By Shari Geller
The Department of Justice recently alleged that Full Tilt Poker was being run as a Ponzi scheme, using players’ funds to make lavish payouts to various owners and investors rather than keeping the money in trust for depositors. In light of this new claim, the statements issued by Full Tilt following Black Friday – full of promises of repayments and assurances that deposits were safe --take on an even more insidious nature.
On April 16, the day following the DOJ’s indictments, Full Tilt issued the following statement:
“In light of recent events involving the freezing of certain accounts, Full Tilt Poker would like to assure all players that their funds remain safe and secure. Processing of both deposit and withdrawal requests is proceeding as normal and is still available to all of our players.
All players who were affected by the current situation have had their funds returned to their accounts and all new withdrawal requests are processing normally. We assure all players on Full Tilt Poker that your online playing experience will not change and that you will be able to both deposit and withdraw funds as needed. Your money remains safe, secure and accessible at all times.
Full Tilt Poker remains committed to the protection of our players’ security and legal rights, and will continue to provide the best and safest online poker room available worldwide.”
On May 16, one month later, Full Tilt sent the following email to its US customers, blaming its delays in repayment on challenges and hurdles and not its business model:
“Since April 15th and the days immediately following, Full Tilt Poker faced numerous challenges and hurdles to ensuring the smooth operation of its international business and the orderly return of US player funds. FTP has worked tirelessly to address these issues and has made significant progress on both fronts. FTP’s international business operations are returning to normal while we focus on ensuring the safe and orderly return of US player funds. We are absolutely committed to making sure that US players are refunded as soon as possible. We apologize for the delay and the fact that we underestimated the time it would take to work through these issues. We will update our US players when we have more specific information to provide.”
Further clarification was offered on the 2+2 poker discussion forum on May 30:
“We acknowledge that our lack of communication reflects poorly on us, and rightfully so. We have been too optimistic in estimating how long it would take to sort through the issues we have faced since Black Friday. And as frustrating as the delays have been for us, we recognize that it cannot compare to the frustration you have been feeling.
We further recognize that our lack of communication has led to much speculation and many unsubstantiated rumors, which have often been contradictory. With this message, we hope to clear up as much confusion as we can, while at the same time keeping in mind the constraints imposed on us as a result of the cases brought in the Southern District of New York.” The statement went on to say that there was “no bigger priority than getting US players paid as soon as possible, and we have been working around the clock to get this done.”
The statement also asserted that “FTP's worldwide business is healthy and, although we've had some short-term challenges, it is operating as normal.” Unfortunately, according to the DOJ’s allegations, “normal” was not in the best interest of the players. In what should have been a red flag, the statement contained the following now more clear admission, “We are raising capital to ensure that the US players are paid out in full as quickly as possible.”
On August 30, as its failure to repay its players was becoming an even more grave concern, Full Tilt issued the following statement of explanation for the delays. Notably, they blamed their cash flow problem on the government seizure of players’ accounts, even though the DOJ asserted that those accounts were not frozen, and undisclosed theft by a payment processor. At no point do they disclose that players’ deposits were commingled and that these funds were used to make payments to owners and investors:
“As is obvious from the events that have transpired since April 15th, Full Tilt Poker was not prepared for the far-reaching, US government enforcement effort of Black Friday.
The events of Black Friday came on the heels of prior government enforcement activities and significant theft. Over the two years preceding Black Friday, the US government seized approximately $115M of player funds located in U.S. banks. While we believed that offering peer-to-peer online poker did not violate any federal laws—a belief supported by many solid and well-reasoned legal opinions—the DOJ took a different view. In addition, as was widely reported, a key payment processor stole approximately $42M from Full Tilt Poker.
Until April 15th, Full Tilt Poker had always covered these losses so that no player was ever affected. Finally, during late 2010 and early 2011, Full Tilt Poker experienced unprecedented issues with some of its third-party processors that greatly contributed to its financial problems. While the company was on its 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.
Over the last four months, Full Tilt Poker has been actively exploring opportunities with outside investors in order to stabilize the company and pay back our players. At least six of those groups, including hedge funds, operators of other internet businesses and individual investors, have visited Dublin to inspect the operation.
We have recently engaged an additional financial advisor through an investment banking group to assist us in our search for an infusion of cash as well as a new management team to restore the site and repay players. While any deal of this nature is necessarily complex given the current regulatory environment, our players should know that Full Tilt Poker is fully committed to paying them back in full and restoring confidence in our operations.”
Finally, earlier this month, on September 14, Full Tilt had this to say about efforts to cut costs and raise capital, without ever disclosing the real reason for their cash flow problems:
"On April 15th 2011 the United States Department of Justice unsealed a federal indictment against a number of individuals employed by major online poker operators. After the issuance of that indictment and a related civil case brought by the United States government, Full Tilt Poker withdrew from the US market. Then in a related action, on June 29th, 2011, Full Tilt Poker had its operating licenses suspended by the Alderney Gambling Control Commission."
As a result, Pocket Kings Ltd. (provider of marketing and technology services to Full Tilt Poker) has adopted a cost optimization program and estimates that they need to reduce their costs by approximately €12m. This program is intended to streamline the company’s operations in order to better position itself for future growth and profitability in Full Tilt Poker’s markets outside of the U.S."
If all of the required cost savings were to be achieved through redundancies, approximately 250 positions could be affected; however the exact number cannot be confirmed until the conclusion of a consultation process with its workforce."
Notwithstanding the foregoing, Pocket Kings firmly believes it has a very strong future in Full Tilt Poker’s Non-US Markets, and is fully committed to ensuring Full Tilt Poker restores the site and repay players in full. To this end, Full Tilt Poker has retained Sea Port Group Securities, LLC as its financial advisor with regard to raising capital and/or assisting in securing a strategic partner in order to fund continued operations of Full Tilt Poker's non-U.S. business. The Company is in active discussions with several parties and will provide a further statement in due course."
Since the DOJ amended its complaint to allege that Full Tilt and its owners defrauded players out of hundreds of millions of dollars, there has been no formal statement from Full Tilt. The rules of its regulatory body, the Alderney Gambling Control Commission, which withdrew Full Tilt’s licenses in July, actually permits its licensed companies to comingle their funds with those of their clients, so long as this comingling is disclosed. But the statements of Full Tilt up to this point do not indicate that they ever disclosed the way their customers’ funds were handled and instead maintained that they were segregated and safe.
But most telling are not the official statements, but what, at least according to the DOJ’s filling, Full Tilt’s principals said behind the scenes. In June, Lederer allegedly reported to others at Full Tilt Poker that there was only approximately $6 million left. At around the same time, an internal Full Tilt Poker e-mail dated June 12, 2011, from CEO Raymond Bitar expressed concern that doubts about the future of Full Tilt could be seen as bad news, which would cause a “new run on the bank,” adding that “it could be a huge run” and that “at this point we can’t even take a five million run.”
At that time, over $300 million should have been held on account to cover players’ deposits.