask you for is to delete it please im onlyh 14 please just to this to somebody else not me please."

Finkbiner was held pending a probable cause hearing Wednesday in Terre Haute. If convicted, he could face 30 years in federal prison.

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Updated at 2:50 p.m. ET: COLLEGE PARK, Md. -- A University of Maryland student has been arrested and charged with posting an Internet threat claiming he planned to go on a shooting rampage on campus hoping to kill as many people as possible.

Campus police said in a statement that 19-year-old Alexander Song, of Fulton, Md., had been identified as the person who posted plans on a website for a rampage.

"I will be on a shooting rampage tomorrow on campus," police quoted Song as saying in the Saturday posting. "Hopefully I kill enough people to make it to national news." 

The message also warned people to "stay away from the mall." Police did not elaborate.

Capt. Marc Limansky told the Baltimore Sun that police were informed of the alleged threats after a former student noticed them on reddit.com. Two people also contacted the university after chatting with Song on omegle.com, Limansky added.

A sophmore honors student, Song was taken to a hospital for a psychiatric evaluation after his arrest Sunday.

Song, who was not armed when he was arrested, faces a misdemeanor charge of disturbing school activities.

A police spokesman said it was unclear if Song had an attorney.

The university website describes Song as a member of a campus research program for select honors students who explore how science and technology relates with society. The Gemstone Program lists Song as scheduled to graduate in 2014.

Song was one of the leaders of a student research team, Be Pure, that was studying ways to make methane gas safe for energy consumption, said James Wallace, a mechanical engineering professor and director of the Gemstone Program.

Steven Hutcheson, the team's advisor, said Song had once been one of the more vocal members of the team but had recently appeared quieter. Hutcheson and a couple students who knew Song said there was no indication that he was unhappy or capable of violence.

"I wish there had been something because I would have loved to have helped him," Hutcheson said.

Anjana Sekaran, another member of the Be Pure team, said she had known Song since last year, "and he is a very intelligent, good-natured individual. He would never hurt anyone."

After the arrest, some students complained on Twitter that the school's emergency alert system was not activated after police learned of the threat. University President Wallace Loh said in a statement Monday that officials decided that sending out a campus-wide alert before Song was in custody threatened to interfere with their investigation.

"The police are confident that any threat to our community was mitigated once the student was taken into custody," Loh said.

The Associated Press and Reuters contributed to this report.

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