U.S. Alleges Full Tilt Poker was a Ponzi Scheme.

DanaReevesLungs

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The U.S. Justice Department on Tuesday accused poker celebrities Howard Lederer and Christopher Ferguson among other executives of a major poker website of defrauding poker players out of more than $300 million.
The U.S. Justice Department on Tuesday accused poker celebrities Howard Lederer and Christopher Ferguson among other executives of a major poker website of defrauding poker players out of more than $300 million. WSJ's Alexandra Berzon joins Digits with details.


The U.S. Attorney in the Southern District of New York filed a motion Tuesday to amend an earlier civil complaint to allege that Mr. Ferguson, Mr. Lederer and two other directors for the website, Full Tilt Poker, operated what the Justice Department says was a Ponzi scheme that allowed the company to pay out $444 million to themselves and other owners, which included other famous poker players.
In the motion to amend the complaint, the government alleges Full Tilt executives misrepresented to the website's players that the money the company was supposed to be holding in player accounts was safely held when it was actually being used for other purposes, including payments to owners.
The distributions to the owners, including Mr. Ferguson and Mr. Lederer, continued even as funds to pay out creditors—the poker players—dwindled because government investigators had made it increasingly impossible to move player money into company-affiliated bank accounts, the government says.


"Full Tilt was not a legitimate poker company, but a global Ponzi scheme," said Preet Bharara, U.S. Attorney for the Southern District, in a statement.
In the statement, Mr. Bharara said Full Tilt "cheated and abused its own players to the tune of hundreds of millions of dollars" and that "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 with the company."


An attorney for Full Tilt said he had no comment, and that neither did Mr. Ferguson. Attempts to reach Mr. Lederer on the phone weren't successful.
In response to the earlier version of the complaint, Full Tilt and other poker sites that had accepted U.S. bets have denied any wrongdoing, arguing that the U.S. laws covering online gambling aren't clear. The earlier version didn't allege defrauding of players or improper payments to owners.
The government is also seeking money it says the four Full Tilt directors got from the site, which allegedly includes $42 million for Mr. Lederer and $25 million for Mr. Ferguson, who was allocated $85 million from the company but never collected all the money, the government says.
The government's amended complaint also alleges that two other directors defrauded players. One of those named directors is Raymond Bitar, the company's chief executive, who was earlier indicted by the government for alleged bank fraud and money laundering. The company had previously denied any wrongdoing in response to the earlier allegations.
The allegations follow months of speculation that Mr. Ferguson and Mr. Lederer, who grew famous winning poker tournaments, might be dragged into a federal case that began in April and has led to the suspension of Full Tilt's operations.



Mr. Ferguson, Mr. Lederer and others started Full Tilt in 2004 and steered it to become an online giant, used by thousands of players betting billions of dollars every year.
In April the Justice Department indicted executives at three major online poker companies on charges of illegal gambling, bank fraud and money laundering, including Mr. Bitar of Full Tilt Poker, who has been out of the country, and hasn't been arrested or entered a plea.
In civil charges the government also sought $3 billion from the companies and, through a court order, seized the domain names from the sites, which stopped operating in the U.S. following the action. Mr. Ferguson and Mr. Lederer have not been charged criminally.
The Justice Department has long held that online poker is illegal under several federal laws, while the poker web sites such as Full Tilt that operated in the U.S. argued that poker is not illegal in part because it is a game that involves skill and not purely chance.
In a statement in August the company acknowledged that it had problems processing player money, along with also losing $115 million it says was seized by the government and $42 million it says was stolen from a third-party payment processor.


"While the company was on the way to addressing the problems caused by these processors, Full Tilt Poker never anticipated that the DOJ would proceed as it did by seizing our global domain name and shutting down the site worldwide," the company said in a statement in August.
It said it is seeking outside investment to pay back all its creditors.
The charges have upended an industry that became a booming online business and a cultural phenomenon in the last decade. They have also re-framed the debate around the legalization of online gambling.
The crackdown has shaken a large universe of poker fans, which researcher H2 Gambling Capital estimates included players using 1.7 million active accounts in the U.S. who before the April crackdown were wagering around $14 billion a year online.


