BREAKING: DOJ’s Civil Complaint Amended, Alleges FTP Stole Player Funds (Update 7)

September 20, 2011 - 12:00 PM EDT
By

Most recent update: 9/20 at 4:37 PM EDT.

The US Department of Justice has amended its Black Friday civil complaint to include discussion of alleged “Full Tilt Poker’s and the FTP insider defendants’ theft of player funds.” The new complaint adds three new defendants, Howard Lederer, Chris Ferguson, and Rafe Furst. It also alleges that these new defendents together with Ray Bitar committed money laundering, and asks for penalties ranging from $12M for Furst to $42M for Lederer.

A memorandum summarizing the amendment says,

The Amended Complaint alleges 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. Full Tilt Poker was able to accomplish this massive fraud, in part, because it illegally conducted business in the United States but maintained its personnel, operations, assets, and accounts principally overseas.

The new complaint also contains detailed information about Full Tilt’s debt to players, stating that it was approximately $390 million on March 31, 2011, and is still over $300 million today. It states that approximately $150 million is owed to US players.

It goes on to say that Full Tilt’s Board of Directors, allegedly Ray Bitar, Howard Lederer, Chris Ferguson, and Rafe Furst, paid to themselves and other owners “approximately $443,860,529.89″ from April of 2007 to April of 2011 and that payments to owners only stopped after April 15, 2011.1 It continues, “As of the date of this Amended Complaint, neither Full Tilt Poker nor the individual owners who received over $443 million in distributions have repaid any of the more than approximately $300 million the company owes to players around the world.”

The new complaint also includes internal Full Tilt e-mails discussing the dire financial situation of Full Tilt after April 15th and attempts to hide the situation from players:

Full Tilt Poker’s CEO, Bitar, was well aware of the need for new deposits after April 15, 2011, and knew that even a few million dollars’ of unexpected withdrawals could reveal Full Tilt Poker’s true financial situation. For example, in an internal Full Tilt Poker e-mail dated June 12, 2011, Bitar expressed concern that a company announcement regarding lay offs and the Board (including himself) being replaced would 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.”

It also alleges that the new defendants committed money laundering and asks for new penalties:

The FTP Insider Defendants are liable to the Government for a sum of money representing the amount of property, funds, or monetary instruments involved in the money laundering offenses described above, in an amount that is no less than $40,954,781.53 for Bitar; $41,856,010.92 million for Lederer; $25 million for Ferguson; and $11,706,323.96 million for Furst.

Subject: Poker brought you this story as quickly as possible, and as such, we have not had time to fully review this new information. We will continue to study this and update this article with what we learn.


Update 9/20/2011 1:19 PM EDT:
SDNY has released a press statement calling Full Tilt Poker “a massive Ponzi scheme.”

The statement says that the amounts listed (approximately $41 million for Bitar, $42 million for Lederer, $25 million for Ferguson, and $12 million for Furst) are the amounts that they received respectively in dividends. It goes on to say that Ferguson is owed an addition $62 million from Full Tilt in dividend payments.


Update 9/20/2011 1:39 PM EDT:

According to the complaint,

In total, approximately 23 individuals owned shares in Full Tilt Poker. The FTP Insider Defendants specifically owned the following approximate percentages of Tiltware LLC: Bitar (7.8%), Lederer (8.6%), Ferguson (19.2%), and Furst (2.6%).”

These share percents are the same numbers that Subject: Poker has heard from other sources. However, the statement that only twenty-three individuals owned shares in Full Tilt Poker contradicts the story that we’ve been told by many sources, including shareholders in FTP, who say that a much larger number of people own small shares in Full Tilt Poker, including many current and former employees. We will continue to look into this.


Update 9/20/2011 2:00 PM EDT:

The amended complaint refers to another professional poker player and owner who has not been sued as “Player Owner 1″ who has received $40,078,646.6 in dividends and millions in loans, at least $4.4 million of which have not been repaid. This is almost certainly Phil Ivey.


