9 ms·

Full Tilt Ponzi

127 points by MaysonL 15y ago

ShawnJG 15y ago
this is a perfect example of taking something that would normally be legit and because it is outlawed rules and regulations are flouted at best, a massive fraud and corruption at worse. When I see cases like this, I was wonder how people involved but they would be able to get away with this if you look at the amount they supposedly had on deposit versus what they actually had it doesn't take an accounting major to know there is a huge discrepancy that you will unlikely be able to pay back. It's clear the poker sites make some money through ads and transactional commission but since people play against each other they don't benefit from the advantages a normal casino would have. Although people lose their money they lose it to the person across the table not to the "house". With this high-profile company now under a dark cloud of suspicion, they are definitely putting a big if not final nail in their coffin. With player bots, player collusion and security vulnerability in their systems people start to think long and hard before they wager money online.
- mc32 15y ago
  Financial "products" are regulated by the gov. That didn't seem to have the desired effect back in 2008. I don't think fraudsters care about regulation. They care that they can sucker people.
  - notahacker 15y ago
    The financial crisis (and gambling losses at legitimate sites) weren't the result of bankers diverting investors' funds into their personal bank accounts, as is alleged here. That's illegal, and easily prevented at a regulated site where deposited funds are required to be accounted for (and preferably held in escrow). Regulation in banking or in gambling doesn't make it impossible to lose; it makes it possible for winners to get their money and impossible for the company handling the money to simply pocket it.
    - mc32 15y ago
      My point was that regulation and scrutiny didn't prevent the likes of a Bernie Madoff providing a financial product and running a ponzi scheme. In addition, the financial industry at large can legally provide all kinds of leveraged products which pass scrutiny and result in hefty bonuses (personal profit) but which can end with ruin for the individual and group investors because they are structurally unsustainable (i.e subprime lending had to come crashing). On top of that, the institutions which benefitted during the boom then turned around and asked the people to prop them up despite the questionable risks they took because the world could not afford to have them fail --we blinked.
      - Steko 15y ago
        Your premise seems to be that all regulation is the same. Correct me if I'm wrong but your argument essentially is saying: "financial products were regulated in 2008, well see how that worked out, therefore regulation doesn't really work well" Sorry I don't buy that. Financial regulations put in place during the great depression worked pretty good. Then they were slowly pared back over three decades starting with Reagan. All the evidence I've seen is that the financial products were massively under regulated.
        mc32 15y ago
        I see what you are saying. I think regulation helps and it provides a way for redress. Those are good byproducts of regulation. I think my point was that bad people will still try to pull fast ones -regulated or not. I imagine the frequency of fraud could be reduced by regulation. So, from that standpoint it might be better to have it on the up and up and supervised -but supervised with a very keen eye and a regulation with teeth, as it were.
- tptacek 15y ago
  Note that in this case, you mostly get the "benefits" of legalization by including strict regulations in the package.
- ShardPhoenix 15y ago
  The poker sites make a large amount of money by taking a 5% rake on every pot played.
- kooshball 15y ago
  > It's clear the poker sites make some money through ads and transactional commission but since people play against each other they don't benefit from the advantages a normal casino would have. Although people lose their money they lose it to the person across the table not to the "house". You clearly dont understand how poker rooms, online or physical, operate. They take a rake from each hand regardless of winner. This article has nothing to do with the "advantages" of the house, more about accounting fraud that allow partners to cash out deposits from players.
encoderer 15y ago
Some backstory for those not all that familar w/ online poker: Full Tilt, along w/ PokerStars, has long been regarded as a premier destination for online poker. A lot of marketing presence, a lot of players, a large range of games. They rolled out an innovative way to play cash-game poker where you never had to wait for a hand. Several thousand people would join a, say, $1/2 game of NL Holdem, and as soon as 9 people were ready to play, they sat and formed a table and were dealt a hand. You fold? As soon as 8 other people fold, bam, you're in another hand. In practice, you never had to wait more than 1 second. They certainly did make millions in profit on a "rake." However they have an aggressive and lucrative affiliate program that would see them paying out as much as 1/3 of a players lifetime rake to the entity that referred them to the site. (aka "Rake Back") As an American player, until the crackdown earlier this year, I had no problems playing. When I cashed out, they mailed me a check drawn on a US bank. If I had to deposit more, I could do so from my credit card. This is a big blow for the credibility of the industry IMO.
- TheCowboy 15y ago
  The 'rush poker' innovation was relatively recent and likely inconsequential. It definitely was only a tiny amount of their revenue stream (It also seemed rare to not have your credit card blocked for making deposits. So I wouldn't express it as a commonality.) The industry has been lacking credibility for some time. Players have been pushing to get it regulated to avoid something like this from happening.
  - dustingetz 15y ago
    if your average player is 1-tabling, he's getting (maybe) 80 hands/hour. that same player at a rush table is getting 250 hands per hour. rush poker probably tripled their revenue. who knows how many times it multiplies their profits.
    - markmccraw 15y ago
