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Legislation for Poker & Income Taxes for Poker Players Discussions of various poker-related laws and steps players can take to push for better laws.

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Old 09-21-2011, 12:32 AM   #26
t_roy
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Re: Explanation of How Full Tilt Owners Stole

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Originally Posted by Ex-Picker View Post
This is true in concept as far as the alleged illegal activity. But the mechanical aspects may be different from what you describe.

According to post #9, Full Tilt was formed as "Tiltware LLC" which is a completely different entity from a corporation. Assuming LLC law is similar there to US rules, an LLC can not pay "dividends" and can normally only have partners, not shareholders; and in that case FTP could only pay partner draws, not dividends. It would in fact be a more complex version of your "sole proprietorship" example which also means it "wouldn't work".

The source of the draws would be the same as any corporate dividends in determining legality inder the current accusations. But the taxation to US citizen partners would be very different. Dividends are taxed under income tax law only. Partnership percentages of profits are considered self-employment income and are subject to both income and employment taxes (SS 10.4% up to $106.8K and Medicare 2.9% on the whole share). The draws themselves are not taxed in addition to the partners' profit share, they are part of it.

Just trying to clarify.

BF CPA

Thanks, I'm definitely not an accountant. However, according to Subject Poker the owners were actually paid through dividends. I'm not sure how this was done or through which company the dividends were paid. I know there were a wide variety of shell companies and subsidiaries.
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Old 09-21-2011, 02:29 AM   #27
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Re: Explanation of How Full Tilt Owners Stole Player Money

In that case the participants would have to know that something wasn't right. Receiving huge checks from corporations you don't work for and/or never heard of and/or you know they're in a maze of related companies that don't do anything, should have raised a red flag or two. When Matusow talked about Ferguson's millions on Poker After Dark, I guess he wasn't joking around.
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Old 09-21-2011, 02:43 AM   #28
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Re: Explanation of How Full Tilt Owners Stole Player Money

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Originally Posted by callipygian View Post
You also shouldn't assume that everything the DOJ says is on the level, either. I mean, nobody takes the DOJ's word when they state with absolute certainty that online poker is illegal, right?
The DoJ is willing to prove in court that offering online poker to US players is, as they have always stated, illegal. So far as I can tell the sites are not exactly racing to the challenge of proving it was legal, something they could have done anytime in the past half decade and stopped the tens of millions in seizures and other DoJ activity against them. On the other hand, if you're implying that the DoJ is blatantly lying on factual issues for whatever reason - presumably because you think they don't 'like' Full Tilt? - then you should slowly remove the tin foil hat and just stop posting.
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Old 09-21-2011, 07:09 AM   #29
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Re: Explanation of How Full Tilt Owners Stole Player Money

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Originally Posted by callipygian View Post
.
With the FYP above, I completely agree. If a shoe store were to borrow $10 million from the bank, and the owner were to pay himself $1 million per year for 10 years and then go bankrupt, the owner has not STOLEN from the bank. He's run the business poorly, and the bank has invested poorly, but claiming he stole is asinine. Just because Chris Ferguson has money that used to belong to you doesn't mean he stole it. If it was a mutually-agreed transaction, it's not stealing.
Great post # 12 in this thread. Just a quick question for you. You must feel at this point that nowhere in the FTP agreement with its players did it say that their deposits were not 'income' in the sense that profits from the sale of a shoe are income, or even in the sense that the shoe itself is an asset which belongs to the company after investor A invests in the company. See where I'm going? If investor A invests in a shoe company without reading his agreement with the owners, and the owners take the shoes as salary, then the investor is an idiot but it's not theft.

Here, FTP would have to have explicitly stated that deposits were company income and were not owned by players. I assume that's what you're saying when you mention that Alderney rules about 'segregated accounts' don't imply what everyone wants them to imply.

