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Old 09-20-2011, 05:11 PM   #1
t_roy
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Explanation of How the Full Tilt Board Stole Player Money

Before I start, let me be clear that this post assumes that the current information in the DOJ’s civil complaint amendment is true. I am also filling in a couple blanks based on the evidence presented in the amendment. It seems that Full Tilt was turned into a ponzi scheme at some point (or always was one) and was run as such for an extended period of time. I do not know who is responsible for doing this or who knew and understood that this was going on. This is intended to explain to someone without an understanding of business of what the DOJ’s new allegations mean if they are true. Now let’s begin.

The recent Amendment to the DOJ’s Civil Complaint (see http://www.subjectpoker.com/2011/09/ftp-civil-amended/ Thank you NoahSD) provides extremely solid evidence that Full Tilt’s owners were running a Ponzi Scheme. It seems that they were stealing player money for a while. No, the company was not just mismanaged and incompetent. They were stealing money and they knew it. How do we know this?

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 it’s operating expenses if it did not use player deposits. Instead of just letting the players’ 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. It’s kind of like when you deposit your money in a bank. The bank doesn’t just let it sit there. The bank keeps a certain amount on hand to cover that money that it’s customers may withdraw. The rest, it invests and makes money off of it. A poker site could very legitimately do exactly the same thing. Yes, your money in the bank is much safer because it is backed up by the FDIC if the bank were to go bankrupt. Unfortunately, we do not have the same protection on online poker sites. This does not make the practice of investing deposits illegal or wrong for poker sites though (unless segregated player funds are a condition of licensing.)

So what was wrong with what Full Tilt did? The problem was that Full Tilt not only used player deposits to invest. Full Tilt used player deposits to pay the owners of Full Tilt. Full Tilt paid huge dividends (dividends are how a company distributes profits to its owners) to its owners using players’ money. Dividends should only be paid if a company is very financially stable and can afford to pay. Full Tilt was essentially paying dividends with money that it did not have. They did something like, this: “Ok, we have $500 million worth of player deposits in our bank and $100 million of our own operating funds. We are going to pay a $300 million dividend to our owners. We can operate off of $300 million and the players will never know anyway.” No the numbers in my examples are not accurate. They are just for illustration. Also this was probably done over several years rather than all at once. Had Full Tilt borrowed that $500 million from a bank instead of from players, the bank would have never allowed Full Tilt to pay this kind of dividend. Full Tilt essentially created a situation where they had $300 million worth of cash and owed $500 million to the players because they gave $300 million to the owners of the company. So essentially, the money that went towards paying the dividend to the owners was the player’s money. So what happens if everyone tries to withdraw? Well the players are just out of luck. They aren’t getting paid because we (Full Tilt) don’t have the money. In reality all of the money is just sitting in the owner’s bank accounts (assuming they didn’t spend it.) So basically they just stole it.

Imagine you own a shoe store. You go to the bank and borrow $10 million for the store. You then use that money to pay yourself $10 million. Then when the bank wants their money you tell them that you don’t have any of the money any more. Then the shoe store goes bankrupt, but who cares? You have $10 million in your bank account. See anything wrong with that? That would be illegal and that is what FTP did. (Yea this wouldn’t work for a sole proprietorship, but I’m keeping it simple.) Instead of borrowing from a bank they borrowed from the players. This is not a case of mismanagement; this is a case of clear theft. Full Tilt was just trying to stay afloat while moving money form depositors to withdrawers as the owners kept taking as much money as possible out of the company. Whoever is responsible for all this is just as guilty as Bernie Madoff.

Cliffs:
FTP used player money to pay dividends to the owners
The players' money is or was in the bank accounts of the owners
This amounts to stealing player funds

=================================

9/22 Update:

Before I start, let me be clear that this post assumes that the current information in the DOJ’s civil complaint amendment is true. I am also filling in a couple blanks and connecting the dots based on the evidence presented in the amendment. I am not a lawyer or an accountant, but I believe that I supported this post with enough evidence that you do not have to trust my personal opinion. It seems that Full Tilt was turned into a fraud and a scam at some point (or always was one) and was run as such for an extended period of time. It appears that, as the Board of Directors, Ray Bitar, Howard Lederer, Chris Ferguson, and Rafe Furst were responsible for this fraud. This is intended to explain to someone without a good understanding of business of what the DOJ’s new allegations mean if they are true. Now let’s begin.


The recent Amendment to the DOJ’s Civil Complaint (see http://www.subjectpoker.com/2011/09/ftp-civil-amended/ Thank you NoahSD) provides extremely solid evidence that Full Tilt was a totally fraudulent site. It seems that they were stealing player money for a while. No, the company was not just mismanaged and incompetent. No, it is not the DOJ’s fault that Full Tilt couldn’t pay the players. They were stealing money and they knew it. How do we know this?

