Wednesday, September 21, 2011

Full Tilt Fully Sinking In

Wow. With a day to really absorb all the latest news from Wednesday's amended complaint by the New York attorney general in the online poker ban case that, among other things, adds Howard Lederer, Jesus Ferguson, Rafe Furst and Ray Bitar to the charges, it already feels like just an amazing revelation, one that is far and away the story in the history of online poker as we know it thus far.

Long story short, yknow that bunch of the biggest poker pros we all know and (used to) love from tv -- "the Professor", "Jesus", Phil Ivey and several others -- who started full tilt poker several years ago now? Well, guess what? Turns out they were actually literally stealing money out of your and my accounts -- yes, your and my money -- and paying it mostly to themselves over a several year period, while simultaneously running the entire poker site as a massive ponzi scheme. For real. I've seen some other bloggers arguing that ponzi is not really a fair description of what happened here, but I have to differ with that view, as I'll get to.

To provide some summary details for those not inclined to read all the various press reports about the amended complaint, or the new complaint itself (which you can read in full directly from the source right here, if you're interested), here's the basic gist, with quotes directly out of's front page coverage of this story on Tuesday, with the emphasis and brackets mine:

"The prosecutor said that, as of March 31 [2011], Full Tilt Poker owed about $390 million to players around the world, including $150 million to U.S. players. But the company only had $60 million in bank accounts to pay them back.

Full Tilt paid more than $443 million in player funds to the board of directors and other owners, with $41 million going to Bitar, $42 million going to Lederer, and nearly $12 million going to another board member, Rafael Furst.

The company paid $25 million to Ferguson, and said that it owed him another $62 million, according to the prosecutor's office, noting that much of the money was transferred to Swiss and overseas accounts."

So that's the basic gist of what happened. Over the past few years, full tilt paid 19 owners and board members more than $443 million, including 42M to the Professor, 41M to Ray Bitar, 12M to Rafe Furst, and owing over $87 million to Jesus Ferguson, having only paid out some 25M of that amount thus far. Forbes also reported that "another owner, described by the feds as a professional poker player, received at least $40 million in distributions, as well as millions of dollars more characterized as loans from Full Tilt that have only been partially repaid." This statement obviously refers to Phil Ivey, so that's another 40M+ guy to add to the list of beneficiaries of cash payouts from full tilt over the past few years.

And I'd like to call attention to the two passages above that I highlighted in bold. First is the statement directly out of the amended complaint itself that much of the money from these full tilt owners and board members was transferred to Swiss and overseas accounts. Not that this surprises me per se, but there it is pretty much right there in black and white -- these guys knew on some level what they were doing was illegal, or at least that the funds might be subject so seizure and return at some point in the future. While "blithely" (to use Preet Bharara's excellent choice of words) and repeatedly assuring players in the U.S. and around the world that our funds were "totally safe and secure" on their site, the owners of the site were busy shipping their money the fuck out of the country, to Swiss bank accounts and other countries where they felt the U.S. would have the most difficulty recovering the funds when the shit inevitably hit the fan like it turns out these guys pretty much all knew it would.

And secondly, I just want to note that the Forbes coverage refers to the $4 million in loans we've all heard about to Phil Ivey not as loans but as amounts "characterized as loans", suggesting that there is some question as to whether even that was a fair description or whether what we're really looking at is just another example of someone stealing funds to support I'm sure an excessive and certainly excessively gamblerific lifestyle, with no intention of ever actually repaying that money.

I also wanted to take a minute to discuss what really turned this from your typical run-of-the-mill corporate raiding story and into a true life poker ponzi scheme, as the US attorney alleges in the amended complaint. Read this passage, also from the CNN coverage, describing full tilt's response when over the past year or so it became increasingly difficult for full tilt to actually find payment processors willing and able to withdraw the funds from its depositors' bank accounts:

"In order to maintain its false image of financial security, Full Tilt continued to credit player accounts without disclosing its inability to fund those credits," the prosecutor said. "When players gambled with these phantom funds and lost to other players, a massive shortfall developed."