If deposits were actually income, then the owners could pay themselves as much as they wanted legally. This would have to be laid out in the player agreement, which guess what??? I didn't read every word of.
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Old 09-21-2011, 08:36 AM   #30
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Re: Explanation of How Full Tilt Owners Stole Player Money

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Again, probably stupid, but not criminal beyond reasonable doubt.
Umm... it's a civil complaint. The DOJ only needs a preponderance of evidence to get a conviction.
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Old 09-21-2011, 08:51 AM   #31
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Re: Explanation of How Full Tilt Owners Stole Player Money

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Umm... it's a civil complaint. The DOJ only needs a preponderance of evidence to get a conviction.
Yes kinda like the OJ Simpson criminal vs civil trials........ mostly same evidence, different rules, totally different outcome!
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Old 09-21-2011, 08:57 AM   #32
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Re: Explanation of How Full Tilt Owners Stole Player Money

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Yes kinda like the OJ Simpson criminal vs civil trials........ mostly same evidence, different rules, totally different outcome!
Exactly.
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Old 09-21-2011, 11:58 AM   #33
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Re: Explanation of How Full Tilt Owners Stole Player Money

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Umm... it's a civil complaint. The DOJ only needs a preponderance of evidence to get a conviction.
True. I think the argument is whether or not there will also be a criminal trial though. IMO there is more than enough evidence to get criminal convictions.
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Old 09-21-2011, 12:07 PM   #34
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Re: Explanation of How Full Tilt Owners Stole Player Money

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If deposits were actually income, then the owners could pay themselves as much as they wanted legally. This would have to be laid out in the player agreement, which guess what??? I didn't read every word of.
No they could not have done that legally. How could something like that possibly be legal in any semi developed country?

When a company owes creditors (players are creditors in this case) money, the owners can't just siphon off all the money and screw the creditors. I'm no lawyer, but I know a decent amount about business and there is just no possible way that this is legal. The owners may be able to argue that the their salaries were not outrageous and were perfectly legal, but there is absolutely no way that paying out massive dividends was legal while the company was in such dire straights. If it were, by some freak law, legal then the DOJ would not have added this to the civil case.

Am I not making sense here? Help me out cause I would like to fully explain this clearly and concisely and add it to the OP.
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Old 09-21-2011, 12:12 PM   #35
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Re: Explanation of How Full Tilt Owners Stole Player Money

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If deposits were actually income, then the owners could pay themselves as much as they wanted legally. This would have to be laid out in the player agreement, which guess what??? I didn't read every word of.
Maybe in Alderny, but not in the US. Imagine I own some kind of travel agency. I decide I'm going to screw over my clients. I make everyone pay a month ahead, then I funnel all of the money out of the company and declare bankruptcy.

That's illegal, and you'd better believe I'm getting civil lawsuits and potentially criminal charges depending on what kind of fraudulent practices were going on.
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Old 09-21-2011, 12:14 PM   #36
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Re: Explanation of How Full Tilt Owners Stole Player Money

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No they could not have done that legally. How could something like that possibly be legal in any semi developed country?

When a company owes creditors (players are creditors in this case) money, the owners can't just siphon off all the money and screw the creditors. I'm no lawyer, but I know a decent amount about business and there is just no possible way that this is legal. The owners may be able to argue that the their salaries were not outrageous and were perfectly legal, but there is absolutely no way that paying out massive dividends was legal while the company was in such dire straights. If it were, by some freak law, legal then the DOJ would not have added this to the civil case.

Am I not making sense here? Help me out cause I would like to fully explain this clearly and concisely and add it to the OP.
You're right, don't sweat it dude. For the people who say "well player deposits are income, I will refer you back to FULL TILT POKER'S OWN COMMUNICATION, one of which said:

Quote:
One of those emails read, in part: "To protect both our players and business from financial problems, all player account funds are segregated and held separately from our operating accounts. Unlike some companies in our industry, we completely understand and accept that your account money belongs to you, not Full Tilt Poker."
It's in the DOJ filings. So FTP was lying about this, intentionally misleading players, and stealing what should have been segregated player funds.
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Old 09-21-2011, 12:46 PM   #37
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Re: Explanation of How Full Tilt Owners Stole Player Money

Just posted about this in the other thread. Thought this might help clear some stuff up. Any chance I get this added to the OP?





Why FTP Isnít Just Like a Bank

ďBanks only have to keep a portion of their deposits as cash. Wasnít Full Tilt just operating the same way? They just happened to experience a run on the bank due to Black Friday.Ē


Yes, banks are only required to keep a small percentage of deposits as liquid cash. Full Tilt probably actually kept more than enough liquid cash to pay out players if Black Friday did not happen. That is not where Full Tilt did wrong. They went wrong with what they did with the rest of their money that was not liquid cash.