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 it’s operating expenses if it did not use player deposits. Instead of just letting the players’ 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 legal way to run a poker site under some licensing agencies. What was wrong about this was that Full Tilt stated that player deposits were in accounts “all of which are separate and distinct from our operating accounts.”(1)

So they lied, but that doesn’t necessarily make them criminals. The problem was that Full Tilt not only used player deposits to invest. Full Tilt used player deposits to pay the owners of Full Tilt. Full Tilt paid huge dividends (dividends are how a company distributes profits to its owners) to its owners using players’ money. Dividends should only be paid if a company is very financially stable and can afford to pay. Full Tilt paid out $443 million in dividends to its owners since April 2007. These payments included a dividend payment on April 1st 2011. These huge dividends led to the company having only $60 million in cash while it owed players $390 million on March 31st, 2011.(2) This means that dividend payments were made while the company was clearly insolvent (they owed more than they had.) The Board of Directors is responsible for making dividend payments and ensuring that the company is solvent before doing so. Making dividend payments while a company is insolvent is illegal in every country that I know of including in Guersney (Alderney follows Guersney investment laws.(3)) If they took these actions with the intent to defraud the players out of their money (seemingly the only possible intent) then the Board is guilty of a criminal offense.(4) This is the fraud part. Full Tilt didn’t just make bad business decisions.

Full Tilt was essentially paying dividends with money that it did not have. They did something like, this: “Ok, we have $500 million worth of player deposits in our bank and $100 million of our own operating funds. We are going to pay a $300 million dividend to our owners. We can operate off of $300 million and the players will never know anyway.” No the numbers in my examples are not accurate. They are just for illustration. Also this was probably done over several years rather than all at once. Had Full Tilt borrowed that $500 million from a bank instead of from players, the bank would have never allowed Full Tilt to pay this kind of dividend. Full Tilt essentially created a situation where they had $300 million worth of cash and owed $500 million to the players because they gave $300 million to the owners of the company. So essentially, the money that went towards paying the dividend to the owners was the player’s money. So what happens if everyone tries to withdraw? Well the players are just out of luck. They aren’t getting paid because we (Full Tilt) don’t have the money. In reality all of the money is just sitting in the owner’s bank accounts (assuming they didn’t spend it.) So basically they just stole it.

Imagine you own a shoe store. You go to the bank and borrow $10 million for the store. You then use that money to pay yourself $10 million. Then when the bank wants their money you tell them that you don’t have any of the money any more. Then the shoe store goes bankrupt, but who cares? You have $10 million in your bank account. See anything wrong with that? That would be illegal and that is what FTP did. (Yea this wouldn’t work for a sole proprietorship, but I’m keeping it simple.) Instead of borrowing from a bank they essentially “borrowed”(or stole) from the players. This is not a case of mismanagement; this is a case of clear theft. Full Tilt was just trying to stay afloat while moving money form depositors to withdrawers as the owners kept taking as much money as possible out of the company.


Sure they lost a lot of money on bad business decisions such as allowing players to play with money that was not taken from their bank accounts. The fraud came in when Full Tilt took player funds and used them to pay huge dividends to their owners.

Let me clear a major myth. The DOJ did not take all of our money. An upper estimate of how much the DOJ seized would be $175 million.(5) Even if Full Tilt were given all of this money back, they would not have enough to pay back players. If huge dividends were not paid to the owners, Full Tilt would have more than enough money to pay back players. It seems that the DOJ actually did the poker community a pretty big favor by shutting down Full Tilt before they were allowed to steal more of our money.


Cliffs:
FTP used player money to pay dividends to the owners
The players' money is or was in the bank accounts of the owners
This amounts to stealing player funds

Citations
1. There is a quote from FTPDoug towards the bottom of this Pokernews article
http://www.pokernews.com/news/2011/0...er-f-11058.htm

2. These figures come from the SDNY press release which can be found here
https://docs.google.com/viewer?a=v&p...wNTYz&hl=en_US

3. This is stated on the AGCC’s site http://www.gamblingcontrol.org/index.php

4. This presentation (http://www.careyolsen.com/downloads/...-_guernsey.pdf) from a channel islands law firm clearly states, “In order to effect a distribution or pay a dividend, a board of directors (“Board”) must approve a certificate signed by one of them that in the Board’s opinion, the company will, immediately after payment of the distribution, satisfy the solvency test and the grounds for that opinion (a “Solvency Certificate”). A director who fails to comply with this requirement or signs a Solvency Certificate without having reasonable grounds to do so will be guilty of an offence... For the purposes of the Law, a company satisfies the solvency test if:-
(a) it is able to pay its debts as they become due; and
(b) the value of its assets is greater than the value of its liabilities, and
(c) in the case of a company supervised by the GFSC, the company satisfies any other requirements as to solvency imposed in relation to it by the relevant legislation under which it is supervised.”
Full Tilt clearly did not satisfy (b) before paying dividends.