      just to clarify, that would mean triple their revenue compared to if those players played normal poker, not an overall measure. also, for the pros who would normally be 16 tabling, there is only a small uptick in hands per hour in NL rush compared to standard 6 max tables.
BrandonM 15y ago
If FullTilt is a Ponzi, then any startup is a Ponzi. Investors put money into the startup, the founders spend that money (in part on their own incomes), and based on the company's business model, the investors reasonably expect to get a return on their money. FullTilt made probably $1M+ per day in rake alone. Even taking costs into account, FullTilt could rake enough to pay out all accounts within a couple years. That is decidedly not a Ponzi scheme, which has no hope of ever being able to pay back its investors.
- jarrett 15y ago
  The difference is that players were not investors, they were depositors. When you invest money in a company, you do so with the understanding that the money becomes the company's and will be spent. In return, you get equity (typically). You don't have an "account" with the company from which you can make withdrawals. By contrast, poker sites operate like banks, taking deposits from people with the understanding that those deposits will be held in trust. You're not buying equity in the poker site, and your money doesn't become their money. It's still your money; it's just being held in an account they manage. This is why commingling is bad--it obliterates the distinction between their money and yours. Obviously, these poker sites are not FDIC insured like banks. But a legitimate poker site would still take all reasonable precautions (such as segregating the company's funds from depositors') to protect your money.
  - BrandonM 15y ago
    There are two groups of players at poker sites. The largest group is bad players. These players typically deposit money on the site, play until their account is exhausted, and then deposit again. For them, the amount they put on a poker site is not a deposit, but instead an entertainment fee. There is also a group of professional players on the sites. These players make a deposit (say, an initial $1000), and in the course of playing (better than the bad players) their balance grows. They periodically withdraw small portions of their balance to cover living expenses. Their deposit is an investment in every way. Go hang out on some poker forums and research bankroll management, and you will see a lot of terms that are common in investing. So who here is making a bank-like deposit? The bad players almost never get their money back, and the good players have far more in their account than they initially invested. A good site, like PokerStars, will segregate player money and always have it on hand. But in an unregulated market where everyone is relying on the goodwill of the poker sites to manage their funds, there is no guarantee of anything. If a country destroys that goodwill (by seizing funds and issuing indictments), why should we be surprised that the money is no longer available?
wonjun 15y ago
Full Tilt had the best user interface and experience. I'd love to see someone write about their software.
0x12 15y ago
Bank run in 3, 2, 1... From the full tilt poker homepage: "System Update We apologise but the system is currently down. Please check back later. Please direct all enquiries to support@fulltiltpoker.com." wsj article: http://online.wsj.com/article/SB10001424053111904106704576582741398633386.html?mod=googlenews_wsj http://online.wsj.com/article/SB1000142405311190410670457658... Layman explanation: Full Tilt Poker runs a wallet system, the sum all the users money is smaller than what they have in their bank accounts. The 'Ponzi' element comes from their ability to attract new players at such a high rate that they can pay the withdrawals. What makes it doubtful that this really is a Ponzi scheme is that - a bank run excepted - they probably would end up not paying out a very large percentage of the money they owed if operations continue, simply because most of the those playing online poker get fleeced incrementally, every dollar placed as a bet has a rake associated with it and that rake could cumulatively be a large percentage of the total money deposited. I don't run an online casino so I have no clue how often a given deposited dollar passes the tables before being withdrawn. If there was one part here that is sloppy/criminal then that should be that they overpaid their affiliates. A typical Ponzi scheme does not have affiliates taking a bunch of money of the table.
- TheCowboy 15y ago
  "Bank run in 3, 2, 1..." People have not been getting money offline really since the Department of Justice handed out initial indictments in April. The messed up thing about this is they had a sustainable money-printing-machine that only became an unsustainable ponzi scheme due to the greed and corruption of the owners. Affiliates and paying affiliates had nothing to do with their downfall. Affiliates are a standard throughout the online gaming industry.
  - 0x12 15y ago
    Thanks for the correction, I missed the earlier announcement. Affiliates being a standard or not has nothing to do with it, anyhody that takes money out of the deposits will accellerate the process, and affiliates took a substantial portion. Typically if you deposit $100 a large fraction of that is immediately paid out to the affiliate. You then enter the game and if the total rake on your account ends up being smaller than what is left in your account after the affiliate has been paid then you were a net loss to the company. Without an affiliate that would be much harder to achieve. That said, I believe that the players are stupid enough to play until they are bust so that's mostly theoretical, so I agree that they were quite possibly sustainable but it would need some inside figures to be sure.
pyoung 15y ago
It will be interesting to see if Full Tilt has a solid defense behind how they handled the cash. Full Tilt (and most other poker sites) make their money by taking a rake (small percentage) of every pot. Theoretically, over the long run (i.e infinity), almost all of the money would end up in full tilt's pockets. If deposits were outpacing the withdrawals, then they could possibly argue that they didn't need to have much cash on hand to cover future withdrawals. Additionally, considering they are a poker site, I doubt that banking regulations apply to them.
- justincormack 15y ago