Banks use the money to invest in various things like mortgages and bonds. Banks always have enough assets to cover all of there deposits. They actually have more than enough. They donít have it liquid, but if they are given enough time to unwind and sell there investments and everything else they owned, they would be able to pay back every depositor (and creditor) and still have money left over. The amount of money they would have left over is known as book value. If you want proof then look up the book value of some banks. They will all be positive. A bank isnít going to be allowed to operate with a negative book value. It would be absolutely illegal for a bank to pay dividends if it were even approaching a negative book value. Companies only pay dividends if they have more than enough money to cover their obligations.

Instead of using player deposits to buy investments, Full Tilt used player deposits to pay the owners huge dividends. This left it with much fewer assets than it owed in player deposits (it had a negative book value.) Even then Full Tilt continued to pay dividends. So even if Full Tilt sold everything, it would not have anywhere near enough money to pay back players. This statement proves that the company was in very dire straights prior to Black Friday.

From memo summarizing the amendment,
"The Amended Complaint further alleges that, 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."

Full Tilt was definitely not just like a bank. What they did was intentionally steal our money. There will probably be people going to jail for quite a while.
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Old 09-21-2011, 12:55 PM   #38
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Re: Explanation of How Full Tilt Owners Stole Player Money

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I'm honestly not trolling or trying to be deliberately annoying.

Really want to know - if the DOJ stuff is true.
Your guess is as good as mine. I'm not saying the DOJ is right, or it's wrong. I'm saying that I'm not going to take a press release from a horribly biased source as gospel truth.

Quote:
Originally Posted by PokerIsFrustrating
If they paid their board members hundreds of millions, while shorting player funds, losing millions to payment processing etc, do you acknowledge there's a major problem?
I think there's a major problem with Full Tilt whether or not they paid their board members hundreds of millions or not.

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Originally Posted by PokerIsFrustrating
If Lederer and Ferguson KNEW the company was borderline insolvent and took money anyway, what do you consider that?
Being a dick.

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Originally Posted by PokerIsFrustrating
Finally, if this was such a horrible situation and DOJ freezing funds makes repayment impossible, how did Stars manage to pay US players back in a few weeks with no problems?
I explained this above, but here it is again. Both PS and FT kept accounts which were "segregated" according to the definition of their respective jurisdictions, but the definitions were different. Isle of Man's definition meant what the general public thinks of as "segregated" - a separate account with no operational funds comingled with player funds. Alderney's definition meant that there just had to be a way to track which portion of the funds were player funds, and used the term "protected" to indicate that the accounts were separated.

Using Alderney's definitions, it's almost certain that Pokerstars' funds were segregated and protected, while Full Tilt's funds were segregated and unprotected. Using Isle of Man's definitions, Pokerstars' funds were segregated, while Full Tilt's funds were unsegregated.

When Full Tilt says its funds were "segregated," they are not lying (intentionally saying something false) - by the definition of their license, their funds WERE segregated. Obviously, Full Tilt is playing with semantics here (just like when Bill Clinton claimed he did not have "sexual relations" with Monica Lewinsky), but the point is that they're not evil people who were out to steal your money from Day 1.

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Originally Posted by Do it Right View Post
if you're implying that the DoJ is blatantly lying on factual issues for whatever reason ... then you should slowly remove the tin foil hat and just stop posting.
I don't think the DOJ is blatantly lying. I think they are wording their press releases to make them look as good as possible. Just like I think Full Tilt is wording their press releases to make them look as good as possible.

Take, for instance, the notion of "bank accounts." I have no doubt that on March 31st, Full Tilt did factually have $60 million in their bank accounts. But is that all the money Full Tilt had? We know that a lot of the money was held in trust in third party payment processors. Did the DOJ count that money as part of Full Tilt's assets? I suspect not. We also know that Full Tilt lent a bunch of money to FT Pros. Are those loans legally enforceable? If so, that's also money not in the bank but should count as assets.

I think the DOJ is being straight up when it says that Full Tilt had $60 million IN THEIR BANK ACCOUNT(S). I don't think that's the whole story, though.

Quote:
Originally Posted by DoItRight
presumably because you think they don't 'like' Full Tilt?
I think you'd be hard-pressed to find someone who doesn't think the DOJ dislikes Full Tilt ... or Pokerstars for that matter. I don't think it's a big secret that the DOJ is out for blood.