This site (http://crossborder.practicallaw.com/7-505-4862#a673914) states,
“The Court can declare that any persons who knowingly carried on the business with an intent to defraud creditors, or for any fraudulent purpose, must make any contribution to the company that the Court directs. That person will also be guilty of a criminal offence.”
Players would be considered creditors in this case. It seems clear that Full Tilt’s board intended to defraud us of our money.

5. This figure is a combination of the amount Full Tilt claims to have had seized pre Black Friday ($115 million) and a high estimate of what Full Tilt had seized on Black Friday ($60 million.) This estimate is derives from the fact that Full Tilt only had $60 million on March 31st, 2011.

Last edited by Rich Muny; 09-22-2011 at 11:29 PM. Reason: Updated at request of OP
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Old 09-20-2011, 05:34 PM   #2
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Re: Explanation of How Full Tilt Owners Stole Player Money

So glad I never deposited a dime on that site. In spite of PokerStars troubles, I am glad to have done business with them, and would do it again.
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Old 09-20-2011, 05:36 PM   #3
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Re: Explanation of How Full Tilt Owners Stole Player Money

The OP is pretty myopic.

1. First, the word "stole" implies malicious intent. Whether or not the owners had this intent is debatable, but certainly the example here isn't proof. When any other company goes bankrupt, are its employees accused of stealing from the company for having earned a salary? (No.) That's because the salary is compensation for having worked; whether or not the company goes bankrupt (and who loses out as a result), a salary is a salary - the employees (even if the employees are also owners) are separate entities. One can argue the owners were OVERcompensated (and this was certainly brought up when failing banks which received TARP money paid out bonuses to executives) and one can argue the owners were negligent (paying out way too much money) but you can't seriously argue they were stealing unless they took more than their contracts allowed them to take.

2. Full Tilt will, or can, correctly contest the use of the words "not segregated." Full Tilt's funds were likely "segregated" according to the definition given by their license - Pokerstars and Full Tilt both complied with the segregating funds clause, but the Isle of Man and Alderney defined "segregated" differently. Using the Alderney (FTP) definition of "segregated," Full Tilt's funds were segregated but unprotected, while Pokerstars funds were segregated and protected. Sure, it would have been better for Full Tilt to segregate and protect. But they were only required to segregate.

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. As far as I know, Full Tilt faithfully complied with its requirements to do so; its liquidity problem came from essentially a bank run after April 15th. And again, I'm not saying this is the best way to run a business - there's probably room to criticize how lax Alderney's licensing requirements are - but the bottom line is that it's very likely that many people at Full Tilt (perhaps even the owners) genuinely believed that they were doing the right things. The intent portion of "stealing" or "fraud" simply isn't there.

4. Your shoe store analogy sucks because players did not "lend" money to Full Tilt. Players did not "invest" money in Full Tilt. At no point did you have partial ownership of the site because you had money in there; it's exactly like depositing your money in a bank - if the bank goes belly-up, you're ****ed except for FDIC (a government program). Except in the case of Full Tilt, there was no Alderney equivalent of FDIC. Players have to accept some blame in this as well; we all knew that playing on these sites were somewhat risky. We knew about problems depositing and withdrawing long before April 15th, we saw the charges from Algerian furniture companies and lolled. We knew these sites were licensed out of weird-ass quasi-countries and nobody looked very closely at the regulations. What the **** did you (we) think was going on?
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Old 09-20-2011, 05:40 PM   #4
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Re: Explanation of How Full Tilt Owners Stole Player Money

Quote:
Originally Posted by callipygian View Post
The OP is pretty myopic.

1. First, the word "stole" implies malicious intent. Whether or not the owners had this intent is debatable, but certainly the example here isn't proof. When any other company goes bankrupt, are its employees accused of stealing from the company for having earned a salary? (No.) That's because the salary is compensation for having worked; whether or not the company goes bankrupt (and who loses out as a result), a salary is a salary - the employees (even if the employees are also owners) are separate entities. One can argue the owners were OVERcompensated (and this was certainly brought up when failing banks which received TARP money paid out bonuses to executives) and one can argue the owners were negligent (paying out way too much money) but you can't seriously argue they were stealing unless they took more than their contracts allowed them to take.
Paying employees salaries vs paying owners dividends is like apple to oranges. The latter is fraud.
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Old 09-20-2011, 05:44 PM   #5
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Re: Explanation of How Full Tilt Owners Stole Player Money

Quote:
Originally Posted by callipygian View Post
The OP is pretty myopic.

