Breaking News: Feds call Fult Tilt a "Ponzi Scheme"

[The Buzz]

In a story that just broke within the last half hour, the New York District Attorney responsible for the Black Friday indictments said that Full Tilt Poker was operated as a "massive Ponzi scheme."

From Forbes.com:

Manhattan’s U.S. Attorney Preet Bharara claimed on Tuesday that Full Tilt Poker and its board of directors operated the company “as a massive Ponzi scheme against its own players.”

Federal prosecutors in Manhattan on Tuesday filed legal papers as part of a civil money laundering complaint that alleged Full Tilt Poker improperly used funds of online poker players to pay members of its board of directors, including famous poker players Howard Lederer and Christopher “Jesus” Ferguson, $440 million since April 2007.

[MichaelCorfman]

Vin and I are at EiG, and so Vin just stopped by the Alderney Gambling Commission stand to see if they had any comment. Their booth was empty - no one was there. So no comment for now - not even a "no comment." But we'll follow up again later.

Michael

[GPWA Dan]

The GPWA editorial team is looking through the indictment now. Some really fascinating tidbits. We hope to have something posted soon.

[GPWA Dan]

A link to the amended complaint is here (starts at pg. 63):

www.apcw.org/legal-documents/FullTiltAmendment_9_20.pdf

And a link to a memo explaining the amended complaint:

www.apcw.org/legal-documents/FullTiltMemo_9_20.pdf

[GPWA Dan]

A piece I just published on today's news:

The U.S. Department of Justice (DOJ) said on Tuesday that Full Tilt Poker operated as a “global Ponzi scheme” and that its primary owners, including poker professionals Howard Lederer and Chris “Jesus” Ferguson, defrauded the site’s players out of hundreds of millions of dollars.

The DOJ filed a motion to amend an earlier civil complaint against Full Tilt Poker to include “additional allegations, claims, and defendants concerning a fraudulent scheme by Full Tilt Poker and its Board of Directors concerning the misuse of players’ funds,” according to a memorandum sent out by Preet Bharara, U.S. Attorney from the Southern District of New York.

“Full Tilt was not a legitimate poker company, but a global Ponzi scheme,” Bharara said in a statement. “Full Tilt insiders lined their own pockets with funds picked from the pockets of their most loyal customers while blithely lying to both players and the public alike about the safety and security of the money deposited.”

Lederer, Ferguson, former CEO Ray Bitar and Rafael "Rafe" Furst, all owners of Full Tilt Poker, are accused of distributing approximately $443 million to themselves and other owners of the company. The amended complaint alleges that Full Tilt mixed player funds with operating funds, despite public claims to the contrary by the site.

The DOJ said that by the end of March, Full Tilt Poker owed approximately $390 million to players worldwide, including $150 million to American players, but had less than $60 million in its bank accounts.

“Full Tilt Poker allowed players to gamble with -- and lose to other players -- this phantom money that Full Tilt Poker never actually collected or possessed,” the DOJ said in a memo.

Lederer, Ferguson and Furst were not included in the original April 15 indictment against the founders of Full Tilt Poker, PokerStars and Absolute Poker. Those three sites were accused of bank fraud, money laundering, illegal gambling offenses and violating the Unlawful Internet Gambling Enforcement Act. All three stopped taking American players shortly after the indictment.

Repaying players has been a totally different matter. PokerStars has paid more than $120 million to American players, and has had no significant delays in paying its international customer base. Full Tilt and Absolute Poker, meanwhile, still owe their players millions of dollars..

The amended complaint claims that Lederer personally received $42 million in company funds, while Ferguson was allocated over $85 million in distributions, but only received about $25 million of this sum.

An unnamed Full Tilt Poker pro received at least $40 million in distributions, while also receiving millions of dollars characterized as loans by Full Tilt. Over $4 million of these loans have not been repaid.

The amendment also states that up until April 2011, Full Tilt Poker continued making payments of up to $10 million per month to its owners, despite the company’s liquidity issues.

Full Tilt Poker’s website stated as of yesterday that players’ funds were “safe and secure.”

The DOJ is seeking $40 million from Bitar, $41.8 million from Lederer, $25 million from Ferguson and $11.7 million from Furst.