Update 9/20/2011 2:11 PM EDT:

Despite the fact that, by early 2011, Full Tilt Poker was severely insolvent, it continued making payments of approximately $10 million per month to its owners up to and including April 1, 2011. Full Tilt Poker also continued making “loans” to its professional poker players who also owned an interest in the company, including loan payments totaling more than $2,000,000 to Player Owner 1 between August 2010 and January 2011.

This confirms that FTP was insolvent before Black Friday, a theory that Subject: Poker has been working to prove definitively for months. It also confirms that owners continued to pay themselves large amounts of money ($10 million per month) long after the company had become insolvent.

With this additional information, we can also confirm beyond reasonable doubt that “Player Owner 1″ is Phil Ivey.


Update 9/20/2011 2:23 PM EDT:

Subject: Poker would like to clarify that we are so far unaware of any criminal charges filed against Howard Lederer, Chris Ferguson, or Rafe Furst. Though some of the allegations included in the civil complaint (and certainly the statement from Preet Bharara that Full Tilt Poker was a Ponzi scheme, which is not justified by or mentioned in the official court filings) would justify criminal charges if true, it seems that no such charges have yet been filed.2


Update 9/20/2011 3:18 PM EDT:

As of March 31, 2011, Full Tilt Poker owed approximately $390 million to players around the world, including approximately $150 million owed to players in the United States.  At that time Full Tilt Poker had only approximately $60 million on deposit in its bank accounts.

(Emphasis added.)


Update 9/20/2011 4:37 PM EDT:

In early June 2011, Lederer reported to others at Full Tilt Poker that there was only approximately $6 million in left.


Edited on 9/20/2011 12:14 PM EDT: Added last sentence to opening paragraph.
Edited on 9/20/2011 1:09 PM EDT: Fixed a minor typo.

Footnotes

  1. Subject: Poker believes that the total amount paid to owners in dividends throughout the existence of Full Tilt Poker is roughly $500 million.
  2. It is possible  that criminal charges could have been filed under seal pending the arrest of the accused, but it seems very unlikely that the Department of Justice would unseal the amended civil complaint if they were attempting to hide pending criminal charges.

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46 Responses to BREAKING: DOJ’s Civil Complaint Amended, Alleges FTP Stole Player Funds (Update 7)

  1. Tecmo
    September 20, 2011 at 1:03 PM EDT

    Thanks for the article Noah. This just goes to show that the house always wins.

    P.S. “The US Department of Justice has amended its Black Friday civil complain” needs a t on the end.

    • Roxoh
      October 30, 2011 at 11:41 AM EDT

      If these were banks, the government would give Ferguson and Lederer money amd loans to replace the missing money ++ pay them bounus as executors of the bail out

  2. James Fitzpatrick
    September 20, 2011 at 1:08 PM EDT

    Its never a good thing when Annie Duke comes off as the respectable sibling

    • mike jones
      September 21, 2011 at 4:56 PM EDT

      Dude read your facts James….They don’t mention it here, but Annie Duke is just as shady as Howard. I dont know if youre aware of the fact that Ultimate Bet paid and still pays annie millions of dollars a year to advertise for them. Little do you know about the UB scandal from years ago. The owners used superuser accounts where they see everyones cards to steal from people. Annie knew about this before the scandal and still gets paid even after the fact. SHAAAAAAADDDDDDY

      • chris johnson
        September 22, 2011 at 12:08 AM EDT

        i think that was james point that its a shame that shes the one that looks somewhat respectable when neither her nor lederer are respectable by any stretch

  3. Poker Gratis
    September 20, 2011 at 1:10 PM EDT

    All of them should be arrrested, and what about us the players? will we ever see our money?

  4. Rupert
    September 20, 2011 at 1:23 PM EDT

    Whys is the amount they have to repay less than the amount they took? Will this money be for the players or to pay the DOJ? Is there a possibility of jailtime for the defendants?

  5. sajeffe
    September 20, 2011 at 1:29 PM EDT

    You were right on top of this, Noah. WTG.

    Kind of strange typo in the memo regarding the dollar amounts. Two of the amounts are done correctly (Bitar and Ferguson) and the other two are not (Lederer and Furst). Shouldn’t they have been really nitty about that?