  Its not about having cash in hand. Thats cashflow, although businesses fail on cashflow issues, you are allowed to take that risk. However it is illegal for any company to trade while insolvent, when they have negative assets like here.
muyuu 15y ago
Even if the complaint is true, this is not a Ponzi scheme any more than any bank in a fractional reserve system, like basically everywhere nowadays. In a Ponzi scheme you take new money fully aware that you aren't going to be able to repay in the medium/long term. In other words: you know you don't have a scheme that actually works well enough to pay the profits you are promising. This is not the case here at all. If the complaint is true - which may or may not be -this is theft, plain and simple. Note that the difference between a Ponzi scheme and a recklessly run investment shop is sometimes academic. One can sometimes be unable to tell apart failed, unrealistic expectations and successful fraud. But here the business model is solid and they have simply taken from users pockets for fun and profit. Again, if the complaint is true. Bit tired of hearing "Ponzi" misused time and again. I guess it makes for sensational headlines.
- markmccraw 15y ago
  FWIW, the language comes from the DOJ attorney, so I don't think you can blame the headline writers.
aneth 15y ago
This is the government fishing for a law to prosecute unrelated behavior that is insufficiently regulated or completely legal. This was not a ponzi scheme as many others have commented. They kept enough cash to pay more than enough of the anticipated withdrawals, and had an operating business that could quickly earn any need for more funds should withdrawals spike. This is standard practice in banking and insurance. I hear Warren Buffet heads a big ponzi scheme too. If FTP did not segregate finds as advertised, perhaps they committed some sort of fraud, but theft and ponzi this is not.
- justincormack 15y ago
  No, they were clearly trading while insolvent. Saying you can cover liabilities from notional future profits is illegal. As this is hacker news, recommend you dont run a startup while you do not understand this.
  - aneth 15y ago
    "Saying you can cover liabilities from notional future profits is illegal" Almost every business does this, so I suppose they should all be prosecuted and we should send our financial system back to the Middle Ages. If I take out $1M loan and invest it in my business, my intent is to pay that liability with notional future profits. If I purchase something Net 90 and don't have the money in the bank, I'm apparently violating the law. Off to jail I go.
InclinedPlane 15y ago
I don't get it, a Ponzi scheme is an investment program, in what sense is poker ever considered an investment program?
rorrr 15y ago
The numbers don't add up. Owed to the players: $390,695,788 In the bank: $59,579,413 Lederer took: $42,000,000 Ferguson took: $85,161,305 What happened to the rest $204 million?
- suking 15y ago
  I imagine they had a ton of employees, server costs, other executives that got paid well. They could have also given out lines of credit to some players and never collected the actual $, etc.
heyitsnick 15y ago
To clarify a couple of points raised through the comments thread. - According to the DOJ, prior to black friday, FT had $60m in the bank and owed $390m to players. Shortly after black friday, in June this figure was $6m. - There are two main reasons for this - one is the exorbitant payouts - over $440m was paid out to FT partners who held equity in the company - that were taken from players funds. Named are 4 people, Bitar, Lederer, Ferguson and Furst. The DOJ alleges almost $120m was paid out to these 4 alone, and Ferguson is 'owed' another $60m in dividend payments. - However, unnamed are many others who also received payouts; the DOJ claims FT - even when they knew they were insolvent - "continued making payments of approximately $10 million per month" up until April. - Furthermore, they were making sizeable loans to their roster of professionals with players funds. One mention of "Player Owner 1" almost certainly refers to Phil Ivey. - Finally, they were basically fronting US players millions - the DOJ alleges $120m in total - because they were unable to process deposits. - The reason this is nothing like a bank investing a customers money and why the DOJ is alleging this is "fraud" and a "ponzi scheme" (nb there is nothing in the amended complaint that suggests charges of a ponzi scheme; but it did come from Preet Bharara, U.S. Attorney for the Southern District in a statement) is because the money was not invested; it was used for dividend payments. Meanwhile, FTP was publicly claiming their players funds were maintained separately to operating accounts, deceiving players. - This really has nothing to do with affiliates "taking money out of the system." If you're interested in reading more, I write for this online poker news site: http://pokerfuse.com/news/law-legislation/fraud-tilt-poker/ http://pokerfuse.com/news/law-legislation/fraud-tilt-poker/
- martinkallstrom 15y ago
  I like how their brand name invites writers to construct these headlines like Full Tilt Ponzi and Fraud Tilt Poker. A Google search reveals that a couple of forum posts actually have referred to them as Full Theft Poker which completes the set. Which in turn leads to the inevitable mashup of nicknames: The eponymous Fraud Theft Ponzi. Zing! Pow!
  - heyitsnick 15y ago
    You might be interested in the #FTPstandsfor hash tag.
jgeerts 15y ago
2 things always bothered me about poker sites: 1. No one ever takes a look if the code that is run by these poker sites is indeed valid. 2. No one ever knows what happens with the poker players money once it's been deposited and it's never clear how easy it is to get it back. There should be some kind of independent organism checking if the site is credible or not. Now the thing checking these sites are their users...
robjohnson 15y ago
I agree with the statement that this is precisely why we should regulate it.
joeycfan 15y ago
These guys have killed the goose that laid the golden eggs.
vide0star 15y ago
This is further evidence the industry should be regulated and taxed in the US. The amount of money following around the poker/betting/online gambling industry is immense and there's no reason with a little oversight that this mess can be avoided.