1. First, the word "stole" implies malicious intent. Whether or not the owners had this intent is debatable, but certainly the example here isn't proof. When any other company goes bankrupt, are its employees accused of stealing from the company for having earned a salary? (No.) That's because the salary is compensation for having worked; whether or not the company goes bankrupt (and who loses out as a result), a salary is a salary - the employees (even if the employees are also owners) are separate entities. One can argue the owners were OVERcompensated (and this was certainly brought up when failing banks which received TARP money paid out bonuses to executives) and one can argue the owners were negligent (paying out way too much money) but you can't seriously argue they were stealing unless they took more than their contracts allowed them to take.
The amended DOJ civil suit states FTP knew they were insolvent and continued to pay out $10M a month dividends to Pros/owners.

They knew.

Edit: Start on pg. 64. http://a.espncdn.com/poker/civilcomplaint.pdf

From the link above:
Quote:
115. 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.
But you're prolly right its debatable whether or not they knew

Last edited by Go Get It; 09-20-2011 at 05:49 PM.
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Old 09-20-2011, 05:47 PM   #6
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Re: Explanation of How Full Tilt Owners Stole Player Money

Quote:
Originally Posted by callipygian View Post
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. As far as I know, Full Tilt faithfully complied with its requirements to do so; its liquidity problem came from essentially a bank run after April 15th. And again, I'm not saying this is the best way to run a business - there's probably room to criticize how lax Alderney's licensing requirements are - but the bottom line is that it's very likely that many people at Full Tilt (perhaps even the owners) genuinely believed that they were doing the right things. The intent portion of "stealing" or "fraud" simply isn't there.
What bank run? They didn't pay anyone. Didn't cost them a single dime.

FTP claims massive losses from payment processor seizures, theft from one particular payment processor, and the decision to credit player deposits w/o a payment processor in place.

And yet the dividends kept on going to the shareholders.

So ask yourself, how did FTP make up for these massive losses? Whose funds did they use to pay themselves?
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Old 09-20-2011, 05:47 PM   #7
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Re: Explanation of How Full Tilt Owners Stole Player Money

Quote:
Originally Posted by callipygian View Post
The OP is pretty myopic.

1. First, the word "stole" implies malicious intent. Whether or not the owners had this intent is debatable, but certainly the example here isn't proof. When any other company goes bankrupt, are its employees accused of stealing from the company for having earned a salary? (No.) That's because the salary is compensation for having worked; whether or not the company goes bankrupt (and who loses out as a result), a salary is a salary - the employees (even if the employees are also owners) are separate entities. One can argue the owners were OVERcompensated (and this was certainly brought up when failing banks which received TARP money paid out bonuses to executives) and one can argue the owners were negligent (paying out way too much money) but you can't seriously argue they were stealing unless they took more than their contracts allowed them to take.
I'm not even talking about the owners' salaries in this post. (Yea, they are super shady, but not the criminal part. I'm talking about the dividends that Full Tilt paid out to its owners. Dividends are not anywhere near salaries. Maybe I didn't do a good job of explaining them. Dividends are what companies pay to their owners. The owners don't have to do any work in order to receive them. I'll deal with your other points later, but I got to go.
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Old 09-20-2011, 05:53 PM   #8
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Re: Explanation of How Full Tilt Owners Stole Player Money

Quote:
Originally Posted by callipygian View Post
The OP is pretty myopic.

1. First, the word "stole" implies malicious intent. Whether or not the owners had this intent is debatable, but certainly the example here isn't proof. When any other company goes bankrupt, are its employees accused of stealing from the company for having earned a salary? (No.) That's because the salary is compensation for having worked; whether or not the company goes bankrupt (and who loses out as a result), a salary is a salary - the employees (even if the employees are also owners) are separate entities. One can argue the owners were OVERcompensated (and this was certainly brought up when failing banks which received TARP money paid out bonuses to executives) and one can argue the owners were negligent (paying out way too much money) but you can't seriously argue they were stealing unless they took more than their contracts allowed them to take.

2. Full Tilt will, or can, correctly contest the use of the words "not segregated." Full Tilt's funds were likely "segregated" according to the definition given by their license - Pokerstars and Full Tilt both complied with the segregating funds clause, but the Isle of Man and Alderney defined "segregated" differently. Using the Alderney (FTP) definition of "segregated," Full Tilt's funds were segregated but unprotected, while Pokerstars funds were segregated and protected. Sure, it would have been better for Full Tilt to segregate and protect. But they were only required to segregate.

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. As far as I know, Full Tilt faithfully complied with its requirements to do so; its liquidity problem came from essentially a bank run after April 15th. And again, I'm not saying this is the best way to run a business - there's probably room to criticize how lax Alderney's licensing requirements are - but the bottom line is that it's very likely that many people at Full Tilt (perhaps even the owners) genuinely believed that they were doing the right things. The intent portion of "stealing" or "fraud" simply isn't there.

