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Tuesday
Sep202011

Feds: Full Tilt Poker Was Massive Ponzi Scheme

"Full Tilt was not a legitimate poker company, but a global Ponzi scheme"
- United States Attorney Preet Bharara
The United States Attorney's Office in Manhattan unveiled an amended complaint charging Full Tilt Poker ("Full Tilt"), a once-prominent internet gambling site, with operating a massive Ponzi scheme that defrauded countless players out of at least $390 million.  The company, banned from operating in the United States as part of an internet gambling crackdown this past April, now faces charges that it raided player accounts to fund lavish lifestyles for company executives, leaving company coffers woefully inadequate to satisfy current account balances.  Originally indicted on charges of bank fraud, money laundering, and illegal gambling, the founders now face additional charges of bank and wire fraud, wire fraud, and civil forfeiture of ill-gotten gains.  

Back in April, U.S. authorities indicted Full Tilt Poker, PokerStars, and Absolute Poker, accusing the three of concocting an elaborate fraud that both bribed and/or defrauded U.S. banks to continue the flow of billions of dollars in ilelgal gambling money into the companies.  As internet gambling companies are forbidden from accepting payment from U.S. consumers in connection with participation in unlawful internet gambling under the Unlawful Internet Gambling Enforcement Act passed in 2006, the three companies were also accused of engaging in massive money laundering and bank fraud to circumvent gambling and baking laws.  These methods included disguising gambling deposits as payments to fictitious online merchandise retailers.  In connection with the indictment, federal authorities also shut down access to the sites, later re-opening the sites for the limited purpose of allowing players to withdraw funds on deposit.  It is likely that sometime during the unwinding of the companies, the fraud uncovered today was discovered.

In the Amended Complaint unveiled today, authorities reiterated the original charges against the three companies.  Additionally, it was alleged that
one of the Poker Companies, Full Tilt Poker, not only engaged in the operation of an unlawful gambling business, bank fraud, wire fraud, and money laundering as alleged in the Complaint, but also defrauded its poker players by misrepresenting to players that funds deposited into their online player accounts were secure and segregated from operating funds, while at the same time using player funds to pay out hundreds of millions of dollars to Full Tilt Poker owners.
According to the allegations, Full Tilt began to face difficulties in collecting funds from prospective gamblers that it began simply crediting new player accounts with "phantom money" that never existed.  In total, Full Tilt credited accounts with $130 million in phantom funds.  As this practice continued, a massive shortfall soon arose between money on hand and money owed to players.  On March 31, 2011, Full Tilt owed $390 million to players around the world, including $150 million to U.S. players, while only having approximately $60 million on deposit in its bank accounts.  
Besides the phantom funds being credited to new player accounts, another large source of the disparity between money owed and money on hand derived from enormous distributions to company principals.  During a four-year period spanning from April 2007 to April 2011, 
Full Tilt Poker, and its Board of Directors, [Chief Executive Raymond] Bitar, Howard Lederer, Christopher Ferguson, a/k/a “Jesus”, and Rafael Furst, all owners of Full Tilt Poker, distributed approximately $443,860,529.89 to themselves and other owners of the company.  Payments to the Full Tilt Poker owners stopped only after April 15, 2011.

In addition to criminal charges, authorities are also seeking the forfeiture of ill-gotten gains from company principals through civil money laundering statutes, including $41 million from Bitar, $42 million from Lederer, $25 million from Ferguson, and $12 million from Furst.  

A Copy of an FBI Release announcing the Amended Complaint is here.
A Copy of the Original Indictment filed April 15, 2011 is here.
A copy of the Amended Complaint filed 9/20/2011 is here.