Full Tilt Ponzi
blogs.reuters.com
blogs.reuters.com
Full Tilt, along w/ PokerStars, has long been regarded as a premier destination for online poker. A lot of marketing presence, a lot of players, a large range of games.
They rolled out an innovative way to play cash-game poker where you never had to wait for a hand. Several thousand people would join a, say, $1/2 game of NL Holdem, and as soon as 9 people were ready to play, they sat and formed a table and were dealt a hand. You fold? As soon as 8 other people fold, bam, you're in another hand. In practice, you never had to wait more than 1 second.
They certainly did make millions in profit on a "rake." However they have an aggressive and lucrative affiliate program that would see them paying out as much as 1/3 of a players lifetime rake to the entity that referred them to the site. (aka "Rake Back")
As an American player, until the crackdown earlier this year, I had no problems playing. When I cashed out, they mailed me a check drawn on a US bank. If I had to deposit more, I could do so from my credit card.
This is a big blow for the credibility of the industry IMO.
(It also seemed rare to not have your credit card blocked for making deposits. So I wouldn't express it as a commonality.)
The industry has been lacking credibility for some time. Players have been pushing to get it regulated to avoid something like this from happening.
also, for the pros who would normally be 16 tabling, there is only a small uptick in hands per hour in NL rush compared to standard 6 max tables.
Edit as an ex midstakes amateur, frankly I speculate rush is unbeaatable after rake bc the nash equilibrium style is ez and widely known, good players have no edge, bot wet dream. Sent from mobile
I only tried rush poker in passing once. By the time it came around, I had already been out of the online poker game (I pretty much gave it up after PartyPoker withdrew from the market), but if the tracking programs w/ heads-up displays still worked and you could get enough data on the people you were paired with, you could figure out people's pre-flop tendencies enough to probably squeak out an edge. Losing post-flop data hurts though, unless that data was still tracked even though you moved on after folding.
- 'Rakeback' refers to the amount of money returned to the players, not to affiliates. FTP had fixed RB at 27%. An affiliate may make a % point or two. Stars returns from 10-60% of rake to the player through their VIP system
Stars didn't pay a dime in rakeback unless you hit one of their VIP tiers via their point system. Vast majority of players, I'd guess, didn't qualify.
- The lowest tier VIP level at pokerstars (that you can achieve from a few hands of poker play) amounts to 8.8% rakeback and more with stellar rewards, freerolls etc. It would be very hard to be a real money player and not achieve bronze star.
- You say stars "didn't pay dime" like pokerstars no longer exists. I can assure you they are still alive and well, and they are actually larger than 1 year ago despite the events of Black Friday.
The way most affiliates incentivize you to use their affiliate link is by giving you a cut of the revenue.
How did you think it worked? Full Tilt giving rake back direct to players just because they signed-up thru some 3rd party link? Why would they do that?
The reason why some people who sign-up can't get rakeback and are told that "their affiliate doesn't support rakeback" is that some affiliates chose to get paid a flat CPA fee of $75-100 rather than a lifetime percentage. This is also how PokerStars, etc, runs their programs.
but we are getting way off-topic. I was correcting the original comment above about what the definition of rakeback was.
- According to the DOJ, prior to black friday, FT had $60m in the bank and owed $390m to players. Shortly after black friday, in June this figure was $6m.
- There are two main reasons for this - one is the exorbitant payouts - over $440m was paid out to FT partners who held equity in the company - that were taken from players funds. Named are 4 people, Bitar, Lederer, Ferguson and Furst. The DOJ alleges almost $120m was paid out to these 4 alone, and Ferguson is 'owed' another $60m in dividend payments.
- However, unnamed are many others who also received payouts; the DOJ claims FT - even when they knew they were insolvent - "continued making payments of approximately $10 million per month" up until April.
- Furthermore, they were making sizeable loans to their roster of professionals with players funds. One mention of "Player Owner 1" almost certainly refers to Phil Ivey.
- Finally, they were basically fronting US players millions - the DOJ alleges $120m in total - because they were unable to process deposits.
- The reason this is nothing like a bank investing a customers money and why the DOJ is alleging this is "fraud" and a "ponzi scheme" (nb there is nothing in the amended complaint that suggests charges of a ponzi scheme; but it did come from Preet Bharara, U.S. Attorney for the Southern District in a statement) is because the money was not invested; it was used for dividend payments. Meanwhile, FTP was publicly claiming their players funds were maintained separately to operating accounts, deceiving players.
- This really has nothing to do with affiliates "taking money out of the system."
If you're interested in reading more, I write for this online poker news site: http://pokerfuse.com/news/law-legislation/fraud-tilt-poker/
Which in turn leads to the inevitable mashup of nicknames: The eponymous Fraud Theft Ponzi. Zing! Pow!
