Ponzi? It certainly looks that way after reading the official FullTiltPokerComplaint.pdf from the US Attorney. " data-share-img="" data-share="twitter,facebook,linkedin,reddit,google,mail" data-share-count="false">

Is Full Tilt Poker a Ponzi? It certainly looks that way after reading the official FullTiltPokerComplaint.pdf from the US Attorney. And the perpetrators include two of the best-known poker players in the world — Howard Lederer and Chris Ferguson.

The complaint is long and not particularly interesting; the juicy bits are actually quite short. The meat is here:

According to a balance sheet prepared by Full Tilt Poker, 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. Full Tilt Poker relied on new deposits from players to ensure its ability to fund withdrawals to players’ accounts. Rather than protect player funds as promised, Full Tilt Poker distributed hundreds of millions of dollars to its owners… Defendant Lederer personally received at least approximately $42 million, including approximately $37,856,010.92 in ownership distributions and at least $4 million in “profit sharing” payments… Defendant Ferguson was allocated approximately $85,161,305.88 in distributions. Tiltware records reflect that approximately $25 million of this sum was actually transferred to Ferguson’s personal accounts, with the remaining balance characterized as “owed” to Ferguson.

Full Tilt Poker said repeatedly and vehemently that players’ funds were kept strictly segregated; this, it seems, was a bald-faced lie. Instead, those funds were intermingled with everything else. As any banker will tell you, deposits are liabilities, but Full Tilt Poker treated deposits as assets, handing them out to its shareholders and counting on two things to keep its business going: the fact that most people lose at poker, and a continued inflow of new funds to help pay the players cashing out.

In a weird way, strict anti-gambling regulations in the US are responsible for this fiasco. If poker sites were legal and regulated, we could trust the regulator — an arm of the US government — to protect gamblers’ funds. Casinos are strictly regulated; online poker sites should be as well. Instead, they became international fugitives, going to great lengths to make it possible for US gamblers to skirt regulations and use their sites. Up to and including buying banks:

In or around September 2009, Elie, together with Andrew Thornhill and a partner of Elie’s (“Elie’s Partner”) approached Campos, the defendant, the Vice Chairman of the Board and part-owner of SunFirst Bank, a small, private bank based in Saint George, Utah. Campos, while expressing “trepidations” about gambling processing, proposed in a September 23, 2009 e-mail to accept such processing in return for a $10 million investment… On or about November 29, 2009, Andrew Thornhill told an associate “things are going well with the bank we purchased in Utah and my colleagues and I are looking to purchase another bank for the purpose of repeating our business plan. We probably could do this for a grand total of 3 or 4 banks.”

Back in May, I attempted a defense of the online-poker crackdown. But there was lots of very smart pushback in the comments, and now this news is more than enough to make me change my mind. If you need to be conducting all manner of wire fraud and money laundering just to stay in business, it’s a relatively small step to going Full Ponzi. On the evidence in the complaint, Lederer and Ferguson were willing accomplices in a scheme which ended up stealing hundreds of millions of dollars from poker players around the world; I wouldn’t be at all surprised to see criminal indictments coming soon. Would they have preferred to be able to set up an entirely legitimate, regulated company? I suspect they would have jumped at any such opportunity.

But now that it seems that even the most respectable poker sites were run by criminals, the chances of that happening are more remote than ever. If you want to play poker for money, go to a casino. Because there’s simply no way of being able to tell whether the site you’re on is a Ponzi.