An attorney for Full Tilt Poker has admitted that the troubled poker website was not managed very well and may have made poor business decisions, but that the site was not running a scam or Ponzi scheme.
“Banks fail for not having sufficient revenue to cover customer deposits all the time,” said Jeff Ifrah, a lawyer for Full Tilt Poker. “No one refers to such failures as Ponzi schemes. And there was no Ponzi scheme here,” he added.
A Ponzi scheme is roughly defined as investment fraud involving paying returns or dividends to existing investors with funds received from new investors.
On April 15, 2011, a date now referred to as Black Friday in the poker industry, the U.S. Attorney’s office in Manhattan filed a civil complaint for fraud, money laundering and violation of the 2006 Unlawful Internet Gambling Enforcement Act against 11 named individuals who ran Full Tilt Poker, Pokerstars and Absolute Poker. On Tuesday, Preet Bharara, the U.S. Attorney for the Southern District of New York, announced that he had filed an amendment to the original complaint adding three Full Tilt Poker board members and pro players Chris Ferguson, Howard Lederer and Rafael Furst.
Bharara said that the Full Tilt pros, as well as Ray Bitar, the founder of Full Tilt and other co-owners, led poker players to believe that their accounts were safe and that withdrawals were available at all times. But cashouts to Full Tilt customers moved slowly in late 2010 and eventually stopped altogether due to insuffiient funds. He accuses Full Tilt of cheating and abusing its own loyal players, pocketing millions of dollars in a ” global Ponzi scheme.”
“Full Tilt Poker did not maintain funds sufficient to repay all players,” Bharara said.
Ifrah stated that even if the government were to successfully argue its case and prevail against the named defendants, Bharara’s use of the term “global Ponzi scheme” was way out of line.
“The inflammatory description by NY’s lead federal prosecutor has nothing to do with the allegations in the amended complaint and the timing of these comments is most unfortunate,” said Ifrah.
Ifrah explained that Full Tilt’s players were not investing in the company or expecting any dividends or high interest rate returns, inherent qualities of typical Ponzi scheme operations. Players merely had a desire to play poker and Full Tilt provided that service.
Ponzi schemes have been around for generations. The largest Ponzi scheme in history is attributed to Bernard Madoff who pled guilty in 2009 to 11 federal offenses including mail fraud, securities fraud and money laundering. Madoff bilked his clients out of nearly $65 billion and is currently serving a 150-year sentence in federal prison.