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FullTilt Poker, Absolute Poker, and PokerStars are all accused of carrying out similar Ponzi schemes, which cumulatively stole $444 million USD from players.

Howard "The Professor" Lederer, a celebrity owner of Full Tilt Poker, and Chris Ferguson, celebrity sponsor of the site are among the poker celebrities charged with gaining from the Ponzi scheme.  (Source: Howard Lederer; Full Tilt Poker)
This gamble didn't pay off

The U.S. Attorney's Office for the Southern District of New York on Tuesday filed charges against executives of online poker powerhouses Full Tilt Poker, Absolute Poker, and PokerStars -- as well poker celebrities Howard Lederer and Christopher Ferguson -- on money laundering and other charges related to Ponzi schemes that defrauded players of $444M USD.  Board members and owners of the businesses were paid in the scheme were also charged.

The criminal complaint against Full Tilt Poker 
alleges [press release; PDF]:

[Full Tilt Poker] defrauded players by misrepresenting that their funds on deposit in online gambling accounts were safe, secure, and available for withdrawal at any time.  In reality, Full Tilt Poker did not maintain funds sufficient to repay all players, and in addition, the company used player funds to pay board members and other owners more than $440 million since April 2007.

U.S. Attorney Preet Bharara, who's serving as prosecutor for the case stated in the press release, "Full Tilt was not a legitimate poker company, but a global Ponzi scheme. 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 the public alike about the safety and security of the money deposited with the company."

Full Tilt Poker, AbsolutePoker, and PokerStars -- all top 10 world poker sites -- are each accused of operating similar Ponzi schemes.  

The sites all operated within a legal gray area -- the world of online gambling.  The Unlawful Internet Gambling Enforcement Act, a last minute amendment to the 
SAFE Port Act of 2006, outlawed financial institutions from transferring funds to online gambling sites.  Many confuse this with a prohibition on online gambling, but many sites -- including the three charges ones  -- found ways to continue money games within the U.S.

While that was permissible under current laws, federal prosecutors say these sites broke the law by funneling money from player accounts to the company's owners, executives, board, and celebrity sponsors.  Full Tilt Poker allegedly only had $60M USD in the bank, but owed players $390M USD after paying $443 to owners, including $42M USD to Lederer.  Mr. Ferguson was paid $25M USD, transferred to overseas Swiss bank accounts.  The company said it owed Mr. Ferguson another $65M USD.

In order to hide its gaping money hole, the gambling site began issuing credits.

In April the sites were shut down after a federal order was unsealed as a precursor to the criminal charges.  The sites currently have placeholder pages embossed with the seal of the 
U.S. Department of Justice.

The prosecutor complains, "In order to maintain its false image of financial security, Full Tilt continued to credit player accounts without disclosing its inability to fund those credits. When players gambled with these phantom funds and lost to other players, a massive shortfall developed... this scheme continued even after the original complaint was filed and the criminal indictment unsealed in April."

Chris Ferguson is one of the most iconic poker players, known for his distinctive wide-brimmed hat and sunglasses.  Before becoming a professional poker player he earned a Ph.D in computer science.  Howard Lederer does not have a Ph.D but he is known as "The Professor" for his methodical approach to the game and learning materials.

Both men are believed to reside in the U.S.

If convicted on the federal charges, the pair may have to pay back a large part of their earnings and/or spend time in prison.  Given that many other poker celebrities also were paid for endorsements of these top sites, this may just be the tip of the iceberg when it comes to charges.

Apparently this is one gamble that didn't pay off for the giants of the poker world.





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