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Well, I never thought the day would come when I qwould see a picture of Chris 'Jesus' Ferguson on the front page of the Companies & Markets section of the Financial Times. And, even if I had been told that this was going to happen, I would never have guessed that it would be as part of an alleged $400m fraud.
But that's what happened this morning. The US DOJ has amended its Black Friday indictment of Full Tilt Poker to allege that it was a Ponzi scheme. There has been some debate about whether it was actually a Ponzi scheme or just plain fraud. The details of the case are available in today's Wall Street Journal.
The kernel of the situation appears to be this. Full Tilt was running fine until the US started to make payment processing difficult for US players (2006). This led FTP to enter into relationships with some dubious characters who offered ways to get the money into and out of players' FTP accounts. This was the first time, I think, that FTP started pretending that money was there that wasn't really there.
By 2010 things were spiralling out of control. FTP began crediting players' deposits, but the processing had gone to shit. Some accounts weren't debited. But the co-owners of Full Tilt did not stop paying themselves dividends. The business model was falling apart. By March this year there was a $330m black hole and just $60m left in the bank.
In April there was "Black Friday". Poker Stars reimbursed its US players. FTP did not. By now we were into the land of outright lies. FTP continued to accept money from non-US players. In June the Alderney Gaming Commission withdrew Full Tilt's licence. The servers shut down. It was all over. But over those few weeks the plundering continued to the extent that, by now, there was only $6m left.
That's the nuts and bolts of it. Ferguson, Howard Lederer, Rafe Furst and Ray Bitar are named in the new DOJ complaint, with sums ranging from $11m (Furst ) to $40m (Bitar) having been taken out (I think this is just the 'fraudulent' money). Various others may be named later.
I long suspected that this talk of "unnamed potential investors" was total bollocks, and so it has proved. For at least a year FTP was trying to get money in from non-US players to keep the ship afloat.
But the obvious question here is the same as it is at UBS. Not "how"? But "why?" In the case of UBS, the unhedging of trades would surely have come to light before the bonuses were paid. This was a desk where small gains were meant to be made from massive hedged volume. If the bets had gone right rather than wrong, the red flags would still have gone up before too long.
With FTP, the likes of Lederer and Ferguson can hardly claim to be naive (although, since this is Lederer's only viable defence, he almost certainly will try to claim that). These are co-founders, co-owners and very much co-benefiters. If they chose to close their eyes and ears so long as the dividends kept flowing, then they are in deep civil trouble.
More interestingly, if the parallels with Madoff are pushed hard, then players such as myself who withdrew money between 2008 and 2011 might be chased to give it back. The argument here is simple. Why should I, who was lucky enough to take non-existent cash out of FTP, be ok, while someone who left their cash in there loses everything? And the defence os "I saw it coming" is even worse, because then you are admitting that you KNEW the money wasn't really there, but took it anyway.
This whole affair illustrates two interesting points.
The first is that, as I suspected, once the easy money days ended in online poker (the fish that the 2+2 posters thought would be around forever just went away and were not replaced), people resorted to cheating to maintain their standard of living. I thought that this would come about through collusion, but instead it appears to have come about through deception and fraud. More and more of these are coming to light every month.
The second is that some of the online players on 2+2 are still in denial. They literally can't believe that this is happening to them, that they have lost their entire wealth -- sometimes well into six figures.
This was the result of the internet poker boom. I've been playing poker for money since I was 13. Once of the first books I bought on cards was Scarne On Cards, which had a long section devoted to cheating. In the old days of poker it wasn't enough to be good at cards. You had to get the money when you won it, and, once you had got the money, you had to make sure you kept it. Long walks in dark car parks could be an unwise move. Taking an IOU could be even less wise. I think that, of my two grand in winnings in 1979 in private games, I actually ended up netting about £1,200. The rest was in IOUs that were never paid.
Barry Greenstein wrote in his excellent book that the Stardust in the 1980s and early 1990s was basically a cartel of seven-card-stud colluders. Even as late as 2000, in the Dungeon, it was known that two or three of the regulars soft-played each other.
But the internet kids of the past six or seven years came up through a different stream. Some came via Magic; some via computer games. All were young, good at maths, and many held weekly meetings with other young players to work out "clever" plays. As with backgammon, they revolutionised the game. NL Hold 'em online now is a different planet from four years ago.
But what these whizz kids were not was streetwise. I suspect that it didn't even occur to them that whenever there is big money at stake, you will attract crooks of a variety of hues. Isildur1 was "cheated" in the sense that his opponents shared their hand histories on him, so that, while he thought he had only played a guy for 1,000 hands or so, in fact the other guy had about 50,000 hands of heads-up history to work with. Had Isildur known this, he would have changed his style, but the information was kept secret.
In another case, a "fake" player was created by two top NL players (the "Portuguese prodigy") that turned into such a marvellous farce that they really ought to make a movie out of it. This was because these players were too good -- people didn't want to play them.
This point even caught out Ben Grundy, who seemed genuinely surprised that, after he had taken a few million off people at short-handed PLO, they didn't want to play him any more. I think Ben really believed that these guys were in the game to make millions for Ben, rather than to try to make a living for themselves.