127 points by MaysonL 15y ago

this is a perfect example of taking something that would normally be legit and because it is outlawed rules and regulations are flouted at best, a massive fraud and corruption at worse. When I see cases like this, I was wonder how people involved but they would be able to get away with this if you look at the amount they supposedly had on deposit versus what they actually had it doesn't take an accounting major to know there is a huge discrepancy that you will unlikely be able to pay back. It's clear the poker sites make some money through ads and transactional commission but since people play against each other they don't benefit from the advantages a normal casino would have. Although people lose their money they lose it to the person across the table not to the "house". With this high-profile company now under a dark cloud of suspicion, they are definitely putting a big if not final nail in their coffin. With player bots, player collusion and security vulnerability in their systems people start to think long and hard before they wager money online.

mc32 15y ago
Financial "products" are regulated by the gov. That didn't seem to have the desired effect back in 2008. I don't think fraudsters care about regulation. They care that they can sucker people.
- notahacker 15y ago
  The financial crisis (and gambling losses at legitimate sites) weren't the result of bankers diverting investors' funds into their personal bank accounts, as is alleged here. That's illegal, and easily prevented at a regulated site where deposited funds are required to be accounted for (and preferably held in escrow). Regulation in banking or in gambling doesn't make it impossible to lose; it makes it possible for winners to get their money and impossible for the company handling the money to simply pocket it.
  - mc32 15y ago
    My point was that regulation and scrutiny didn't prevent the likes of a Bernie Madoff providing a financial product and running a ponzi scheme. In addition, the financial industry at large can legally provide all kinds of leveraged products which pass scrutiny and result in hefty bonuses (personal profit) but which can end with ruin for the individual and group investors because they are structurally unsustainable (i.e subprime lending had to come crashing). On top of that, the institutions which benefitted during the boom then turned around and asked the people to prop them up despite the questionable risks they took because the world could not afford to have them fail --we blinked.
    - Steko 15y ago
      Your premise seems to be that all regulation is the same. Correct me if I'm wrong but your argument essentially is saying: "financial products were regulated in 2008, well see how that worked out, therefore regulation doesn't really work well" Sorry I don't buy that. Financial regulations put in place during the great depression worked pretty good. Then they were slowly pared back over three decades starting with Reagan. All the evidence I've seen is that the financial products were massively under regulated.
      - mc32 15y ago
        I see what you are saying. I think regulation helps and it provides a way for redress. Those are good byproducts of regulation. I think my point was that bad people will still try to pull fast ones -regulated or not. I imagine the frequency of fraud could be reduced by regulation. So, from that standpoint it might be better to have it on the up and up and supervised -but supervised with a very keen eye and a regulation with teeth, as it were.
tptacek 15y ago
Note that in this case, you mostly get the "benefits" of legalization by including strict regulations in the package.
ShardPhoenix 15y ago
The poker sites make a large amount of money by taking a 5% rake on every pot played.
kooshball 15y ago
> It's clear the poker sites make some money through ads and transactional commission but since people play against each other they don't benefit from the advantages a normal casino would have. Although people lose their money they lose it to the person across the table not to the "house". You clearly dont understand how poker rooms, online or physical, operate. They take a rake from each hand regardless of winner. This article has nothing to do with the "advantages" of the house, more about accounting fraud that allow partners to cash out deposits from players.

