Full Tilt Poker paid board members more than $440 million using funds that it pledged to make available for withdrawal by its online poker players at any time, U.S. prosecutors said.
Manhattan U.S. Attorney Preet Bharara’s office yesterday asked U.S. District Judge Leonard B. Sand for permission to add the new allegations to an April civil forfeiture case against Full Tilt, PokerStars, Absolute Poker and other businesses.
“Full Tilt insiders lined their own pockets with funds picked from the pockets of their most loyal customers while blithely lying to both players and public alike about the safety and security of the money deposited with the company,” Bharara said in a statement. He called it “a global Ponzi scheme.”
The forfeiture action parallels criminal charges by Bharara against the poker companies and 11 people, alleging bank fraud, money laundering and illegal gambling. Two white-collar criminal-defense lawyers who have no stake in the case questioned whether the proposed new allegations could withstand a legal challenge.
“This is gambling,” said ex-federal prosecutor James Montana, now a partner in Chicago’s Vedder Price LLC. “People are constantly putting money on deposit. It’s almost a guaranteed cash flow. It’s a little different than your normal Ponzi scheme.”
The government hasn’t alleged that any player lost money, said Montana, a former general counsel at the casino operator Bally Entertainment Corp.
According to prosecutors, after a 2006 U.S. law barred banks from processing payments to offshore gambling websites, Full Tilt, PokerStars and Absolute Poker worked around the ban to continue operating in the U.S.
Bharara’s office said in yesterday’s filing that Full Tilt management’s payment processing had so degraded by last year that it was crediting website players with money never collected from their accounts.
“Full Tilt Poker allowed players to gamble with -- and lose to other players -- this phantom money that Full Tilt Poker never actually collected or possessed,” according to a government court filing.
By the end of March, the company owed players worldwide about $390 million, $150 million of which was owed to gamblers in the U.S., Bharara said in yesterday’s statement. Full Tilt had only $60 million in its bank accounts at the time, he said.
One of the 11 criminal defendants, Bitar, is charged with bank fraud, illegal gambling and money laundering.
L. Barrett Boss, an attorney for Full Tilt, didn’t immediately return phone and e-mail messages seeking comment.
No lawyer has appeared for Bitar in the criminal case, according to the court’s electronic docket.
Jeff Ifrah, an attorney in Washington, has represented Lederer and Ferguson in other proceedings in federal court in Manhattan. Ifrah said he couldn’t immediately comment on the proposed amended complaint.
A Full Tilt web page for Furst identifies him as “Rafe” and links to his own site, www.rafefurst.com. Furst didn’t immediately reply to an e-mailed request for comment.
No Ponzi Scheme
“This was a poker business that had a legitimate business model but ran into processing disruptions,” she said. “It’s not clear to me that this was an intentional plan to defraud customers and line pockets.”
A careful review of the facts is needed, said Sarafa.
“We only have half the story at this point,” she said.
Vedder Price’s Montana said prosecutors may have the better argument solely because the Full Tilt operators are alleged to have promised bettors their money was secure when it was not and, had everyone demanded their money at once, there would not have been enough to go around.
“If this thing had just continued on, given the constant interest, they probably would have continued to go on and no one would have known the difference,” he said.
The civil forfeiture case is U.S. v. PokerStars, 11-cv- 02564, and the criminal case is U.S. v. Tzvetkoff, 10-cr-00336, U.S. District Court, Southern District of New York (Manhattan).
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