DOJ calls Full Tilt Poker a "Ponzi Scheme" for not keeping 100% reserves

[brandon]

http://www.google.com/search?q=full..._gc.r_pw.&fp=f00ee71e8a5bd2f&biw=1366&bih=637

So for the unaware, the super short version of the story goes like this: Last April the US Gov shut down the 3 largest online poker sites and seized all of their assets. Players that had money in accounts with the sites were not able to access their money. It's now half a year later and still no one has been able to access their accounts. Now the government is saying Full Tilt is a ponzi scheme because they only had about 60Million in cash but have about 400Million in account liabilities.

So my question is, do they also consider our banking system a ponzi scheme? Or are they OK because they purchase drastically insolvent government insurance for their ponzi scheme?

IMO, without the government shutting down full tilt there was no reason to think there would be a full tilt "Bank Run", and I think they could have kept operating with those margins fine indefinitely.

 

[brandon]

no one?

 

[specsaregood]

I'm guessing they wouldn't call our banking system a ponzi scheme because our banking system has the ability to print money.

 

[Tunink]

I'm guessing they wouldn't call our banking system a ponzi scheme because our banking system has the ability to print money.

Yep, our entire banking system is a ponzi scheme. Just read the definition of fractional reserve banking.

 

[flightlesskiwi]

double standards (banking cartel, unfunded liabilities, etc etc) are nothing new. move along (edit) mundane...

 

[Diurdi]

If Full Tilt Poker had lent out the missing money and expected to receive it back to be able to satisfy the payments (assuming not everyone wanted to get their money out at the same time), then it's like what the banks are doing.

If they spent the missing money themselves or never had it in the first place, then it's a true ponzi.

It's most likely the latter, so it's not exactly how banks operate.

 

[Lafayette]

What do you call a group of armed men who enter a business and take all of the company's and customers money?

 

[The Free Hornet]

Full Tilt Poker allegedly used its player accounts to fund operations and make payments to its owners illegally. $444 million was used over four years to pay Full Tilt's board members, including famous poker players Christopher "Jesus" Ferguson and Howard Lederer, according to investors. Source

I think more of a scheme than a Ponzi scheme. There is simply no excuse for a poker/oddsmaking outfit to not be able to cover all bets. I'll blame this on the gubblemint running off any legitimate competition leaving only the shady behind.

 

[specsaregood]

What do you call a group of armed men who enter a business and take all of the company's and customers money?

yeah, i was just thinking that this sounds like sour grapes because they weren't able to steal more.

 

[flightlesskiwi]

What do you call a group of armed men who enter a business and take all of the company's and customers money?

(the) amerikan (department of) justice

 

[kylejack]

I think more of a scheme than a Ponzi scheme. There is simply no excuse for a poker/oddsmaking outfit to not be able to cover all bets. I'll blame this on the gubblemint running off any legitimate competition leaving only the shady behind.

All bets were covered. If everyone cashed out, all cashouts weren't covered, but the chances of that were very small.

This isn't even an American company.

 

[sam1952]

I'm not sure of the exact amount but the casinos in Las Vegas are required to have a percentage of cash on hand in relationship to their casino chips. Won't swear to it but it may even be 100%

 

[oyarde]

I noticed it as well Brandon. The percentage they have in reserve is better than the Feds have in Social Security . The Dept of Justice must have got carried away while eating those $ 16 muffins .

 

[spladle]

FTP was nothing like a Ponzi scheme in any way, shape, or form. Ponzi schemes do not make a profit of tens of millions of dollars a year (except by conning investors - FTP, on the other hand, was raking many times this amount from players who knowingly and voluntarily agreed to pay to play). The problem with FTP had nothing to do with unsustainable funding and everything to do with embezzlement and bad decisions. "Ponzi scheme" is just the new and favored buzzword of morons in the media.

 

[The Free Hornet]

All bets were covered. If everyone cashed out, all cashouts weren't covered, but the chances of that were very small.

This isn't even an American company.

I don't see the distinction between covering the bets and the cashouts. As to not being an American company, that is because we ran these businesses offshore. Again, there is no excuse for them not being able to cover EVERYTHING. Now, if it was tied up in some moneymarket funds or hard assets or some other investment, that is a valid point. It was not. Money that should have been held in reserve or as assets was pilfered. They weren't paying themselves from "the juice" but from the "the pot". That is fraud. That is the scheme.