encoderer 15y ago

Some backstory for those not all that familar w/ online poker: Full Tilt, along w/ PokerStars, has long been regarded as a premier destination for online poker. A lot of marketing presence, a lot of players, a large range of games. They rolled out an innovative way to play cash-game poker where you never had to wait for a hand. Several thousand people would join a, say, $1/2 game of NL Holdem, and as soon as 9 people were ready to play, they sat and formed a table and were dealt a hand. You fold? As soon as 8 other people fold, bam, you're in another hand. In practice, you never had to wait more than 1 second. They certainly did make millions in profit on a "rake." However they have an aggressive and lucrative affiliate program that would see them paying out as much as 1/3 of a players lifetime rake to the entity that referred them to the site. (aka "Rake Back") As an American player, until the crackdown earlier this year, I had no problems playing. When I cashed out, they mailed me a check drawn on a US bank. If I had to deposit more, I could do so from my credit card. This is a big blow for the credibility of the industry IMO.

TheCowboy 15y ago
The 'rush poker' innovation was relatively recent and likely inconsequential. It definitely was only a tiny amount of their revenue stream (It also seemed rare to not have your credit card blocked for making deposits. So I wouldn't express it as a commonality.) The industry has been lacking credibility for some time. Players have been pushing to get it regulated to avoid something like this from happening.
- dustingetz 15y ago
  if your average player is 1-tabling, he's getting (maybe) 80 hands/hour. that same player at a rush table is getting 250 hands per hour. rush poker probably tripled their revenue. who knows how many times it multiplies their profits.
  - markmccraw 15y ago
    just to clarify, that would mean triple their revenue compared to if those players played normal poker, not an overall measure. also, for the pros who would normally be 16 tabling, there is only a small uptick in hands per hour in NL rush compared to standard 6 max tables.

BrandonM 15y ago

If FullTilt is a Ponzi, then any startup is a Ponzi. Investors put money into the startup, the founders spend that money (in part on their own incomes), and based on the company's business model, the investors reasonably expect to get a return on their money. FullTilt made probably $1M+ per day in rake alone. Even taking costs into account, FullTilt could rake enough to pay out all accounts within a couple years. That is decidedly not a Ponzi scheme, which has no hope of ever being able to pay back its investors.

jarrett 15y ago
The difference is that players were not investors, they were depositors. When you invest money in a company, you do so with the understanding that the money becomes the company's and will be spent. In return, you get equity (typically). You don't have an "account" with the company from which you can make withdrawals. By contrast, poker sites operate like banks, taking deposits from people with the understanding that those deposits will be held in trust. You're not buying equity in the poker site, and your money doesn't become their money. It's still your money; it's just being held in an account they manage. This is why commingling is bad--it obliterates the distinction between their money and yours. Obviously, these poker sites are not FDIC insured like banks. But a legitimate poker site would still take all reasonable precautions (such as segregating the company's funds from depositors') to protect your money.
- BrandonM 15y ago
  There are two groups of players at poker sites. The largest group is bad players. These players typically deposit money on the site, play until their account is exhausted, and then deposit again. For them, the amount they put on a poker site is not a deposit, but instead an entertainment fee. There is also a group of professional players on the sites. These players make a deposit (say, an initial $1000), and in the course of playing (better than the bad players) their balance grows. They periodically withdraw small portions of their balance to cover living expenses. Their deposit is an investment in every way. Go hang out on some poker forums and research bankroll management, and you will see a lot of terms that are common in investing. So who here is making a bank-like deposit? The bad players almost never get their money back, and the good players have far more in their account than they initially invested. A good site, like PokerStars, will segregate player money and always have it on hand. But in an unregulated market where everyone is relying on the goodwill of the poker sites to manage their funds, there is no guarantee of anything. If a country destroys that goodwill (by seizing funds and issuing indictments), why should we be surprised that the money is no longer available?