  6. Stolz Freidman
    September 20, 2011 at 1:31 PM EDT

    The chickens come home to roost! Biggest question is,…why isn’t Phil Ivey’s name on the list too?

    • Patrick
      September 21, 2011 at 9:59 PM EDT

      Gov’t snitch. I don’t see anything else that can be taken from this. He is the unnamed player according to the additions to the article and owes more money than Ferguson, so you would think he would definitely be named in the indictment. Add it all up, and he has turned state’s witness.

  7. wild bill
    September 20, 2011 at 1:50 PM EDT

    I smell a prison cell for howie and jesus…not paying up seems like the wrong thing to do now guys? the only place to hide now is n korea or china boys…10 -20 seems resonble for crooks like these

  8. Conan776
    September 20, 2011 at 1:56 PM EDT

    Let me guess: Howard Lederer, Chris Ferguson, and Rafe Furst are all conveniently out of the country?

  9. Ryan
    September 20, 2011 at 1:56 PM EDT

    the players need to sue lederer and ferguson for everything they have

  10. BrandomAdams
    September 20, 2011 at 2:44 PM EDT

    I believe we should grant FTP a little more time, they are stand up guys, I have faith in these guys.

    -The Boy Adams

    • TILT_ANON
      September 22, 2011 at 10:02 AM EDT

      Ya, that seems right (and monkeys might fly out of my butt)!!!!!

    • fletch
      December 21, 2011 at 11:34 AM EDT

      Is that you howard?

  11. Adam Small
    September 20, 2011 at 5:04 PM EDT

    Hey Noah – just curious, have you heard anything about whether or not Lederer, Furst and Ferguson will be arrested? Are they in the states currently?

    Thanks as always for all of the excellent reporting

    • Noah Stephens-Davidowitz
      September 20, 2011 at 5:19 PM EDT

      Lederer is in the states. Ferguson is not. Don’t know Furst.

      There are no criminal charges that we can find.

  12. Gateway T-6300 Battery
    September 20, 2011 at 5:17 PM EDT

    U.S. alleges Full Tilt Poker, a major online power site, was a Ponzi scheme – WSJ NOW WE KNOW HOW TO SAVE SS! SET UP A HUGE POKER SITE!

  13. Percival
    September 20, 2011 at 5:19 PM EDT

    “I believe we should grant FTP a little more time, they are stand up guys, I have faith in these guys”. -The Boy Adams

    Someone’s been drinkin’ too much coolaide.

  14. Rob C
    September 20, 2011 at 5:23 PM EDT

    As a retired LE investigator my professional opinion is that the DOJ has added the ownership in an attempt to force a return of their profit distributions. I do believe the next step will be freezing the assets of the named owners. If the DOJ believes FTP was nothing more than a Ponzi Scheme any person claiming an ownership interest is looking at a very painful set of audits and interviews. Anything less than complete and full disclosure could result in additional Federal charges.

    FYI, The IRS has been trying to get an insight into the live cash based poker economy for a long time. FTP has probably brought the entire poker industry to a grinding halt for the foreseeable future.

  15. Percival
    September 20, 2011 at 5:24 PM EDT

    As these guys have been named role players in a Ponzi Scheme, unless they can disprove this in court, they will all eventually go to prison for some length of time as yet TBD. One thing is for sure, you won’t be seeing them in a poker tournament anytime soon.

    • Noah Stephens-Davidowitz
      September 20, 2011 at 5:47 PM EDT

      They’re not actually accused of running a Ponzi scheme. Preet Bharara just threw that line into the press release because it’s sexy.

  16. Joe T
    September 20, 2011 at 6:30 PM EDT

    Staggering. These appear decent and intelligent people from the outside but no matter their intentions or personal circumstances running a poker room in this way is literally criminal.

    Feels as though US authorities are being disclosed the detail that FTP have been trying to hide from players. However, if the reality is as bleak as laid out in this amendment to the complaint you wonder why they haven’t been more open and proactive.

    The value that existed in FTP for any prospective investor would have been far in excess of the $130m shortfall from payment processing issues. Therefore you’d recollect every penny distributed out to the board to repay as high a % of the outstanding player debt as possible and then point the investor to the payment processor issues as bad debt that exists in the business.