[universal4]

“Full Tilt Poker allowed players to gamble with -- and lose to other players -- this phantom money that Full Tilt Poker never actually collected or possessed,” the DOJ said in a memo.

You see this statement is untrue....

The money that was in players accounts was money that Full Tilt DID collect and possess, the fact that they then used the money in a way they shouldn't have does NOT make the statement true.....

The government also does NOT disclose how much money THEY TOOK and possess....that was the players money too and should be used to pay back the players, affiliates and other vendors that FT owes....

Just another example of the US Government twisting the truth and making sure the public does NOT get the whole story.

Rick
Universal4

[diceman]

Its all very interesting... seems a little bit of bending of the actual facts

[GPWA Aaron]

You see this statement is untrue....

The money that was in players accounts was money that Full Tilt DID collect and possess, the fact that they then used the money in a way they shouldn't have does NOT make the statement true.....

According to the civil complaint, Full Tilt was unable to collect about $130 million in deposits from American players because of payment processor issues -- the deposits attempted were declined. But they went ahead and credited the players' accounts anyway (thus the "phantom money" claim) and players were able to play with money that was never debited from their accounts. This does not make up for the entire amount that FTP's reserves were short (so yes, there was misappropriation of funds in addition to "phantom money"), but the government's point here is still valid.

I am curious to know what they did with these players regarding affiliates during this time. Did affiliates get paid commission on players who were playing on FTP's dime (this went on for more than a year)? Or were they removed from affiliate stats? Not sure if we'll ever know, but I can't wait for the feature film about this fiasco.

[GPWA Dan]

The GPWA Vin Narayanan discussed the issue of commingling player funds with operating funds with regulators at EiG. Here's a piece he published about it:

MILAN, Italy -- Full Tilt Poker may have commingled player funds and operations money in bank accounts, but that didn't violate its license with the Alderney Gambling Control Commission (AGCC).

Alderney licensees are required to disclose to players whether they mix player deposits and operations money in bank accounts or keep them in separate accounts, an AGCC official familiar with the situation told Casino City today. But they are not required to keep the two separate.

Full Tilt elected to disclose they were commingling funds.

The issue of commingling player funds with operating expenses was a big topic of conversation at the European iGaming Congress & Expo in Milan, Italy on Wednesday as the online gambling industry grappled with how one of its stars, Full Tilt Poker, had fallen so quickly.

PKR CEO Malcolm Graham called on regulators to force operators into keeping money deposited by players separate from money used in operations.

"We hope regulation will lead to ring fencing accounts," Graham said.

In two separate panel discussions featuring online gambling regulators from throughout Europe, Casino City asked whether player deposits should be segregated from operations accounts.

Only one regulator responded with an adamant yes.

"To protect customers, (it's) stipulated operators can't spend on the players' funds. We regularly check the bank accounts with technology to make sure the two balances match," said Franceso Rodano, head of remote gaming for AAMS, the Italian regulatory agency for online gambling. "We also have bank guarantees in place," Rodano added.

"This is something that needs to be looked at," said Jersey Gambling Commission Chairman Graham White in a different panel discussion. "All regulators recognize this. There might be a technological solution...there is a quite simple program that can track the deposits."

AGCC CEO Andre Wilsenach was part of the same panel discussion as White and declined to address the issue. But his sense of frustration over Full Tilt came through clearly in a recent statement regarding the hearings being held this week about the company's Alderney license.

"I am disappointed with the tribunal’s decision that, notwithstanding my arguments to the contrary, the hearing will be held in private. I believe the public has a right to know the reasoning behind the decisions to suspend FTP’s licences and call a hearing, and to hear the evidence that will be put forward on my behalf."

[Caruso]

Vin and I are at EiG, and so Vin just stopped by the Alderney Gambling Commission stand to see if they had any comment. Their booth was empty - no one was there. So no comment for now - not even a "no comment." But we'll follow up again later.

Michael

They'll carry on "licensing" them as long as they can get away with it. This US action must really **** them off, the last thing they wanted was this lucrative house of cards crumbling before absolutely necessary (ie. another bunch of $250,000 in hush money AHEM AHEM licensing fees).