wonjun 15y ago

Full Tilt had the best user interface and experience. I'd love to see someone write about their software.

0x12 15y ago

Bank run in 3, 2, 1... From the full tilt poker homepage: "System Update We apologise but the system is currently down. Please check back later. Please direct all enquiries to support@fulltiltpoker.com." wsj article: http://online.wsj.com/article/SB10001424053111904106704576582741398633386.html?mod=googlenews_wsj http://online.wsj.com/article/SB1000142405311190410670457658... Layman explanation: Full Tilt Poker runs a wallet system, the sum all the users money is smaller than what they have in their bank accounts. The 'Ponzi' element comes from their ability to attract new players at such a high rate that they can pay the withdrawals. What makes it doubtful that this really is a Ponzi scheme is that - a bank run excepted - they probably would end up not paying out a very large percentage of the money they owed if operations continue, simply because most of the those playing online poker get fleeced incrementally, every dollar placed as a bet has a rake associated with it and that rake could cumulatively be a large percentage of the total money deposited. I don't run an online casino so I have no clue how often a given deposited dollar passes the tables before being withdrawn. If there was one part here that is sloppy/criminal then that should be that they overpaid their affiliates. A typical Ponzi scheme does not have affiliates taking a bunch of money of the table.

TheCowboy 15y ago
"Bank run in 3, 2, 1..." People have not been getting money offline really since the Department of Justice handed out initial indictments in April. The messed up thing about this is they had a sustainable money-printing-machine that only became an unsustainable ponzi scheme due to the greed and corruption of the owners. Affiliates and paying affiliates had nothing to do with their downfall. Affiliates are a standard throughout the online gaming industry.
- 0x12 15y ago
  Thanks for the correction, I missed the earlier announcement. Affiliates being a standard or not has nothing to do with it, anyhody that takes money out of the deposits will accellerate the process, and affiliates took a substantial portion. Typically if you deposit $100 a large fraction of that is immediately paid out to the affiliate. You then enter the game and if the total rake on your account ends up being smaller than what is left in your account after the affiliate has been paid then you were a net loss to the company. Without an affiliate that would be much harder to achieve. That said, I believe that the players are stupid enough to play until they are bust so that's mostly theoretical, so I agree that they were quite possibly sustainable but it would need some inside figures to be sure.

pyoung 15y ago

It will be interesting to see if Full Tilt has a solid defense behind how they handled the cash. Full Tilt (and most other poker sites) make their money by taking a rake (small percentage) of every pot. Theoretically, over the long run (i.e infinity), almost all of the money would end up in full tilt's pockets. If deposits were outpacing the withdrawals, then they could possibly argue that they didn't need to have much cash on hand to cover future withdrawals. Additionally, considering they are a poker site, I doubt that banking regulations apply to them.

justincormack 15y ago
Its not about having cash in hand. Thats cashflow, although businesses fail on cashflow issues, you are allowed to take that risk. However it is illegal for any company to trade while insolvent, when they have negative assets like here.

muyuu 15y ago

Even if the complaint is true, this is not a Ponzi scheme any more than any bank in a fractional reserve system, like basically everywhere nowadays. In a Ponzi scheme you take new money fully aware that you aren't going to be able to repay in the medium/long term. In other words: you know you don't have a scheme that actually works well enough to pay the profits you are promising. This is not the case here at all. If the complaint is true - which may or may not be -this is theft, plain and simple. Note that the difference between a Ponzi scheme and a recklessly run investment shop is sometimes academic. One can sometimes be unable to tell apart failed, unrealistic expectations and successful fraud. But here the business model is solid and they have simply taken from users pockets for fun and profit. Again, if the complaint is true. Bit tired of hearing "Ponzi" misused time and again. I guess it makes for sensational headlines.