4. Your shoe store analogy sucks because players did not "lend" money to Full Tilt. Players did not "invest" money in Full Tilt. At no point did you have partial ownership of the site because you had money in there; it's exactly like depositing your money in a bank - if the bank goes belly-up, you're ****ed except for FDIC (a government program). Except in the case of Full Tilt, there was no Alderney equivalent of FDIC. Players have to accept some blame in this as well; we all knew that playing on these sites were somewhat risky. We knew about problems depositing and withdrawing long before April 15th, we saw the charges from Algerian furniture companies and lolled. We knew these sites were licensed out of weird-ass quasi-countries and nobody looked very closely at the regulations. What the **** did you (we) think was going on?
1) Paying executives tens of millions from player funds when you are claiming player funds are in sequestered accounts that aren't touched, then claiming player funds are safe when you don't have them = stealing

2) It's pretty clear that funds were not only unsegregated, but were used to pay operating expenses and dividends/payouts to ownership. Players funds ARE NOT AND WERE NOT AVAILABLE.

3) Please show me somewhere in FTP's advertising or statements where they admit that their business model INTENTIONALLY leaves them far short to cover player funds.

It wasn't a case of not having LIQUID assets, it's a case of having NO ASSETS AT ALL.

4) You're simply wrong. FTP took money on one pretense (to use as player funds), knowingly used it for another purpose (to pay off owners), and got caught. By your logic, the shoe store owner can legally steal all the money since the bank lending him $$ is not an "owner."

Just FYI, banks don't take ownership stakes from loans.
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Old 09-20-2011, 05:59 PM   #9
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Re: Explanation of How Full Tilt Owners Stole Player Money

Quote:
Originally Posted by callipygian View Post
The OP is pretty myopic.

1. First, the word "stole" implies malicious intent. Whether or not the owners had this intent is debatable, but certainly the example here isn't proof. When any other company goes bankrupt, are its employees accused of stealing from the company for having earned a salary? (No.) That's because the salary is compensation for having worked; whether or not the company goes bankrupt (and who loses out as a result), a salary is a salary - the employees (even if the employees are also owners) are separate entities. One can argue the owners were OVERcompensated (and this was certainly brought up when failing banks which received TARP money paid out bonuses to executives) and one can argue the owners were negligent (paying out way too much money) but you can't seriously argue they were stealing unless they took more than their contracts allowed them to take.
Just to prove your speculation is totally baseless...

From the DOJ:

Quote:
106. Rather than protect player funds as promised, Full
Tilt Poker distributed hundreds of millions of dollars to its
owners. Beginning in April 2007 and continuing through April
2011, Tiltware LLC’s Board of Directors, to wit, the FTP Insider
Defendants, authorized the distribution of approximately
$443,860,530 to the owners of Tiltware LLC, including themselves.
Many of the distribution payments were transferred from Full Tilt
Poker directly to bank accounts the professional poker players
affiliated with Full Tilt Poker and other owners had established
in Switzerland and other foreign countries.
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Old 09-20-2011, 06:27 PM   #10
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Re: Explanation of How Full Tilt Owners Stole Player Money

I'm surprised there is so much confusion. May have to rewrite some of the OP.

If you have questions about some of this please ask. I will answer and you won't get flamed. I started this thread to try to explain to people who don't understand banks, dividends, loans, businesses how it happened. Maybe I didn't do the best job, (I'll try to fix it later) but make sure you understand what is going on before you attack my OP cause that's probably gonna get you flamed from what I see so far lol.
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Old 09-20-2011, 06:29 PM   #11
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Re: Explanation of How Full Tilt Owners Stole Player Money

Quote:
Originally Posted by t_roy View Post
I'm surprised there is so much confusion. May have to rewrite some of the OP.

If you have questions about some of this please ask. I will answer and you won't get flamed. I started this thread to try to explain to people who don't understand banks, dividends, loans, businesses how it happened. Maybe I didn't do the best job, (I'll try to fix it later) but make sure you understand what is going on before you attack my OP cause that's probably gonna get you flamed from what I see so far lol.
FWIW, I thought your post made perfect sense.
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Old 09-20-2011, 06:29 PM   #12
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Re: Explanation of How Full Tilt Owners Stole Player Money

Quote:
Originally Posted by MauiPunter View Post
Paying employees salaries vs paying owners dividends is like apple to oranges. The latter is fraud.
You might want to rephrase this given the bajillion companies that pay out dividends to its owners (shareholders).

Quote:
Originally Posted by Go Get It View Post
The amended DOJ civil suit states FTP knew they were insolvent and continued to pay out $10M a month dividends to Pros/owners.
Of course the DOJ suit states that. Just like the prosecutor's opening statement will state that the DOJ will prove beyond a reasonable doubt that FTP knew.