U.S.-based players are still owed around $160 million from Full Tilt Poker, according to the government.
According to the latest filing from the Justice Department, Full Tilt Poker had just $60 million in the bank just before the April crackdown occurred, while it owed $390 million to players around the world.
Yet the company had been distributing around $10 million a month to its owners, the government alleges. Those payments stopped in April, according to the government.
The company had continued to issue public statements that told players their funds were safe. Following the indictments of its executives in April, the company said in a statement, "Full Tilt Poker would like to assure all players that their funds remain safe and secure."
In June, Mr. Lederer reported to others at the company that there was only $6 million left, the government alleges.
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Jun 2, 2005
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Ponzi scheme? Are they fucking joking?

Look, I know Chris Ferguson, and besides being one of the nicest guys in the world, he's also a math genius. There's no way anything they're alleging went on with his knowledge... Though I will say Howard had more to do with the inner-workings of Full Tilt than Chris did.
 

mascan42

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#3
At FTP, player's money was held in the same accounts as the company's operating capital, rather than in separate accounts like the other poker sites did. Whether that means the player's money was actually used as operating capital is unclear, but it sure as hell makes it look suspicious. This is also why US players still haven't been able to withdraw their funds: when the gov't froze the company's accounts, they froze the player's money as well.
 

ShooterMcGavin

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#4
Does this mean that every fucking asshole I see at the Indian casinos wearing Full Tilt hats are victims of this horrible scam?
 

Creasy Bear

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I'm sure it's all just a big misunderstanding.

:icon_roll

Dupes.
 

MayrMeninoCrash

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Doesn't Ponzi Scheme relate to investing? These people aren't (or shouldn't be) depositing their money with hopes of an annual growth, like a bank account. What these guys did was wrong, but it sounds like racketeering and money laundering, but no different than any of your Teamster-run casinos on the 60's and 70's.
 

Creasy Bear

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#9
Is a dupe anything like a rube?

What do these dupes have to do with carnies.
Dupes are more like marks and rubes are more yokels, but carnies will run the game on both.

Never trust a carnie... small hands.
 

mills

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Dupes are more like marks and rubes are more yokels, but carnies will run the game on both.

Never trust a carnie... small hands.
Where do asshole gambler assholes who gamble because they're assholes fit in?
 

English Gent

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At FTP, player's money was held in the same accounts as the company's operating capital, rather than in separate accounts like the other poker sites did. Whether that means the player's money was actually used as operating capital is unclear, but it sure as hell makes it look suspicious. This is also why US players still haven't been able to withdraw their funds: when the gov't froze the company's accounts, they froze the player's money as well.
Well, that does seem to be a rather unusual arrangement, that's for sure, and probably not best practice, but fraud? And Ponzi Scheme? Really? Presumably the allegation is that FTP didn't have sufficient funds on hand at any given time to pay out the totality of funds in player accounts, but is that any different from the way that every high street bank operates?
 

Creasy Bear

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Where do asshole gambler assholes who gamble because they're assholes fit in?
They're left scratching their heads in bewilderment and asking ... If you can't trust the proprietors of online gambling businesses, who can you trust?
 

Creasy Bear

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Where do asshole gambler assholes who gamble because they're assholes fit in?
They're left scratching their heads in bewilderment and asking ... If you can't trust the proprietors of online gambling businesses, who can you trust?
 
Jun 2, 2005
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#14
From reading up on this it sounds like the DOJ is just covering their own asses.

So what if FTP co-mingled funds as long as they always had enough to cover outstanding accounts? When the DOJ swooped in and locked the accounts, they essentially stole the money from the individuals who had placed it there, but instead of admitting that, they're trying to make it sound like FTP's fault.
 

UrsusHorribilis

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ponzi scheme? Are they fucking joking?