All of these were examples of what can only be called naivety, and in some cases this has cost these youngsters dear. They won the money, but they didn';t work out that this was only half the battle. They missed out on the second part. Once you have won the money, you have to keep it.
_______________
But that's what happened this morning. The US DOJ has amended its Black Friday indictment of Full Tilt Poker to allege that it was a Ponzi scheme. There has been some debate about whether it was actually a Ponzi scheme or just plain fraud. The details of the case are available in today's Wall Street Journal.
The kernel of the situation appears to be this. Full Tilt was running fine until the US started to make payment processing difficult for US players (2006). This led FTP to enter into relationships with some dubious characters who offered ways to get the money into and out of players' FTP accounts. This was the first time, I think, that FTP started pretending that money was there that wasn't really there.
By 2010 things were spiralling out of control. FTP began crediting players' deposits, but the processing had gone to shit. Some accounts weren't debited. But the co-owners of Full Tilt did not stop paying themselves dividends. The business model was falling apart. By March this year there was a $330m black hole and just $60m left in the bank.
In April there was "Black Friday". Poker Stars reimbursed its US players. FTP did not. By now we were into the land of outright lies. FTP continued to accept money from non-US players. In June the Alderney Gaming Commission withdrew Full Tilt's licence. The servers shut down. It was all over. But over those few weeks the plundering continued to the extent that, by now, there was only $6m left.
That's the nuts and bolts of it. Ferguson, Howard Lederer, Rafe Furst and Ray Bitar are named in the new DOJ complaint, with sums ranging from $11m (Furst ) to $40m (Bitar) having been taken out (I think this is just the 'fraudulent' money). Various others may be named later.
I long suspected that this talk of "unnamed potential investors" was total bollocks, and so it has proved. For at least a year FTP was trying to get money in from non-US players to keep the ship afloat.
But the obvious question here is the same as it is at UBS. Not "how"? But "why?" In the case of UBS, the unhedging of trades would surely have come to light before the bonuses were paid. This was a desk where small gains were meant to be made from massive hedged volume. If the bets had gone right rather than wrong, the red flags would still have gone up before too long.
With FTP, the likes of Lederer and Ferguson can hardly claim to be naive (although, since this is Lederer's only viable defence, he almost certainly will try to claim that). These are co-founders, co-owners and very much co-benefiters. If they chose to close their eyes and ears so long as the dividends kept flowing, then they are in deep civil trouble.
More interestingly, if the parallels with Madoff are pushed hard, then players such as myself who withdrew money between 2008 and 2011 might be chased to give it back. The argument here is simple. Why should I, who was lucky enough to take non-existent cash out of FTP, be ok, while someone who left their cash in there loses everything? And the defence os "I saw it coming" is even worse, because then you are admitting that you KNEW the money wasn't really there, but took it anyway.
This whole affair illustrates two interesting points.
The first is that, as I suspected, once the easy money days ended in online poker (the fish that the 2+2 posters thought would be around forever just went away and were not replaced), people resorted to cheating to maintain their standard of living. I thought that this would come about through collusion, but instead it appears to have come about through deception and fraud. More and more of these are coming to light every month.
The second is that some of the online players on 2+2 are still in denial. They literally can't believe that this is happening to them, that they have lost their entire wealth -- sometimes well into six figures.
This was the result of the internet poker boom. I've been playing poker for money since I was 13. Once of the first books I bought on cards was Scarne On Cards, which had a long section devoted to cheating. In the old days of poker it wasn't enough to be good at cards. You had to get the money when you won it, and, once you had got the money, you had to make sure you kept it. Long walks in dark car parks could be an unwise move. Taking an IOU could be even less wise. I think that, of my two grand in winnings in 1979 in private games, I actually ended up netting about £1,200. The rest was in IOUs that were never paid.
Barry Greenstein wrote in his excellent book that the Stardust in the 1980s and early 1990s was basically a cartel of seven-card-stud colluders. Even as late as 2000, in the Dungeon, it was known that two or three of the regulars soft-played each other.
But the internet kids of the past six or seven years came up through a different stream. Some came via Magic; some via computer games. All were young, good at maths, and many held weekly meetings with other young players to work out "clever" plays. As with backgammon, they revolutionised the game. NL Hold 'em online now is a different planet from four years ago.
But what these whizz kids were not was streetwise. I suspect that it didn't even occur to them that whenever there is big money at stake, you will attract crooks of a variety of hues. Isildur1 was "cheated" in the sense that his opponents shared their hand histories on him, so that, while he thought he had only played a guy for 1,000 hands or so, in fact the other guy had about 50,000 hands of heads-up history to work with. Had Isildur known this, he would have changed his style, but the information was kept secret.
In another case, a "fake" player was created by two top NL players (the "Portuguese prodigy") that turned into such a marvellous farce that they really ought to make a movie out of it. This was because these players were too good -- people didn't want to play them.
This point even caught out Ben Grundy, who seemed genuinely surprised that, after he had taken a few million off people at short-handed PLO, they didn't want to play him any more. I think Ben really believed that these guys were in the game to make millions for Ben, rather than to try to make a living for themselves.
All of these were examples of what can only be called naivety, and in some cases this has cost these youngsters dear. They won the money, but they didn';t work out that this was only half the battle. They missed out on the second part. Once you have won the money, you have to keep it.
_______________