Quote:
Originally Posted by Go Get It
They knew.
I'm not convinced.

FTP had a lot of problems making withdrawals from bank accounts earlier in the year. They had a significant shortfall because they were crediting accounts without withdrawing - a phenomenon that was not only noticed by players, but even exploited by some.

Was it unreasonable for FTP to think that they would eventually be able to hack around this and claim their withdrawals at some point in the future?

http://www.subjectpoker.com/2011/08/...y-much-larger/

Quote:
Originally Posted by TheDarkElf View Post
What bank run? They didn't pay anyone. Didn't cost them a single dime.
Working capital ratios generally (although I admit I haven't looked specifically at Alderney's) take into account liabilities. Requesting a payout reduces their working capital ratio as much as actually withdrawing it.

Quote:
Originally Posted by TheDarkElf
FTP claims massive losses from payment processor seizures, theft from one particular payment processor, and the decision to credit player deposits w/o a payment processor in place.

And yet the dividends kept on going to the shareholders.
I don't think it's a good idea, but that's not theft or fraud. That's bad business practice.

I didn't think it was a good idea for GM to be focusing on SUVs and totally ignoring fuel economy in the early 2000's as gas prices were skyrocketing. I just sold my shares, but if your logic holds, they actually stole from me!

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when you are claiming player funds are in sequestered accounts that aren't touched
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Originally Posted by PokerIsFrustrating
2) It's pretty clear that funds were not only unsegregated, but were used to pay operating expenses and dividends/payouts to ownership.
Reading must be frustrating too; at no point did Full Tilt claimed player funds were in sequestered accounts that weren't touched, and Full Tilt's player funds were "segregated" according to the rules that they were licensed under.

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By your logic, the shoe store owner can legally stealend up with all the money
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.

---

Now I'm going to rant for a little because every time I post something that even hints that maybe it's possible that there's an outside chance that there's really nobody to chase with torches and pitchforks, all the little kids come streaming out to play Real World with the big kids.

Get it through your ****ing skulls, people, sometimes **** happens and there's nobody to blame. Nobody stole from you, nobody ****ed up, and it's possible nobody will go to jail either. Welcome to the world of free markets where you okay let's be honest - WE were free to check out Alderney's licensing requirements but didn't, WE got plenty of warning signs but ignored them, and guess what, WE got stuck sitting around with our dicks in our hands while Howard Lederer bangs porn stars three deep.

Anyone who spoke out pre-4/15 gets a pass. You get mad props and a full apology from at least me if you have an archived post from pre-April 15th where you point out a. how dangerous it was for Full Tilt to be crediting accounts without withdrawing, or b. they looked carefully at Alderney's licensing requirements and realized that "segregated" doesn't mean what it's commonly assumed to mean. I didn't listen to you back then, and I paid the price. It's my bad.
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Old 09-20-2011, 06:53 PM   #13
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Re: Explanation of How Full Tilt Owners Stole Player Money

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Paying employees salaries vs paying owners dividends is like apple to oranges. The latter is fraud.
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You might want to rephrase this given the bajillion companies that pay out dividends to its owners (shareholders).
When a company is insolvent, it is fraud.
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Old 09-20-2011, 07:04 PM   #14
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Re: Explanation of How Full Tilt Owners Stole Player Money

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The events of Black Friday came on the heels of prior government enforcement activities and significant theft. Over the two years preceding Black Friday, the US government seized approximately $115M of player funds located in U.S. banks. While we believed that offering peer-to-peer online poker did not violate any federal laws - a belief supported by many solid and well-reasoned legal opinions - the DOJ took a different view. In addition, as was widely reported, a key payment processor stole approximately $42M from Full Tilt Poker. Until April 15th, Full Tilt Poker had always covered these losses so that no player was ever affected. Finally, during late 2010 and early 2011, Full Tilt Poker experienced unprecedented issues with some of its third-party processors that greatly contributed to its financial problems. While the company was on its way to addressing the problems caused by these processors, Full Tilt Poker never anticipated that the DOJ would proceed as it did by seizing our global domain name and shutting down the site worldwide.
This is from the FTP site. According to FTP themselves, they were fine before the DOJ seized their funds. If the DOJ's report is correct, this statement is absolutely false. FTP management knew full well they did not have the funds to repay players even if the DOJ did not seize their accounts. According to the DOJ, FTP is short nearly $90 million for US players alone, and $290 million for players overall.

So why should I trust that FTP is on the level?

Quote:
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.
Wrong again. If the shoe store owner took this loan and KNOWINGLY and INTENTIONALLY paid himself all of the money only to let the company go bankrupt, he's going to find himself facing civil and potentially criminal lawsuits.