From the full tilt poker homepage:
"System Update
We apologise but the system is currently down. Please check back later. Please direct all enquiries to support@fulltiltpoker.com."
wsj article:
http://online.wsj.com/article/SB1000142405311190410670457658...
Layman explanation: Full Tilt Poker runs a wallet system, the sum all the users money is smaller than what they have in their bank accounts.
The 'Ponzi' element comes from their ability to attract new players at such a high rate that they can pay the withdrawals.
What makes it doubtful that this really is a Ponzi scheme is that - a bank run excepted - they probably would end up not paying out a very large percentage of the money they owed if operations continue, simply because most of the those playing online poker get fleeced incrementally, every dollar placed as a bet has a rake associated with it and that rake could cumulatively be a large percentage of the total money deposited. I don't run an online casino so I have no clue how often a given deposited dollar passes the tables before being withdrawn.
If there was one part here that is sloppy/criminal then that should be that they overpaid their affiliates.
A typical Ponzi scheme does not have affiliates taking a bunch of money of the table.
People have not been getting money offline really since the Department of Justice handed out initial indictments in April.
The messed up thing about this is they had a sustainable money-printing-machine that only became an unsustainable ponzi scheme due to the greed and corruption of the owners.
Affiliates and paying affiliates had nothing to do with their downfall. Affiliates are a standard throughout the online gaming industry.
Affiliates being a standard or not has nothing to do with it, anyhody that takes money out of the deposits will accellerate the process, and affiliates took a substantial portion.
Typically if you deposit $100 a large fraction of that is immediately paid out to the affiliate. You then enter the game and if the total rake on your account ends up being smaller than what is left in your account after the affiliate has been paid then you were a net loss to the company.
Without an affiliate that would be much harder to achieve.
That said, I believe that the players are stupid enough to play until they are bust so that's mostly theoretical, so I agree that they were quite possibly sustainable but it would need some inside figures to be sure.
Affiliates do not automatically get a chunk of deposits. Usually there are two options. They get paid a small lump sum for each new player, say $25-50. Or they get paid a % of the monthly generated rake (MGR) minus fees racked up by players.
I've survived for several years based on other players' willingness to play until they bust. But you can look at Las Vegas, Atlantic City, etc. for evidence of the sustainability of gaming.
Edit due to not being able to reply: The rake sucks a lot for everyone. It turns small winners into small losers, or keeps consistent winners from being huge winners. It makes it so everyone gets less play for their dollar.
I know Pokertableratings has done some [very incomplete] tracking on player losses, but they don't have a record of every hand played.
That's a small lump sum, but with a $100 initial deposit that's 25% to 50%. If that were the only deposit ever made and everybody asked for their money back after folding their first hand they'd be bankrupt immediately.
So the cumulative rake must be pretty high for that to work, unless the stickyness is huge and most people do multiple deposits.
Do you have any figures with respect to total rake vs payout over a sizable sample of deposits? That would be interesting.
They'll basically need to generate the $25-50 in rake before the affiliate can get the bonus.
See http://www.pokeraffiliatesolutions.com/full-tilt-affiliate-p... for more
Though I can't be sure, I'd assume that banks might hold a little bit higher percentage than what Full Tilt was holding.
Rake adds up quickly. If poker sites only carried enough money to cover player balances, they wouldn't suffer.
Pokerstars is an example of a poker site that successfully paid out to players.
113. Beginning in or around August 2010, Full Tilt Poker was often unable to find payment processors to withdraw funds from the bank accounts of its United States players. Instead of disclosing this fact, Full Tilt Poker secretly began to credit funds to players’ online gambling accounts that Full Tilt Poker had never actually collected from players’ bank accounts. As players gambled, and lost, these phantom funds, Full Tilt Poker developed an undisclosed shortfall of approximately $130 million owed to players that Full Tilt Poker had never collected because, in reality, these funds were never withdrawn from players’ bank accounts. The management of Full Tilt Poker, including the FTP Insider Defendants, operated Full Tilt Poker with the hope that only a small number of players would try to withdraw funds at any one time, and that Full Tilt Poker would regularly receive additional deposits in amounts greater than any withdrawal requests.
I'm glad I only ever played for matchsticks.
But atop the other allegations, and depending on the magnitude, it seems fishy... like a desperate move to give the insiders a bit more time to withdraw remaining funds or 'gamble for resurrection'.
FTP was always going to fall apart, the government investigation into UIEGA violations triggered it sooner. It may have otherwise become a billion-dollar ponzi
I lost money in FTP and was a regular player (I noticed the dodgy merchant names on credit card bills years ago and knew what was up but kept playing)
If what Felix wrote about FTP was accurate, FTP considered money from customers as assets, not liabilities, so that they could be disbursed to investors. It's a fundamental category error in accounting, and pretty clearly fraudulent, if it's as plain as that.
In a Ponzi scheme you take new money fully aware that you aren't going to be able to repay in the medium/long term. In other words: you know you don't have a scheme that actually works well enough to pay the profits you are promising. This is not the case here at all. If the complaint is true - which may or may not be -this is theft, plain and simple.
