From at least September of 2010 to February of 2011, Full Tilt Poker was crediting funds to US player accounts for deposits that never left their bank accounts.
As has always been the case, players who deposited by electronic funds transfer (also known as EFTs or “e-checks”) received the deposited funds instantly in their Full Tilt Poker accounts. Typically, these funds would be debited from the players’ bank accounts a few business days after their deposit.1 However, during the time period in question, many US players found that these funds were simply never taken from their bank accounts. Full Tilt had given them funds on their site for nothing.2
This story was known to the public for some time, but it was not immediately clear why this had happened or how widespread it was until May 23rd, when payment-processing middle-man Bradley Franzen pleaded guilty to various charges related to the Black Friday indictment. The US Attorney of the Southern District of New York released a press release about Franzen’s plea bargain and his allocution, which included the following paragraph:
According to his plea allocution and the Superseding Information, FRANZEN admitted that in early 2011 he had been asked to help Full Tilt Poker deal with a $60 million shortfall created by the company’s inability to find a payment processor to process transactions involving U.S. player accounts. The company was facing the shortfall because it continued to credit funds to player accounts despite being unable to actually debit (or”pull”) funds from customers.
In other words, this was not simply an accident, as many had suspected. Full Tilt Poker was actually accepting deposits and crediting player accounts without payment processors in place to collect the money. Full Tilt had effectively given players loans without telling them, under the assumption that they could collect the debt later. According to numerous sources inside both Full Tilt and PokerStars, FTP viewed this as an opportunity to gain US customers who were unable to deposit on Stars.3 This activity was so rampant that, according to Franzen’s allocution, the shortfall reached $60 million at its peak. Even for a company of Full Tilt’s size, that is a very large amount of money.
By early March of 2011, Full Tilt had begun attempting to collect the debts that resulted from these unprocessed deposits. The company sent out thousands of e-mails to players like the one below (with personal information redacted). The e-mail was followed a few days later with an attempted withdrawal from the recipient’s bank account.
These e-mails were the first time that most of these players had learned of the problem, so many thought there had been a mistake and some thought they were fraudulent. Some players changed their bank account details, reversed the transactions, or emptied their bank accounts before Full Tilt was able to remove the funds. Others thought that they had been hacked when they saw the money removed from their bank accounts.
A Full Tilt employee, who asked to remain anonymous, reported that FTP’s cashier and their regular customer service departments, which were already struggling to handle a typical workload, were overwhelmed by the ordeal. Other departments were reportedly called in to deal with the large volume of e-mails, reversed transactions, and complaints.4
The collection efforts were not entirely successful. Our source said that management told him early in the process that roughly 70% of attempts to collect had been successful thus far.5 Management reportedly presented this number as justification for the actions of the company. Our source went on to say that he believes the success rate dropped significantly as players realized what was happening and began to empty or close their bank accounts to avoid the charges.
Regardless of the success rate, Full Tilt did not have enough time to even attempt to collect all of the funds before Black Friday stopped their efforts. Subject: Poker has been unable to learn exactly what percent of unprocessed deposits the company had gotten to before the indictments, but we have confirmed from multiple sources that they did not finish.6 Any future attempt to collect the remaining funds would appear to violate Full Tilt’s domain name agreement with the DOJ, which includes the following:
While withdrawal of funds is expressly permitted, the deposit of funds by U.S. players is expressly prohibited. FTP agrees that any financial transactions with players located in the United States shall be strictly limited to the return of those players’ funds held in account with FTP.
Presumably, some of the players who were never charged for their deposits still have money on the site. So, it stands to reason that Full Tilt will be able to retrieve some of the remaining funds by simply deducting player balances directly from their accounts. What is not yet clear is how much money is unrecoverable and whether this is related to FTP’s failure to repay US players quickly.
Edited on 6/16/2011 4:27 PM EST: Fixed a number of minor grammatical errors. Thanks to Nate Meyvis.
Edited on 6/16/2011 5:44 PM EST: Added some clarification to the paragraph about other Full Tilt departments helping with the collection efforts and the accompanying footnote.
- This lag of a few days naturally leads to the possibility of fraud. This is a significant cost for poker sites. ↩
- Subject: Poker reviewed the records of one such individual, who was immediately charged for only about two thirds of his dozens of deposits. We’ve heard from many US players who say that they made many more deposits and were charged for none of them. We’ve also heard a lot of anecdotal evidence about people who reportedly intentionally scammed this system for tens of thousands of dollars, depositing the maximum of $2,500 repeatedly. It is not yet clear why this affected some EFT deposits but not others. ↩
- PokerStars was discouraged from accepting deposits without payment processors in place by its licensing agreement with The Isle of Man Gambling Supervision Commission, which requires it to keep player funds in a separate account. Subject: Poker has heard from many reliable sources that Stars never engaged in such activity, and we’ve seen no evidence that suggests that they did. We are actively working to learn about any potential similar activity by the other sites that served US players at the time in question. ↩
- This same Full Tilt employee, who displayed detailed knowledge of these events, reported, “For a while basically the whole company was dealing with players complaining about it, threatening to charge it back etc.” A different anonymous source, a manager in an unrelated department, suggested that this claim was exaggerated. Full Tilt is a large and opaque organization, so it is possible that both sources are describing the pieces of the company that they personally have seen. Both sources agreed that it is not uncommon for FTP employees to answer e-mails that are meant for other departments. ↩
- Subject: Poker cannot independently confirm this number. It is third-hand information and should be regarded as such. ↩
- We reviewed the records of one player who had yet to be contacted about roughly one third of the deposits that Full Tilt had failed to process immediately. One such deposit was made and approved in early November, but the player still has not been asked to pay, over seven months later. The player also received one of the above e-mails on April 15th, but the money was never taken from his account. ↩