    The fact they haven’t been able to do this only highlights the ultimate worst fears – the money taken out of the company either a) doesn’t exist any more b) isn’t liquid, i.e. property, business investments or c) those involved are determined to do everything in their power to hide that money from the eyes of the authorities.

    Either way to labour a oft-repeated point my thoughts are with all decent, honest players who have trusted their money to Full Tilt and whose livelihoods have been negatively impacted by this shambolic affair.

    Oh and hopefully a similar update is coming on UB, don’t want to forget them.

    I don’t have any allegiance to them but damn it if PokerStars aren’t the only company that give me any faith and trust in the online poker market.

  17. OzExorcist
    September 20, 2011 at 8:29 PM EDT

    “As of March 31, 2011, Full Tilt Poker owed approximately $390 million to players around the world, including approximately $150 million owed to players in the United States. At that time Full Tilt Poker had only approximately $60 million on deposit in its bank accounts.”

    Do you have any information as to whether that $60m includes funds held in the various thirdy-party payment processor accounts, or is it just the amount FTP held in its own accounts back in Ireland/wherever?

    • Noah Stephens-Davidowitz
      September 20, 2011 at 8:37 PM EDT

      I’m not totally sure, but I would guess that this figure includes payment processor accounts based on other numbers that I’ve heard.

  18. goodforpoker
    September 20, 2011 at 9:08 PM EDT

    Rob C. What is an LE investigator? Your comment on the IRS’s interest in live cash poker is interesting. I believe I once heard that cash game players will never brag about how much they make exactly because this would implicate them in tax evasion. All interesting…and certainly badforpoker.

    • Rob C
      September 21, 2011 at 11:33 AM EDT

      Law Enforcement, 25 years. And yes the IRS has had a whole task force in Vegas/Reno for years attempting to crack the cash based poker economy. The push for RFID chips and mandatory comp cards in casinos is just a few of the impacts. LEOs/LEAs also have unbelievable access to gambling records thanks to the Patriot Act.

  19. kslukeok
    September 20, 2011 at 9:56 PM EDT

    Wait a second… Does this mean Howard and the gang wouldn’t be allowed to play in his sisters Epic Poker League tournaments because they wouldn’t pass the Players’ Code of Conduct? Can someone ask ‘lil sis this question? Thanks.

    • T Knox
      September 20, 2011 at 10:06 PM EDT

      You can hit her up on Twitter, but I can guarantee she won’t respond to it.

  20. SWORDFISH
    September 21, 2011 at 2:01 AM EDT

    Phil Ivey was not added as a defendant and is only referred to as Player Owner #1. What are the chances he is cooperating with the DOJ ?

    • John
      September 21, 2011 at 11:48 AM EDT

      No one knows who Player Owner #1 is, the author is saying he thinks its Ivey but doesnt know. It could be John Juanda, Erik Seidel, ET AL of the Full Tilt Poker Pros.

    • Random Shill
      September 21, 2011 at 12:20 PM EDT

      An interesting question. It’s common practice to amend charges as evidence is evaluated and I think it’s safe to assume that they’re still reviewing the complicity of the so-called “player/owners”. The timing of this Amendment (prior to the conclusion of the AGCC hearings) implies (to me, anyway) we haven’t seen the final Complaint.

      I wouldn’t read too much the reference to “Player Owner #1″. This is simply a way to attribute actions to a specific, known individual related to the narrative of the Complaint without identifying that individual and inferring guilt or innocence. Typically, only plaintiffs and defendants are specifically named in a civil procedure, and future amendments could be produced.

      Even if a shareholder, player/owner, or named owner was cooperating with the DOJ (in the hope of receiving immunity or favorable sentencing of some sort), it wouldn’t change their liability if a Judgment against Full Tilt is successful — to the extent that any of them received distributions from FT, they would be subject to forfeiture if the manner of those distributions is found to be illegal or part of a proven fraud. And then, there’s the civil cases — I understand at least two class action lawsuits have been filed so far.