Look, i know chris ferguson, and besides being one of the nicest guys in the world, he's also a math genius. There's no way anything they're alleging went on with his knowledge... Though i will say howard had more to do with the inner-workings of full tilt than chris did.
wdjkawdhki?
 

Norm Stansfield

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#18
Presumably the allegation is that FTP didn't have sufficient funds on hand at any given time to pay out the totality of funds in player accounts
Those aren't the allegations. Here are the allegations:
In the motion to amend the complaint, the government alleges Full Tilt executives misrepresented to the website's players that the money the company was supposed to be holding in player accounts was safely held when it was actually being used for other purposes, including payments to owners.
Presumably the allegation is that FTP didn't have sufficient funds on hand at any given time to pay out the totality of funds in player accounts, but is that any different from the way that every high street bank operates?
The inner workings of fractional reserve banking are not misrepresented. They are public knowledge.
 

English Gent

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Doesn't Ponzi Scheme relate to investing? These people aren't (or shouldn't be) depositing their money with hopes of an annual growth, like a bank account. What these guys did was wrong, but it sounds like racketeering and money laundering, but no different than any of your Teamster-run casinos on the 60's and 70's.
It does mean a specific form of fraudulent investment scheme, but it also gets thrown around as quite a loose term. My assumption from the little that's been said publicly is that one of the central allegations is that they hadn't segregated funds and didn't always have on hand sufficient funds to pay out customers. Still doesn't really make it a Ponzi Scheme, but anyway.
 
Jun 2, 2005
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#21
Those aren't the allegations. Here are the allegations:



The inner workings of fractional reserve banking are not misrepresented. They are public knowledge.
It does mean a specific form of fraudulent investment scheme, but it also gets thrown around as quite a loose term. My assumption from the little that's been said publicly is that one of the central allegations is that they hadn't segregated funds and didn't always have on hand sufficient funds to pay out customers. Still doesn't really make it a Ponzi Scheme, but anyway.
I can understand the whole "not having enough funds to pay out" angle, but why doesn't that apply to all cases? Why is it alright for airlines to sell out 110% of a flight because they know statistically 15% won't show? I don't understand why when it comes to things like this there has to be 100% liquidity when in NO OTHER industry that applies.

Edit: None of this applies to the story, just annoyed by the double standard.
 

Your_Moms_Box

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#22
I can understand the whole "not having enough funds to pay out" angle, but why doesn't that apply to all cases? Why is it alright for airlines to sell out 110% of a flight because they know statistically 15% won't show? I don't understand why when it comes to things like this there has to be 100% liquidity when in NO OTHER industry that applies.

Edit: None of this applies to the story, just annoyed by the double standard.
If FTP disclosed that they co-mingled fnds then there isn't an issue.

If they said that customer money was seperate from operating funds, and it wasn't then they have essentially comitted fruad.

A Ponzi sceme is really any sceme where the money from new clients is needed to pay out clients who believe they have earned a return.

The analogy isn't perfect here, but I can see where it can be implied.
 

Don the Radio Guy

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#23
I don't know about the inside workings of this particular website, but the government saying ANYTHING is a Ponzi scheme is a fucking hoot.
 
Jun 2, 2005
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#24
I understand the concept, I'm just saying that every industry and financial institution does this, and for some reason gambling institutions are the only ones held to the higher standard. If every customer of Bank of America went and closed their accounts at once, there's no way in hell they'd be able to cover all of the withdrawls, same with the airline analogy, and countless others.

To apply the concepts of a Ponzi scheme to this is a stretch at best, and like I said earlier, it's more than likely just a smoke-screen to cover the fact that the DOJ is the reason those player accounts aren't being refunded.
 

UrsusHorribilis

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#25
I'm sure it has something to do with Israel, right?
I've stayed out of that argument for awhile and intend to in the future (although it's fun watching Obama squirm over this UN statehood thing!)

I was making a lame joke combining WWJD? (What would Jesus do?), Chris Ferguson's nickname and the famous question from the Watergate hearings: "What did the President know and when did he know it?

If you have to explain, it ain't funny...