If my company goes bankrupt because I ran it poorly maybe I get a pass. If I intentionally suck all the money out of the company into my own bank accounts, and then say "oops, I guess the company failed," I stole it. That's what FTP did. Maybe Ferguson and Lederer didn't know, but they were board members. They were officially fiduciaries of the company. Maybe they get a pass b/c it's not a US company, but if it was they'd be facing SEC lawsuits out the a$$.

The DOJ is not alleging that FTP just screwed up their business. They are alleging that FTP did this intentionally to siphon money away from the company and to board members, including paying dividends with cash that the company desperately needed to operate the business.

NOTE: I couldn't care less either way. I was on Stars and I got all my money back. Maybe this isn't stealing in Alderny, but in the US when fiduciaries enrich themselves by sucking cash out of an insolvent company it's stealing.
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Old 09-20-2011, 07:28 PM   #15
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Re: Explanation of How Full Tilt Owners Stole Player Money

Don't feed the troll.

Of course this is only the prosecutor side of the story, nevertheless even the snippets of emails we have quoted about FTP not being able to handle an extra $5 mil of withdrawals in pretty damning.

Clearly the DOJ was interested in PS and FTP for political/poker/money laundering issues. That is where it stayed with PS. Then they discovered FTP was also engaging in pretty spectacular fraud. So it goes.

I have no doubt that FTP owners thought they could eventually pay back the money. That's pretty irrelevant to me. The amounts in question between what they had and what they owes while they were still paying out tens of millions of dollars in "profit" to the owners is ridiculous.
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Old 09-20-2011, 08:17 PM   #16
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Re: Explanation of How Full Tilt Owners Stole Player Money

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According to FTP themselves, they were fine before the DOJ seized their funds. If the DOJ's report is correct, this statement is absolutely false. FTP management knew full well they did not have the funds to repay players even if the DOJ did not seize their accounts. According to the DOJ, FTP is short nearly $90 million for US players alone, and $290 million for players overall.

So why should I trust that FTP is on the level?
You shouldn't. 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? Why is it that when the DOJ says something that's unpopular with or works against poker players, they have their facts wrong and are full of ****, but when they say something that's popular with or work in favor of poker players, it's suddenly gospel?

We know Full Tilt had $115 million which the Feds seized; $42 million was allegedly stolen by a payment processor; $128 million in uncollected funds from bank accounts according to S:P; added together that's at least $285 million that Full Tilt thought it had on April 14. If Full Tilt has just about any operational accounts besides those, it's quite possible that they THOUGHT they were solvent when they actually paid out the "dividends." It's unfortunate that the amount paid out just happens to equal the amount owed, because as we're seeing, people can't just help make the assumption that it's the "same" money, but basically there may have been a point where Full Tilt had $600 million in the bank, knew it had $300 million in obligations, and said, "**** rainy day funds, let's pay out the other $300 million to ourselves." And that turned out to be an exceptionally bad decision, but not a criminal one.

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The DOJ is not alleging that FTP just screwed up their business. They are alleging that FTP did this intentionally to siphon money away from the company and to board members, including paying dividends with cash that the company desperately needed to operate the business.
Only in retrospect. On April 14th, they might legitimately have thought they were okay. (as above)

As a matter of fact, on April 16th, they still might have thought they were okay - they obviously at least had the $42 million that was outright stolen. That, along with debiting accounts that they had never been able to withdraw to, might actually have covered the $90 million they owed to Americans.

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Maybe they get a pass b/c it's not a US company, but if it was they'd be facing SEC lawsuits out the a$$ ... Maybe this isn't stealing in Alderny, but in the US when fiduciaries enrich themselves by sucking cash out of an insolvent company it's stealing.
Exactly! We (collectively as US poker players) are trying to impose a standard that we're used to - a standard which I BTW agree with and think is beneficial to business - but one that doesn't apply to the wild wild west of online poker because our standards are based on US law.

As much as we (as US voters) want free market economics and no nanny state government, the case of Full Tilt highlights exactly how bad the general public is about making decisions left to our own devices. The byzantine rules of American business are there for a reason, and when they're not there we (as consumers) need to accept more responsibility for our purchases.

If Full Tilt were an American company, I would be much more inclined to agree that they've been criminal in some way, probably because we have so many regulations about transparency that they would have certainly broken one. But because they are not and haven't broken any laws which have jurisdiction over them, they simply aren't criminals, just bad businesspeople and/or scumbags.
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Old 09-20-2011, 08:35 PM   #17
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Re: Explanation of How Full Tilt Owners Stole Player Money

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Originally Posted by callipygian View Post
We know Full Tilt had $115 million which the Feds seized; $42 million was allegedly stolen by a payment processor; $128 million in uncollected funds from bank accounts according to S:P; added together that's at least $285 million that Full Tilt thought it had on April 14. If Full Tilt has just about any operational accounts besides those, it's quite possible that they THOUGHT they were solvent when they actually paid out the "dividends." It's unfortunate that the amount paid out just happens to equal the amount owed, because as we're seeing, people can't just help make the assumption that it's the "same" money, but basically there may have been a point where Full Tilt had $600 million in the bank, knew it had $300 million in obligations, and said, "**** rainy day funds, let's pay out the other $300 million to ourselves." And that turned out to be an exceptionally bad decision, but not a criminal one.