      We’ll be reading about this a while and waiting for the dust to settle. [Strictly my opinion: this will work out nicely and give Harrah's, MGM, Sands, Boyd and Trump a little additional time to work out their eventual online offerings.]

    • Steve
      September 21, 2011 at 3:01 PM EDT

      It probably has something to do with internal decision-making at Full Tilt Poker; who was on the board of directors, who had knowledge of the day-to-day operations, etc. This is the most likely reason Furst was named, and Ivey et al. were not.

      • fletch
        December 21, 2011 at 11:35 AM EDT

        Lederer was a operator from what i understand.

  21. TB
    September 21, 2011 at 8:05 AM EDT

    Not sure I understand this. If FT had $60m in assets, $400m in liabilities, and had made $500m in dividend payments, doesn’t that make it a legitimately profitable company? Why would you turn a legit, valuable company into an elaborate fraud? If FT is making say $30m a year in real profit (not stolen player deposits) wouldn’t they have been able to sell the company for as much as what they’re accused of stealing from it?

    • Chappie
      September 21, 2011 at 12:12 PM EDT

      Exactly. It seems like REALLY poor risk/reward analysis and bad decision making from people who base their profession on making +EV decisions.

    • Ryan
      September 21, 2011 at 2:05 PM EDT

      if i had to take a guess they had to be making at least 150 million a year anybody else have an idea of how much ft brought in in profits BEFORE profit ditribution

    • aaron
      September 21, 2011 at 3:26 PM EDT

      I agree with this, a 30m/profit is a certainly attractive investment!

  22. Tecra A4-S216 Battery
    September 21, 2011 at 12:05 PM EDT

    For FullTilt fans, interesting that poker celebs Howard Lederer and Christopher Ferguson are charged w/ civil claims, but not criminal.

  23. fisherfolk
    September 21, 2011 at 3:07 PM EDT

    You said “the statement that only twenty-three individuals owned shares in Full Tilt Poker contradicts the story that we’ve been told by many sources, including shareholders in FTP, who say that a much larger number of people own small shares in Full Tilt Poker”

    Dwan said in 2+2 last night that he was offered to buy shares from other players. It makes sense that the breakout you have was the original setup, but that the early shareholders may have sold shares to other individuals.

  24. Michael Boyle
    September 21, 2011 at 3:09 PM EDT

    Great reporting on this explosive subject!

    Quick Q: It seems clear that the DOJ is making a distinction between BoD members – who are ultimately responsible for the decision making of the company – and simple shareholders (though nothing about share ownership in FTP was simple, really). In other words, the current line in the sand is that if a person was an officer of the company and part of its formal decision making process, that person is personally responsible for the funds they received from the company in an inappropriate fashion. The question: would the same line apply in any similar situation for a company that was not involved in questionable activities but found themselves in dire financial straits?

    The other thought I had while this was all coming out yesterday was that if *I* were looking to buy a company like a big-name poker site that had a lot of improperly arrived-at liabilities on its books, I would want to make sure that the sellers were on the hook for those liabilities, not me as a potential purchaser. Any relief for FTPs liabilities that would be borne by current management is +EV for a purchaser.

    Even though the value of FTP seems to be dropping through the floor (through the sub-basement, really), do you see any chance that there’s something to a scenario like that?

  25. TILT_ANON
    September 22, 2011 at 10:06 AM EDT

    Holy s**t, it just gets worse and worse. I won’t be surprised to see some of these guys swimming with fishes one of thes days.

  26. jively
    September 22, 2011 at 4:01 PM EDT

    LOL approximately $443,860,529.89

  27. Kiwivic
    September 29, 2011 at 7:15 AM EDT

    All I can say is that Full Tilt were stealing player funds way before Black Friday under the guise of cheating – I personally had over $500 dollars taken from my account and my account closed for ? having an association with another player who used a bot. I emailed many times without receiving any response. Maybe the millions they took from players under this guise should also be investigated. Maybe its to late but I think they should look at it. Jail the owners for stealing they do not deserve any pity.

  28. Curious
    October 6, 2011 at 7:23 PM EDT

    “23 individuals owned shares in Full Tilt Poker” ~ what are their names?

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