Hard to Explain: The Full Tilt Poker Fiasco

Poker News / Short-Stacked Shamus / 23 September 2011 / Leave a Comment

This week I found myself in the not-so-easy position of trying to explain to "non-poker" people what the heck had happened to land Full Tilt Poker on the front pages of websites like CNN, FoxNews, MSNBC, The New York Times, The Wall Street Journal, Forbes, Yahoo! News, and elsewhere. What was all this "online poker is a Ponzi scheme" talk, I was being asked. And isn't that the "Jesus" guy from teevee?

It was a challenge trying to spell out for them the complicated back story that had led to the U.S. Department of Justice amending its earlier "Black Friday" civil complaint. First I had to explain what the April indictment and civil complaint covered (violations of the Unlawful Internet Gambling Enforcement Act, bank fraud, money laundering). Then there was the task of explaining these new allegations that Full Tilt had mismanaged accounts, funneled hundreds of millions of dollars to its owners, and misled customers as to the status of their funds.

It also was difficult to come up with the best way to get them to appreciate the sheer magnitude of the story as it appeared to us in our little "poker world." I mean, saying "It's kind of a big deal" seemed a little weak in this context.

It was early Tuesday afternoon that Preet Bharara, the U.S. Attorney for the Southern District of New York who had brought the earlier indictment and civil complaint against FTP, PokerStars, Ultimate Bet, Absolute Poker, its founders and other associated individuals, announced that a motion had been filed to amend the civil complaint to reflect new allegations against Full Tilt Poker in particular.

As we reported here earlier, the amended complaint included accusations that Full Tilt Poker had accepted player deposits without securing the funds from players' accounts, meaning that over time something like $130 million worth of "phantom money" was being passed back and forth at the virtual tables. That's hard to fathom even for those of us familiar with how online poker sites work. Or are supposed to, anyway.

Let's say you tried to deposit $100 onto Full Tilt Poker last fall using an "e-check" which theoretically would enable the site to deduct the funds from your bank account. Doing so required Full Tilt Poker to employ a payment processor -- a "middle man" (so to speak) -- who would facilitate the transaction.

However, thanks in large part to the UIGEA, such transactions were frequently being interrupted somewhere along the way. The UIGEA, a law prohibiting banks and other financial transaction providers from allowing U.S. citizens to move money to and from online gambling sites, was passed in 2006, but compliance wasn't made mandatory until June 1, 2010 when the "final regulations" were at last implemented. And that's about when such interruptions started to occur more and more frequently.

Even though the $100 had never been taken from your bank account, Full Tilt Poker let you put your hundy in play right away. Depositing players weren't especially bothered that the money hadn't been deducted from their bank accounts, but you can see how such a policy would create problems. If you lost your $100, you personally might not be affected. But someone won that money. And if those winning such "phantom money" then all tried to withdraw, well, there'd be a problem.

So that was one issue -- this $130 million that players believe are in their accounts but in fact isn't really there at all -- that prevented Full Tilt Poker from allowing players to cash out post-Black Friday. Some of the site's accounts were also seized back in April, which meant there was money Full Tilt Poker actually had that it couldn't access, either. In fact, the amended complaint cites an internal document stating that "as of March 31, 2011, Full Tilt Poker owed players from around the world over approximately $390,695,788 but had only approximately $59,579,413 in its bank accounts."

That's a huge difference. So where did the rest of the money go? The amended complaint alleges that a lot went to Full Tilt owners and board members, including CEO Ray Bitar, Howard Lederer, Chris "Jesus" Ferguson, Rafe Furst, and "the other approximately 19 owners of Tiltware LLC." Allegedly "approximately $443,860,529.89" was moved into these individuals' personal accounts, dubbed "FTP Insider Accounts" in the complaint.

If the allegations are true, it sounds like some of that money was probably spent on operational expenses, promotion, and perhaps eventually to pay attorneys. Some might have been spent in other ways, too. In his statement, Bharara argues the "Full Tilt insiders lined their own pockets with funds picked from the pockets of their most loyal customers." One might speculate that while that could have been the case to some extent, the moving of money into these personal accounts might also have been part of an effort to keep the U.S. government from seizing it -- although that, too, would be considered unlawful.

And, again, kind of a head-scratcher.

Finally, as Bharara goes on to say, Full Tilt Poker did all of this (allegedly) "while
blithely lying to both players and the public alike about the safety and security of the money deposited with the company." To that end, the amended complaint compiles more than a half-dozen instances of the site repeatedly assuring its customers via emails, forum postings, and elsewhere that their funds were A-OK.

I suppose we can understand why Full Tilt Poker wouldn't want to let on things weren't exactly going swimmingly. But the amended complaint points out how the Full Tilt website still tells visitors to "please know that your funds are safe and secure." (No shinola.)

A lot to sort out, for sure. Never mind the other part of the story involving the Alderney Gambling Control Commission suspending FTP's license to operate in late June and the fact that representatives of the site and the AGCC have been meeting this very week to discuss the site getting its license back and somehow getting back online (outside the U.S., of course).

Regarding which, news broke yesterday that a potential investor -- someone who could theoretically buy the company's remaining assets, satisfy its considerable debts to players, and perhaps pay off a possible settlement with the DOJ (which would be hundreds of millions) -- has signed a non-binding letter of intent to take over the embattled site. Players with money locked up on the site see this development representing a last hope when it comes to the returning of their funds, but such remains to be seen.

So... how did I explain all of this to those "non-poker" people? To be honest, I kind of glossed over most of the details, opting instead for what I thought was a clear enough analogy they might understand.

Say you are a huge NFL fan, I said. You followed every play last year, right down to the Green Bay Packers defeating the Pittsburgh Steelers in the Super Bowl. Then, months later, you learn that the Steeler players had bets on the Packers and threw the game. Then you learn that the Packers were in on it, too, getting a cut of what the Steeler players had won. And then it comes out that other teams were in on the fix as well. And so forth.

In other words, everything you thought you knew about your favorite game had turned out to be wrong. Those touchdowns weren't real. Everyone was cheating, see. Including your heroes, the players you most revered.

Seemed like a decent enough way to explain how things appear at the moment, even if much still remains to be clarified and/or proven.

Maybe it was those Full Tilt Poker jerseys that inspired me to pursue the analogy. Although I guess they were hockey, not football. And of course, there's another reason why the comparison doesn't really fit perfectly. We weren't just watching the game -- we were playing, too!

And the game we thought we were playing, well... it turned out we didn't even really know the rules.

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