markmccraw 15y ago
FWIW, the language comes from the DOJ attorney, so I don't think you can blame the headline writers.

aneth 15y ago

This is the government fishing for a law to prosecute unrelated behavior that is insufficiently regulated or completely legal. This was not a ponzi scheme as many others have commented. They kept enough cash to pay more than enough of the anticipated withdrawals, and had an operating business that could quickly earn any need for more funds should withdrawals spike. This is standard practice in banking and insurance. I hear Warren Buffet heads a big ponzi scheme too. If FTP did not segregate finds as advertised, perhaps they committed some sort of fraud, but theft and ponzi this is not.

justincormack 15y ago
No, they were clearly trading while insolvent. Saying you can cover liabilities from notional future profits is illegal. As this is hacker news, recommend you dont run a startup while you do not understand this.
- aneth 15y ago
  "Saying you can cover liabilities from notional future profits is illegal" Almost every business does this, so I suppose they should all be prosecuted and we should send our financial system back to the Middle Ages. If I take out $1M loan and invest it in my business, my intent is to pay that liability with notional future profits. If I purchase something Net 90 and don't have the money in the bank, I'm apparently violating the law. Off to jail I go.

InclinedPlane 15y ago

I don't get it, a Ponzi scheme is an investment program, in what sense is poker ever considered an investment program?

rorrr 15y ago

The numbers don't add up. Owed to the players: $390,695,788 In the bank: $59,579,413 Lederer took: $42,000,000 Ferguson took: $85,161,305 What happened to the rest $204 million?

suking 15y ago
I imagine they had a ton of employees, server costs, other executives that got paid well. They could have also given out lines of credit to some players and never collected the actual $, etc.

heyitsnick 15y ago

To clarify a couple of points raised through the comments thread. - According to the DOJ, prior to black friday, FT had $60m in the bank and owed $390m to players. Shortly after black friday, in June this figure was $6m. - There are two main reasons for this - one is the exorbitant payouts - over $440m was paid out to FT partners who held equity in the company - that were taken from players funds. Named are 4 people, Bitar, Lederer, Ferguson and Furst. The DOJ alleges almost $120m was paid out to these 4 alone, and Ferguson is 'owed' another $60m in dividend payments. - However, unnamed are many others who also received payouts; the DOJ claims FT - even when they knew they were insolvent - "continued making payments of approximately $10 million per month" up until April. - Furthermore, they were making sizeable loans to their roster of professionals with players funds. One mention of "Player Owner 1" almost certainly refers to Phil Ivey. - Finally, they were basically fronting US players millions - the DOJ alleges $120m in total - because they were unable to process deposits. - The reason this is nothing like a bank investing a customers money and why the DOJ is alleging this is "fraud" and a "ponzi scheme" (nb there is nothing in the amended complaint that suggests charges of a ponzi scheme; but it did come from Preet Bharara, U.S. Attorney for the Southern District in a statement) is because the money was not invested; it was used for dividend payments. Meanwhile, FTP was publicly claiming their players funds were maintained separately to operating accounts, deceiving players. - This really has nothing to do with affiliates "taking money out of the system." If you're interested in reading more, I write for this online poker news site: http://pokerfuse.com/news/law-legislation/fraud-tilt-poker/ http://pokerfuse.com/news/law-legislation/fraud-tilt-poker/

martinkallstrom 15y ago
I like how their brand name invites writers to construct these headlines like Full Tilt Ponzi and Fraud Tilt Poker. A Google search reveals that a couple of forum posts actually have referred to them as Full Theft Poker which completes the set. Which in turn leads to the inevitable mashup of nicknames: The eponymous Fraud Theft Ponzi. Zing! Pow!
- heyitsnick 15y ago
  You might be interested in the #FTPstandsfor hash tag.

jgeerts 15y ago

2 things always bothered me about poker sites: 1. No one ever takes a look if the code that is run by these poker sites is indeed valid. 2. No one ever knows what happens with the poker players money once it's been deposited and it's never clear how easy it is to get it back. There should be some kind of independent organism checking if the site is credible or not. Now the thing checking these sites are their users...

robjohnson 15y ago

I agree with the statement that this is precisely why we should regulate it.

joeycfan 15y ago

These guys have killed the goose that laid the golden eggs.

vide0star 15y ago

This is further evidence the industry should be regulated and taxed in the US. The amount of money following around the poker/betting/online gambling industry is immense and there's no reason with a little oversight that this mess can be avoided.