So there you have it. This happened to me multiple times by the way, where I made a small deposit onto full tilt during the final year or so it was in operation, played with those funds for several days, and then at some point a week, two weeks, even a month or so later I was informed that my deposit was never deducted from my account (which I confirmed, of course) and thus my balance was deducted for the amount I never really deposited into the site. But what if I had already lost all of that money? Where did it go? Answer: (1) into other players' accounts, and (2) into the owners' and board members' pockets. Plain and simple, that's what happened. For the better part of a year, full tilt was having massive trouble actually getting the cash from players' bank accounts, and yet it still allowed those players to deposit "phantom funds" onto the sites, play with it, and either win (and presumably withdraw it into real cash) or lose (and thus transfer their losses to other players' accounts, who then presumably would look to withdraw it and turn it into real cash). I mean, you could not make this stuff up. Every time you saw Howard Lederer or Jesus Ferguson or Phil Ivey on tv over the past several months before the U.S. online poker ban in April of this year, they knew behind that face that they were literally operating at a shortfall in their own players' funds available on the site, allowing gambling of fake funds.

Note as well that the complaint alleges that "this scheme continued even after the original complaint was filed and the criminal indictment unsealed in April." Recall that the complaint alleges that, as of March 31 [2011], Full Tilt Poker owed about $390 million to players around the world, including $150 million to U.S. players. But the company only had $60 million in bank accounts to pay them back. As also reported by CNN, "As time went on, the poker site had even less money to pay its customers. By June [so this is less than three months later], Full Tilt owed $300 million to players around the world but only had $6 million to pay them, according to the prosecutor's office." So even after the online poker ban went down on April 15, the company continued to draw down on its meager cash available for depositors, owners, for everyone, raiding the company's last remaining cash that could have conceivably been used to return at least some fraction of player funds, from $60 million down to a mere $6 million, while player fund liabilities dropped only from $390 million to still $300 million owed. What a fucking disaster.

The Forbes coverage also has some good tidbits to help elucidate some of the details of this amazing, eye-opening story (again, emphasis mine):

"Federal prosecutors claim that Full Tilt’s board members got rich because the company used player funds to pay them massive amounts of money that largely was transferred to their accounts in Switzerland and other overseas locations. Specifically, the feds allege that Bitar pocketed $41 million and Lederer got $42 million. Jesus Ferguson allegedly was allocated $87 million in distributions and received at least $25 million, federal prosecutors claim. Another owner [Ivey obv], described by the feds as a professional poker player, received at least $40 million in distributions, as well as millions of dollars more characterized as loans from Full Tilt that have only been partially repaid. The government claims Full Tilt continued to make payments to its owners of up to $10 million per month even after the company was insolvent."

[Note that Tuesday's Wall Street Journal coverage pegged this number at $5 million per month paid to the full tilt owners starting as far back as April 2007.]

And later in the Forbes article:

U.S. government lawyers believe that Full Tilt Poker started to face a growing cash crunch in 2010 because it could not collect funds from U.S. players due to the federal government’s efforts to disrupt the payment processors that facilitate the flow of funds in the online poker industry. Indeed, Bharara’s office says that by August 2010 Full Tilt’s payment processing network had been severely disrupted and that the company could no longer withdraw money from U.S. players’ bank accounts. So instead, the feds claim, Full Tilt continued to credit player accounts without disclosing its inability to fund those credits, letting players make online poker bets with $130 million of “phantom funds” that resulted in a massive shortfall when other players won the bogus money in poker games.

The management of Full Tilt Poker, the feds say, “operated Full Tilt Poker with the hope that only a small number of players would try to withdraw funds at any one time, and that Full Tilt Poker would regularly receive additional deposits in amounts greater than any withdrawal requests.”,

Now if that last paragraph right up there ain't ponzi, then I don't know what is. For a period of several months, the owners and operators of full tilt poker intentionally, knowingly and willingly ran their company as a ponzi scheme, paying out those who withdrew funds from the site with the deposits of others, knowing all too well that the company was facing a potentially 9-figure shortfall in amounts deposited and in action on its site but which it could not collect and had no plan to be able to collect at any point in the future. And just like any good ponzi scheme, it was all premised on never more than a small percent of the site's users actually demanding their own money back at any given time. As long as those withdrawl requests were tiny in relative terms, having $60 million of cash on hand while supposedly "holding" $390 million of your customers' money worked out just fine. But when the shizzle hit the fizzle over the past year, there was never close to enough money to make the players whole. Oh, and meanwhile, the owners and directors paid themselves some $440 million out of those exact same corporate accounts that by April of this year contained only $60 million, and just $6 million by June.