 

[kylejack]

FTP was nothing like a Ponzi scheme in any way, shape, or form. Ponzi schemes do not make a profit of tens of millions of dollars a year (except by conning investors - FTP, on the other hand, was raking many times this amount from players who knowingly and voluntarily agreed to pay to play). The problem with FTP had nothing to do with unsustainable funding and everything to do with embezzlement and bad decisions. "Ponzi scheme" is just the new and favored buzzword of morons in the media.

I am not aware of any embezzling or bad decisions, aside from the decision to run advertisements in the US when DOJ is claiming online poker violates the Interstate Wire Act. Full Tilt was running a legitimate business and was cracked down on by big bad government. Now the government is trying to sell this fiction that FTP was some kind of attempt to defraud people of their money...even as the government prevents the 'victims' from getting any of their money back!

 

[kylejack]

I don't see the distinction between covering the bets and the cashouts. As to not being an American company, that is because we ran these businesses offshore. Again, there is no excuse for them not being able to cover EVERYTHING. Now, if it was tied up in some moneymarket funds or hard assets or some other investment, that is a valid point. It was not. Money that should have been held in reserve or as assets was pilfered. They weren't paying themselves from "the juice" but from the "the pot". That is fraud. That is the scheme.

If regulators want to be able to enforce reserve requirement rules as a condition of them being allowed on-shore, I'm sure the poker sites would have jumped at the chance. The feds left them alone until they started lobbying for legalization of online poker via PPA and etc.

 

[specsaregood]

I don't see the distinction between covering the bets and the cashouts. As to not being an American company, that is because we ran these businesses offshore. Again, there is no excuse for them not being able to cover EVERYTHING. Now, if it was tied up in some moneymarket funds or hard assets or some other investment, that is a valid point. It was not. Money that should have been held in reserve or as assets was pilfered. They weren't paying themselves from "the juice" but from the "the pot". That is fraud. That is the scheme.

They might very well have been insured against that very unlikely occurrance. Either that, or they had a credit line with banks that would have covered them. You think there weren't big banks willing to give them credit?

 

[The Free Hornet]

They might very well have been insured against that very unlikely occurrance. Either that, or they had a credit line with banks that would have covered them. You think there weren't big banks willing to give them credit?

$444 Million over 4 years to the board. Assuming that is 11 board members, each is getting $10 Million per year. These are board members not a single CEO or people cashing out stock options. A bank or insurance company would have to be INSANE to cover this. That said, here is the other side of the story.

Ron Paul's desk sign is right, "Don't steal - the government hates competition."

 

[affa]

the only reason I can not get my money from FTP is the US DOJ.

Not Howard Lederer or Chris Ferguson. Not FTP. Not some 'ponzi scheme'. This is a big money play by our government, who saw some easy cash to grab, then, destroying the competition, will most likely eventually open up some sort of 'legal' online casino. The criminal here is our government, stealing the lifeblood of many, many Americans. Leaving many families in the lurch.

I don't consider this a ponzi scheme. And it's nothing like what banks do -- banks don't keep 100% in reserve, but also loan out an even larger amount based on those reserves (fractional reserve banking), creating a huge pyramid of debt/capital.

Here, you have a business earning an actual profit (the 'rake') on each sng (for small tourneys) or hand dealt (for ring games). They were making a massive amount of cash through the rake. At any given time, anyone could cash out without fear of a problem. The only way they'd not be able to pay out everyone at any given time is if there was a run or the DOJ stepped in like they did.

Now, given the amount of money they make on the rake, I agree they should have been paying themselves off of that, and not dipping into reserves. But that in and of itself doesn't make it a ponzi scheme. The typical ponzi scheme relies fully, from design, on the future investment of 'new' suckers. That is, the people on the front end pay for the people on the backend. FTP wasn't quite like that. The reserve issue made it more like a bank structure, though without the added weight/issue of using their reserves to loan out 10x that amount of money.

Something doesn't magically turn into a ponzi scheme just because some reserves go missing (ie, you're not at 100%). Yes, not being at full reserves does pose issues... but just because there are problems doesn't make it ponzi.