Only in retrospect. On April 14th, they might legitimately have thought they were okay. (as above)

As a matter of fact, on April 16th, they still might have thought they were okay - they obviously at least had the $42 million that was outright stolen. That, along with debiting accounts that they had never been able to withdraw to, might actually have covered the $90 million they owed to Americans.
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."


They knew they were stealing. You really don't understand business law. Siphoning off money from an insolvent company is stealing.
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Old 09-20-2011, 08:43 PM   #18
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Re: Explanation of How Full Tilt Owners Stole Player Money

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Originally Posted by callipygian View Post
We know Full Tilt had $115 million which the Feds seized; $42 million was allegedly stolen by a payment processor; $128 million in uncollected funds from bank accounts according to S:P; added together that's at least $285 million that Full Tilt thought it had on April 14
The thought they "had" the $115M seized? Really? The $42M? In the bank? The $128 uncollected. On their asset sheet?

NO. There is no insanity defense does not fly in civil court.
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Old 09-20-2011, 09:29 PM   #19
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Re: Explanation of How Full Tilt Owners Stole Player Money

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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."
And yet, just two weeks later, the DOJ claimed they seized nearly double that ... ?

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The thought they "had" the $115M seized? Really? The $42M? In the bank? The $128 uncollected. On their asset sheet?

NO.
If you had $115 million in some form that could be seized by the DOJ tomorrow, you wouldn't count it as part of your assets today?

You guys seem to be ignoring the fact that in order for money to be seized, it has to exist beforehand; in order for money to get stolen, it has to exist beforehand. Nobody - correct me if I'm wrong - contested the DOJ's assertion that they had seized $115 million on April 15. Which stands to reason that FTP at least thought it had $115 million on April 14, and probably the $42 million they later claimed was stolen by a payment processor as well. We also know that they had credited nearly $128 million to accounts they couldn't withdraw from but for whatever reason assumed they would be able to. Add it all up, and I really doubt that on April 14th, anyone at Full Tilt Poker was thinking, "Oh, god, we're running out of money."

Again, probably stupid, but not criminal beyond reasonable doubt.

Last edited by callipygian; 09-20-2011 at 09:40 PM.
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Old 09-20-2011, 09:50 PM   #20
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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.
I'm honestly not trolling or trying to be deliberately annoying.

Really want to know - if the DOJ stuff is true. 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?

If Lederer and Ferguson KNEW the company was borderline insolvent and took money anyway, what do you consider that? Keep in mind, in any jurisdiction, BOARD MEMBERS OF COMPANIES have a financial duty to the company first.

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?
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Old 09-20-2011, 10:03 PM   #21
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Re: Explanation of How Full Tilt Owners Stole Player Money

I'm not sure that $115 million number is confirmed. Do you have a source for that?

The DOJ is saying that they had $60 million in the banks and I see no reason to doubt them.

Regardless $115 million is not even close to enough to pay back. They could not have had a reasonable expectation that they were going to get back the stolen money and money that was uncollected from bank accounts. So they were still paying dividends while not having enough assets to cover player deposits. That IS criminal beyond a reasonable doubt.
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Old 09-20-2011, 10:11 PM   #22
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Re: Explanation of How Full Tilt Owners Stole Player Money

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If you had $115 million in some form that could be seized by the DOJ tomorrow, you wouldn't count it as part of your assets today?
Yes, you are severely confused. No doubt about that.

The $115M number was seized PRIOR to BF. So it should not have been counted as part of their assets.

Rest of post ignored since you clearly have no idea what you are talking about.
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Old 09-20-2011, 10:15 PM   #23
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Re: Explanation of How Full Tilt Owners Stole Player Money

FTP Email according to DOJ:

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."
Still want to argue that FTP did not claim player money was segregated from operating funds?
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Old 09-20-2011, 10:44 PM   #24
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Re: Explanation of How Full Tilt Owners Stole Player Money

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And yet, just two weeks later, the DOJ claimed they seized nearly double that ... ?
The DOJ most certainly did NOT seize that much money.
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Old 09-21-2011, 12:00 AM   #25
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Re: Explanation of How Full Tilt Owners Stole

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....Full Tilt paid huge dividends (dividends are how a company distributes profits to its owners) to its owners using players’ money......(Yea this wouldn’t work for a sole proprietorship, but I’m keeping it simple.)
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
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