Look, these guys raided your funds. My funds. Our money. It's like the CEOs of Tyco, Adelphia, and any other number of large company executives who have been busted over the past several years for using their company's funds to support a life of personal excess in almost every conceivable way. Only, this is much, much worse even than those examples. When the Tyco CEO took corporate funds to spend on expensive New York City call girls on business trips, at least he was taking funds that belonged to his company, and that were generated as revenues in exchange for his company's goods and services provided to customers. In this case, the full tilt guys took our money, not theirs and not full tilt's. This was not revenue in any sense of the word for full tilt. They were like a bank, merely holding on to our funds so that we could use them as we saw fit on their internet site. That's it. So while Dennis Koslowski and others in corporate America diverted money from their companies to fund ridiculous, extravagant lifestyles, in this case, Howard Lederer, Phil Ivey, Jesus Ferguson et al stole cash directly from their customers to fund similar endeavors. There's just no other way to spin it.

Oh, and by the way. I mentioned this briefly yesterday, but there seems to me to be a good chance that some of the crew of Lederer / Ferguson / Bitar / Ivey end up doing some jail time from all this, given the recent revelations. The corporate CEO's go to jail, and trust me when I say what they did is not close to as bad as what the full tilt owners are alleged by name to have done in this case. Why shouldn't these fucking pigs go to jail for a long time? Because they play a game as their professional jobs that's been frought with lying, cheating and dishonesty for the past couple hundred years? Because Howard Lederer came and blew smoke up the poker bloggers' asses at Caesars' poker room in Las Vegas at the summer WPBT gathering back in 2006, all the while he was literally stealing our very cash right out of our bank accounts and living high off the hog off of it? Seven or eight years ago, I most definitely idolized each one of Ivey, Lederer and Ferguson to some degree, without a doubt. Right now, make no mistake, I would bang the gavel myself and order them each to serve 30 years in the mutha fuckin slammer. And I probably wouldn't hesitate to cast them down with the sodomites either.

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Blogger lightning36 said...

Great post, hoy. I linked to it on my blog.

10:30 PM  
Blogger Roger S said...

Thanks for the post. I read the big media outlet stories yesterday and thought I would come over here for a more complete picture of this. Just reflecting yesterday that I don't think poker will ever achieve a break from its sordid past.... (and present). Its too bad. I really like the game.

10:44 PM  
Blogger Hammer Player a.k.a Hoyazo said...

I have to agree with you there -- this scandal has done more to illustrate the perils and pitfalls of unregulated poker and gambling than could probably ever be undone. It might be an entire generation until regulated online poker in the U.S. after what has been perpetrated by these thoughtless, greedy piglets.

11:18 PM  
Blogger l.e.s.ter said...

Time to brush up on what nations don't have extradition treaties with the U.S.

Morocco = a new poker capital?

11:27 PM  
Blogger VinNay said...

Agreed 100%. They were treating deposits as revenue. This was a huge scam.

I hope criminal charges are brought, and these guys are stuck playing poker for cigarettes in order to trade for not getting ass raped.

4:01 AM  
Blogger crafty said...

Nice post - thanks for the lucid and comprehensive analysis.

4:13 AM  
Blogger Short-Stacked Shamus said...

When we first started hearing about that strange-sounding practice of allowing player deposits without ensuring they'd actually been secured, I remember thinking "this cannot end well." And we were hearing about this well before Black Friday.

I'm remembering reading an article back in Feb. 2010 -- an interview by Dan Cypra on Poker News Daily with an unnamed "insider in the world of payment processing" -- which might have been the first time I became aware of what apparently would become a very common practice. The article doesn't focus on Full Tilt in particular.

The "insider" told of how credit card deposits in particular were being blocked, yet players were still seeing the money show up in their online accounts. It sounds like in those cases the credit card company blocked transactions, closed their accounts with the processors, and the processors would get fined by the credit card companies (fines which the poker sites would often pay).

Yet from the player's end, he'd get billed, see the money in his online poker account, and that was that. As the "insider" explained to Cypra, "We basically just gave him free money."

I'm remembering early this year, just before Black Friday, becoming increasingly aware of Full Tilt's many problems with transactions and accounting. The scuttlebutt then was that FTP had been allowing an inordinately high volume of deposits such as the ones you made that were never actually cleared. Their "books were a mess," apparently. This was the idea floating around just before 4/15.

Again, my thought was "this cannot end well." And thus I think (like you say) the Ponzi scheme analogy kind of fits, insofar as like with a Ponzi scheme, there's an understanding by the perpetrators that its method of operation ensures the business will collapse. Even without the DOJ stepping in with its indictment and civil complaint, Full Tilt Poker was destined to fail, with the owners' alleged skimming of funds only accelerating that process. People nitpicking about the term are saying players aren't "investors," but really, when it comes to online poker, they might as well be considered as such.

Anyhow, thanks for the post, Hoy. I'm less convinced right now that those named will see jail time, though I'm with you in believing punishment is deserved.

8:42 PM  

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