Note that the difference between a Ponzi scheme and a recklessly run investment shop is sometimes academic. One can sometimes be unable to tell apart failed, unrealistic expectations and successful fraud. But here the business model is solid and they have simply taken from users pockets for fun and profit. Again, if the complaint is true.
Bit tired of hearing "Ponzi" misused time and again. I guess it makes for sensational headlines.
1. No one ever takes a look if the code that is run by these poker sites is indeed valid.
2. No one ever knows what happens with the poker players money once it's been deposited and it's never clear how easy it is to get it back.
There should be some kind of independent organism checking if the site is credible or not. Now the thing checking these sites are their users...
I don't think fraudsters care about regulation. They care that they can sucker people.
That's illegal, and easily prevented at a regulated site where deposited funds are required to be accounted for (and preferably held in escrow). Regulation in banking or in gambling doesn't make it impossible to lose; it makes it possible for winners to get their money and impossible for the company handling the money to simply pocket it.
In addition, the financial industry at large can legally provide all kinds of leveraged products which pass scrutiny and result in hefty bonuses (personal profit) but which can end with ruin for the individual and group investors because they are structurally unsustainable (i.e subprime lending had to come crashing). On top of that, the institutions which benefitted during the boom then turned around and asked the people to prop them up despite the questionable risks they took because the world could not afford to have them fail --we blinked.
Sorry I don't buy that. Financial regulations put in place during the great depression worked pretty good. Then they were slowly pared back over three decades starting with Reagan. All the evidence I've seen is that the financial products were massively under regulated.
So, from that standpoint it might be better to have it on the up and up and supervised -but supervised with a very keen eye and a regulation with teeth, as it were.
You clearly dont understand how poker rooms, online or physical, operate. They take a rake from each hand regardless of winner. This article has nothing to do with the "advantages" of the house, more about accounting fraud that allow partners to cash out deposits from players.
Owed to the players: $390,695,788
In the bank: $59,579,413
Lederer took: $42,000,000
Ferguson took: $85,161,305
If FTP did not segregate finds as advertised, perhaps they committed some sort of fraud, but theft and ponzi this is not.
Almost every business does this, so I suppose they should all be prosecuted and we should send our financial system back to the Middle Ages. If I take out $1M loan and invest it in my business, my intent is to pay that liability with notional future profits. If I purchase something Net 90 and don't have the money in the bank, I'm apparently violating the law. Off to jail I go.
FullTilt made probably $1M+ per day in rake alone. Even taking costs into account, FullTilt could rake enough to pay out all accounts within a couple years. That is decidedly not a Ponzi scheme, which has no hope of ever being able to pay back its investors.
When you invest money in a company, you do so with the understanding that the money becomes the company's and will be spent. In return, you get equity (typically). You don't have an "account" with the company from which you can make withdrawals.
By contrast, poker sites operate like banks, taking deposits from people with the understanding that those deposits will be held in trust. You're not buying equity in the poker site, and your money doesn't become their money. It's still your money; it's just being held in an account they manage. This is why commingling is bad--it obliterates the distinction between their money and yours.
Obviously, these poker sites are not FDIC insured like banks. But a legitimate poker site would still take all reasonable precautions (such as segregating the company's funds from depositors') to protect your money.
The largest group is bad players. These players typically deposit money on the site, play until their account is exhausted, and then deposit again. For them, the amount they put on a poker site is not a deposit, but instead an entertainment fee.
There is also a group of professional players on the sites. These players make a deposit (say, an initial $1000), and in the course of playing (better than the bad players) their balance grows. They periodically withdraw small portions of their balance to cover living expenses. Their deposit is an investment in every way. Go hang out on some poker forums and research bankroll management, and you will see a lot of terms that are common in investing.
So who here is making a bank-like deposit? The bad players almost never get their money back, and the good players have far more in their account than they initially invested.
A good site, like PokerStars, will segregate player money and always have it on hand. But in an unregulated market where everyone is relying on the goodwill of the poker sites to manage their funds, there is no guarantee of anything. If a country destroys that goodwill (by seizing funds and issuing indictments), why should we be surprised that the money is no longer available?
It would require some insider knowledge to know how much the cumulative rake is in an online poker game, I wouldn't be surprised if the majority of the players played until they ran out of money rather than withdraw. A few really good players would probably take money off the table but those would be the exception rather than the rule.
There is a payment processor whose funds were seized where the government even put on a display of the giant check of funds seized. These funds ultimately belonged to players (good or bad). The situation is still unclear, as information is limited, but it appears that players will not be legally entitled to any of the seized funds.
As far as poker sites go, they may also not be considered depositors. Some sites/casinos view it this way: you're buying chips.
So I'm not saying players were legally depositors. Rather, I mean that ethically and in terms of the players' reasonable expectations, that's what they were.