But the bigger question of bias should be answered. Yes, I played on Full Tilt, and I have money stuck on Full Tilt. 99.7% of my money was on Pokerstars, and I got it back, so I have very little monetary concern. I don't work for the DOJ nor know anyone who does, I think cops planting evidence is real but rare, and I have nothing against the government in general.

I'm criticizing people because there's a huge bandwagon effect where poker players will seemingly do anything to avoid taking some responsibility for their own actions. "DOJ is lying and stealing my money!" has now become "FT is lying and stealing my money!" Truth is that nobody's stealing our money; FT, as it turns out, was a very poorly run company and that's it. It's like if Fidelity or Schwab (places you'd keep money that FDIC doesn't cover) went under - sucks, but we knowingly took that risk (or should have) going in.

Keep in mind that it's very likely Pokerstars was equally mismanaged but escaped by virtue of Isle of Man having stricter restrictions.
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Old 09-21-2011, 01:11 PM   #39
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Re: Explanation of How Full Tilt Owners Stole Player Money

lol and I'm the myopic one. Do you have any knowledge of business law whatsoever or are you just pulling the "it's not illegal" part out of your own brain?
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Old 09-21-2011, 01:11 PM   #40
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Re: Explanation of How Full Tilt Owners Stole Player Money

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I'm criticizing people because there's a huge bandwagon effect where poker players will seemingly do anything to avoid taking some responsibility for their own actions. "DOJ is lying and stealing my money!" has now become "FT is lying and stealing my money!" Truth is that nobody's stealing our money; FT, as it turns out, was a very poorly run company and that's it. It's like if Fidelity or Schwab (places you'd keep money that FDIC doesn't cover) went under - sucks, but we knowingly took that risk (or should have) going in.

Keep in mind that it's very likely Pokerstars was equally mismanaged but escaped by virtue of Isle of Man having stricter restrictions.
You keep on comparing poker sites to banks or investment houses. You don't get it. Player deposits were NOT investments. Poker sites are NOT banks.

And obviously FT did not adhere to their agreements with Alderney. That is why Alderney stripped them of their license. That is why they are out of business now.
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Old 09-21-2011, 01:13 PM   #41
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Re: Explanation of How Full Tilt Owners Stole Player Money

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The DoJ is willing to prove in court that offering online poker to US players is, as they have always stated, illegal. So far as I can tell the sites are not exactly racing to the challenge of proving it was legal, something they could have done anytime in the past half decade and stopped the tens of millions in seizures and other DoJ activity against them.
It was clearly +EV for PS and FT to operate as they did with respect to the legal situation in the US, as it allowed them to flourish in the US market in a way that would have been impossible after any sort of legal challenge (obviously, if they lost, they'd be out, but if they won, they'd have gotten a lot more competition). So why rock the boat?
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Old 09-21-2011, 01:46 PM   #42
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Re: Explanation of How Full Tilt Owners Stole Player Money

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It was clearly +EV for PS and FT to operate as they did with respect to the legal situation in the US, as it allowed them to flourish in the US market in a way that would have been impossible after any sort of legal challenge (obviously, if they lost, they'd be out, but if they won, they'd have gotten a lot more competition). So why rock the boat?
It certainly wasn't profitable for FTP to "eat" $115M in lost processor funds. That is probably more money than they netted in the same amount of time.

Oh wait, they didn't eat it. They used player funds to make up the diff.
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Old 09-21-2011, 02:22 PM   #43
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Re: Explanation of How Full Tilt Owners Stole Player Money

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Well, to start with we know that they did not keep player deposits in segregated accounts. The only reason to do this would be that the company would not have enough money to cover itís operating expenses if it did not use player deposits. Instead of just letting the playersí money sit in a bank account, a poker site can instead use that money to invest in growing the site more quickly than it would have otherwise been able to. Like it or not this is actually a perfectly legitimate way to run a poker site. Itís kind of like when you deposit your money in a bank. The bank doesnít just let it sit there. The bank keeps a certain amount on hand to cover that money that itís customers may withdraw. The rest, it invests and makes money off of it. A poker site could very legitimately do exactly the same thing.
I beg to differ. Show me a poker site where the terms and conditions allow for something like this and I'll show you a poker site that's out of business in days.
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Old 09-21-2011, 02:41 PM   #44
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Re: Explanation of How Full Tilt Owners Stole Player Money

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lol and I'm the myopic one. Do you have any knowledge of business law whatsoever or are you just pulling the "it's not illegal" part out of your own brain?
Name a law they've broken.