[Online-casinos.co.uk]

What a dispicable bunch of crooks, including the pros I used to respect. Never thought I'd hear myself say this but well done the DOJ for trying to nail these thieves for all they can, they have stolen money from and caused untold suffering, stress and misery to many thousands of innocent poker players not to mention the possible irrevocable damage done to the reputation of online gambling in general. Any case for self-regulation has been put back decades by these criminals. Rot in jail and poverty Full Tilt and every bent bastard who took a slice.

[vmlinuz]

... the deposits attempted were declined. But they went ahead and credited the players' accounts anyway (thus the "phantom money" claim) and players were able to play with money that was never debited from their accounts.

How come nobody noticed that you could play for free on FTP with real money?

[MichaelCorfman]

They'll carry on "licensing" them as long as they can get away with it. This US action must really **** them off, the last thing they wanted was this lucrative house of cards crumbling before absolutely necessary (ie. another bunch of $250,000 in hush money AHEM AHEM licensing fees).

From discussions we've had here it is pretty clear the regulators are not happy with Full Tilt. They have publicly indicated their opposition to having closed hearings on the matter - so clearly they have wanted to be able to share the issues they have seen with the public rather than being required to keep them private. I would not assume that they are unhappy with the actions of the U.S. DOJ.

Michael

[GPWA Aaron]

How come nobody noticed that you could play for free on FTP with real money?

In fact some people did notice it ... read this thread from the 2+2 message boards.

http://forumserver.twoplustwo.com/28...advice-954451/

[Caruso]

From discussions we've had here it is pretty clear the regulators are not happy with Full Tilt. They have publicly indicated their opposition to having closed hearings on the matter - so clearly they have wanted to be able to share the issues they have seen with the public rather than being required to keep them private. I would not assume that they are unhappy with the actions of the U.S. DOJ.

Michael

If I was the AGCC, I wouldn't be happy with FT either. I mean, creaming off $500,000,000 to the owners when they could have creamed it off to the AGCC. There's just no justice.

My rampant cynicism aside, the AGCC are incompetent at best and crooks at worst. Did you know they use "bonus abuse" as a legitimate reason to deny winnings? I have it documented.

FWIW, more rumours of a buy out (buy in or whatever): http://www.subjectpoker.com/2011/09/french-investors/

[Caruso]

Another point to consider is that it might be very damaging to assume this lawyer is actually correctly assessing the situation. Obviously 100% ringfencing is unnecessary. The FT owners syphoned off a packet, but this may not be out of line with industry standards - how much percentage of player deposits does a room / book / casino NEED to ringfence to cover withdrawals? 50%? 25%? I don't know, but it's not 100%.

Black Friday threw all previous calculations out the window. No play (so no rake income) + investigation of balance sheet = players can't be paid even more than usual. But then, all players could never be paid (no more can a bank honour all its depositers' money at any one time), it's just a bit worse when there's no rake income.

Actually, Ponzi Screamin' Dude could be doing a lot of damage, as we see the claim that two investors already pulled out on the back of his remarks.

What about the timing? FT is in a meeting with AGCC, talking investors. So the DOJ on just that day starts scaremongering, frightening OFF investors. Coincidence?

This might be the DOJ looking for political capital and directly jeopardising a saveable situation. The more I think about it, the more compelling this looks.

[universal4]

But this ALL hurt the little guy (smaller players and affiliates, as well as any vendor providing them services) more than it hurt FT directors, owners and pros....

The money the government "siezed" would go a long way to giving the money back to the PEOPLE that the elected and appointed individuals are hired to protect....

I agree with Caruso that much of the posturing the govt continues to do on this appears to be designed to cause them more harm and destroy their chances of surviving and paying players back.

Rick
Universal4

[DealTheNuts]

It is a complete financial mess, but we should not forget the only people who are suffering (through no fault of their own) are players/affiliates/suppliers waiting in vain for their money and employees losing their jobs due to the fraudulent activity of numerous bad apples at the top of Full Tilt.

The amended complaint and released statements are part of the developing investigation and any business performing due dilligence prior to a major investment will make their own decision based on analysis of risk and potential reward, not DOJ or other public comments.