Full Tilt Ponzi(blogs.reuters.com)
blogs.reuters.com
Full Tilt Ponzi
http://blogs.reuters.com/felix-salmon/2011/09/20/full-tilt-ponzi/
15 comments
This is further evidence the industry should be regulated and taxed in the US. The amount of money following around the poker/betting/online gambling industry is immense and there's no reason with a little oversight that this mess can be avoided.
this is a perfect example of taking something that would normally be legit and because it is outlawed rules and regulations are flouted at best, a massive fraud and corruption at worse.
When I see cases like this, I was wonder how people involved but they would be able to get away with this if you look at the amount they supposedly had on deposit versus what they actually had it doesn't take an accounting major to know there is a huge discrepancy that you will unlikely be able to pay back. It's clear the poker sites make some money through ads and transactional commission but since people play against each other they don't benefit from the advantages a normal casino would have. Although people lose their money they lose it to the person across the table not to the "house".
With this high-profile company now under a dark cloud of suspicion, they are definitely putting a big if not final nail in their coffin. With player bots, player collusion and security vulnerability in their systems people start to think long and hard before they wager money online.
> It's clear the poker sites make some money through ads and transactional commission but since people play against each other they don't benefit from the advantages a normal casino would have. Although people lose their money they lose it to the person across the table not to the "house".
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.
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.
Note that in this case, you mostly get the "benefits" of legalization by including strict regulations in the package.
The poker sites make a large amount of money by taking a 5% rake on every pot played.
Financial "products" are regulated by the gov. That didn't seem to have the desired effect back in 2008.
I don't think fraudsters care about regulation. They care that they can sucker people.
I don't think fraudsters care about regulation. They care that they can sucker people.
The financial crisis (and gambling losses at legitimate sites) weren't the result of bankers diverting investors' funds into their personal bank accounts, as is alleged here.
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.
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.
My point was that regulation and scrutiny didn't prevent the likes of a Bernie Madoff providing a financial product and running a ponzi scheme.
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.
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.
Your premise seems to be that all regulation is the same. Correct me if I'm wrong but your argument essentially is saying: "financial products were regulated in 2008, well see how that worked out, therefore regulation doesn't really work well"
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.
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.
I see what you are saying. I think regulation helps and it provides a way for redress. Those are good byproducts of regulation. I think my point was that bad people will still try to pull fast ones -regulated or not. I imagine the frequency of fraud could be reduced by regulation.
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.
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.
Some backstory for those not all that familar w/ online poker:
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.
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.
The 'rush poker' innovation was relatively recent and likely inconsequential. It definitely was only a tiny amount of their revenue stream
(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.
(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.
if your average player is 1-tabling, he's getting (maybe) 80 hands/hour. that same player at a rush table is getting 250 hands per hour. rush poker probably tripled their revenue. who knows how many times it multiplies their profits.
You lose some competitive advantage with the rush style, mainly in reading your opponents tendencies in betting patterns, hands played, etc., so win-rates don't scale entirely with hands/hour.
House revenue and rake, not player winrates.
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
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
That makes sense then - I completely misread what you were saying.
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.
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.
just to clarify, that would mean triple their revenue compared to if those players played normal poker, not an overall measure.
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.
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.
Fair, but from houses perspective they just don't care what happens above 1/2nlrake wise, high stakes is just marketing. I speculate. Kinda like how trump males his money from penny slots. Sent from mobile
The rake per hand in some Rush games was higher than the normal tables as well
- As already pointed out, only FTP had a 'rush poker', it although popular it was still a very insignificant part of the poker market.
- '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
- '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
Rakeback is just an affiliate program -- it's exactly the same as the concept of FatWallet CashBack or Bing Cashback when it existed. In affiliate marketing this is all just called "incent" traffic. (incentivized).
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.
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.
- I was correcting grandparents comment, that said up to 1/3 of rake generated goes back to the affiliate that signed up the player, and that is called "rake back". This is not correct. Only 1-3% goes back to the affiliate. Rakeback refers to the money that goes back to the player, either via the affiliate or directly. I'm not sure what part you are correcting me on?
- 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 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.
I think you're unfamiliar with the online poker affiliate marketing industry. Full Tilt is paying affiliates 20-30% life time commission on net earnings less fees, in addition to allowing for a small (2-3%) cut from sub-affiliates you refer. As an affiliate, you can incentivze the sign-ups however you'd like.
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.
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.
I'm not going to get in to this further because I don't think it really pertains to the topic. But I'm quite familiar with the poker affiliate market, as I've been involved in it for the last 4 years. Most of your paragraph 1 is accurate, although the last part is not (affiliates cannot 'incentivize' how they like. FT caps all RB that can be proffered to 27%; pokerstars does not permit any cash incentives at all, etc). Most networks these days offer RB in-house or what can be offered is fixed; FT will put players on to one specific RB provider if they request it (and don't have a prior arrangement with another affiliate). The margins these days for affiliates is very thin, normally taking 1-3% with the rest kicked back to the player.
but we are getting way off-topic. I was correcting the original comment above about what the definition of rakeback was.
but we are getting way off-topic. I was correcting the original comment above about what the definition of rakeback was.
If FullTilt is a Ponzi, then any startup is a Ponzi. Investors put money into the startup, the founders spend that money (in part on their own incomes), and based on the company's business model, the investors reasonably expect to get a return on their money.
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.
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.
The difference is that players were not investors, they were depositors.
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.
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.
Another angle is that players might not even legally be considered depositors.
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.
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.
Hard to say you are buying chips when you do not receive anything, would be hard to argue that. I dont think regulated operators are allowed to work like this. Aside from the US issues, Fulltilt was actually shut down by the gambling regulator in Alderney, so they were not unregulated.