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And obviously FT did not adhere to their agreements with Alderney. That is why Alderney stripped them of their license.
They certainly were not in compliance at the time their license was suspended; but the real question is whether they were ever in compliance.

Because if, indeed, FT was simply a criminal organization and/or Ponzi scheme, then they were never in compliance. If it so happens that they fell below the working capital ratios that Alderney required (through whatever fault - DOJ, payment processor theft, gross negligence, etc.) - then they're a stupid organization, not a criminal one.

Why are you reading my posts anyway? I thought you said you stopped.
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Old 09-21-2011, 03:07 PM   #45
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Re: Explanation of How Full Tilt Owners Stole Player Money

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Because if, indeed, FT was simply a criminal organization and/or Ponzi scheme, then they were never in compliance. If it so happens that they fell below the working capital ratios that Alderney required (through whatever fault - DOJ, payment processor theft, gross negligence, etc.) - then they're a stupid organization, not a criminal one.
Lining their pockets with our funds does not make them stupid - it makes them THIEVES.
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Old 09-21-2011, 03:59 PM   #46
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Re: Explanation of How Full Tilt Owners Stole Player Money

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Name a law they've broken.
I don't know the exact law and I'm not about to go digging through Alderney law for a couple hours just to prove this to you. But, if you do not think that what they did was illegal then you are just being incredibly naive.
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Old 09-21-2011, 05:35 PM   #47
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Re: Explanation of How Full Tilt Owners Stole Player Money

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I don't know the exact law and I'm not about to go digging through Alderney law for a couple hours just to prove this to you.
You MUST be right if you're so certain!

I rescind my posts!
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Old 09-21-2011, 06:14 PM   #48
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Re: Explanation of How Full Tilt Owners Stole Player Money

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You MUST be right if you're so certain!

I rescind my posts!
How much you wanna bet that what they did was illegal?
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Old 09-21-2011, 07:50 PM   #49
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Re: Explanation of How Full Tilt Owners Stole Player Money

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3. Likewise, Full Tilt will (or can) legitimately argue that they fully complied with the terms of their licensing. Sites (including Pokerstars) are not required to keep 100% of players' money as liquid capital; they are required to keep certain "working capital" ratios.
I don't think so. From IoMGSC:

Quote:
Under OGRA, the licensee is expected to safeguard player deposits and to ensure they receive their true and fair winnings. O6(2)(a)

A method must exist which guarantees that players receive their deposits and any accumulated winnings in the event that the operator cannot pay.

During the application, the Inspectorate will review the appropriateness of the selected ring-fencing vehicle.

While the Commission will consider any proposals to safeguard player funds, a number of choices are immediately available to operators. These are:

- Bank guarantees;
- Trust funds;
- Client accounts.

[snip descriptions of these things]

An operator must at all times ensure that player protection arrangements cover in value the amount of money players have in their accounts plus any monies owed to them by the operator (e.g. unpaid winnings).

Operators may utilise a number of protection mechanisms if desired, so long as the amount of money they can yield at any given time, matches or exceeds the value of player funds
also
Quote:
4. The licensee must either -
(a) Hold on deposit in an interest-bearing escrow account in a bank in the Isle of Man or with the agreement of the Commission make alternative arrangements to guarantee any outstanding debts of the licensee owed to players for the duration of this license;
(b) Instruct the bank, or as part of alternative arrangements guarantee, that such sum shall be available to the Isle of Man Government to cover any outstanding debts owed to players in the event that the licensee ceases to operate under this licence, any balance being returned to the licensee; and
(c) Furnish the Commission with confirmation by the bank of the above arrangements and subsequently quarterly bank statements or agree with the Commission what documentary evidence must be provided to the Commission as a result of putting alternative arrangements in place.
The licensee may recover the interest on the sum.

OR

The licensee must establish a formal reserve or insurance policy for gambling as specified and agreed by the Commission. Any such reserve must be sufficient to cover any outstanding debts owed to players and the account must be maintained with a bank in the Isle of Man. Any insurance arrangements must be made with an Isle of Man insurance company under the laws of the Isle of Man or through alternative arrangements agreed with the Commission.
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Old 09-21-2011, 08:03 PM   #50
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Re: Explanation of How Full Tilt Owners Stole Player Money

Edit: nvm read it wrong
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