There are two groups of players at poker sites.
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?
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?
Clarification: I don't mean that players have the same legal status as depositors at a bank. The TOS for these sites could say just about anything, and they could characterize your "deposits" any way they want. (I haven't read the TOS, so I don't know if this is actually the case.)
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.
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.
The whole thing hinges on how fast a players deposit can be converted in to rake. If 14% or less of the deposits ever made ends up being paid out then they're actually still in the black.
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.
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.
In a sense, depositing money in a bank is a sort of loan to the bank. They then loan your money out to others, and give you a cut of the interest. It isn't really "held in an account," rather there is a register which says how much money you loaned to them.
True, but it's very different than an investment. They're holding your money in trust. And significantly, no purchase has taken place. You haven't traded your money for equity. You haven't traded your money for anything at all. Thus, it is still your money legally. That's not at all true when you buy equity in a company. When you do that, the company really does own the money you give them, and they're free to do what they want with it. In exchange for transferring ownership of your money, you get equity.
Full Tilt had the best user interface and experience. I'd love to see someone write about their software.
Bank run in 3, 2, 1...
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 [email protected]."
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.
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 [email protected]."
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.
"Bank run in 3, 2, 1..."
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.
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.
Thanks for the correction, I missed the earlier announcement.
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 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 as an industry standard demonstrate that you can run a profitable business with affiliates. In fact, there are affiliates for lots of businesses outside of online gaming nowadays. If businesses couldn't make money while affiliates existed, then affiliates would not exist.
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.
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.
> they get paid a small lump sum for each new player, say $25-50
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.
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.
The new players have to generate so many "points" which are based on the stakes they're playing and the amount of hands.
They'll basically need to generate the $25-50 in rake before the affiliate can get the bonus.
They'll basically need to generate the $25-50 in rake before the affiliate can get the bonus.
Affiliates (no longer?) don't get paid based on a straight up deposit, but instead need to have their signups play through to earn a certain amount of FTP points, which are correlated to rake paid. The CPA rates start at ~$75 and go up for those who drive volume. Rakeback affiliates make only 3% of gross rake.
See http://www.pokeraffiliatesolutions.com/full-tilt-affiliate-p... for more
See http://www.pokeraffiliatesolutions.com/full-tilt-affiliate-p... for more
This is incorrect. FTP continued to operate (and process withdrawals) for all non-US customers until the Alderney gaming commission pulled their operating license on June 30.
Excuse my ignorance, but isn't this quite similar to how banks work? I was under the assumption that banks don't have enough cash on hand to pay out all clients if everyone decided to withdraw.
For banks, customer's accounts are liabilities. When you put money in a bank account, you are in effect lending it to the bank; the bank owes you that money. When the bank itself lends out money to borrowers, those loans in turn are assets from the bank's perspective. For the bank to be solvent, the assets (loans) must exceed the liabilities (current and savings accounts and the like).
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.
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.
That's true. It's called "fractional reserve banking." ( http://en.wikipedia.org/wiki/Fractional-reserve_banking ) In fact, most of the money in the economy doesn't even exist as physical coins or bills because of this.
The difference is that a bank invest that money, when it receives the money back it can pay the clients. FT payed it as dividends to it's owners - there was no plan to return it to the players.
banks are allowed to do that and in exchange are regulated and insured
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)
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)
FTP's case is an exception due to the ridiculously large amounts that the owners and executives were paying out to themselves. Amounts significantly in excess of the actual profits.
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.
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.
From my quick skim of the complaint, it appears that the problem wasn't just paying insiders amounts that were needed to cover player balances (which would be bad enough). Check out paragraph 113:
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.
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.
If I'm understanding that right, it's essentially "We're using the rest of the world's players to give Americans (for whom this service is technically illegal) free money"?
I'm glad I only ever played for matchsticks.
I'm glad I only ever played for matchsticks.
Well, on a very small scale, under certain assumptions, extending credit in this manner might be a net win for the business. Legal casinos offer credit backed by their ability to collect through normal channels. Even offshore/illegal, if the amounts forwarded are small, and the users have shown a propensity to zero their debts after a while in order to deposit new funds without 'burning' their whole account/name, it could make sense here, too. (I didn't notice substantiation of the magnitude of these 'phantom balances'.)
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'.
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'.
One difference being that your deposit with your bank is insured up to $250,000 (I think) by the FDIC. The bank has to achieve an accreditation to get this insurance and maintain standards.
Though I can't be sure, I'd assume that banks might hold a little bit higher percentage than what Full Tilt was holding.
Though I can't be sure, I'd assume that banks might hold a little bit higher percentage than what Full Tilt was holding.
It will be interesting to see if Full Tilt has a solid defense behind how they handled the cash. Full Tilt (and most other poker sites) make their money by taking a rake (small percentage) of every pot. Theoretically, over the long run (i.e infinity), almost all of the money would end up in full tilt's pockets. If deposits were outpacing the withdrawals, then they could possibly argue that they didn't need to have much cash on hand to cover future withdrawals. Additionally, considering they are a poker site, I doubt that banking regulations apply to them.
Its not about having cash in hand. Thats cashflow, although businesses fail on cashflow issues, you are allowed to take that risk. However it is illegal for any company to trade while insolvent, when they have negative assets like here.
Even if the complaint is true, this is not a Ponzi scheme any more than any bank in a fractional reserve system, like basically everywhere nowadays.
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.
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.
FWIW, the language comes from the DOJ attorney, so I don't think you can blame the headline writers.
This is the government fishing for a law to prosecute unrelated behavior that is insufficiently regulated or completely legal. This was not a ponzi scheme as many others have commented. They kept enough cash to pay more than enough of the anticipated withdrawals, and had an operating business that could quickly earn any need for more funds should withdrawals spike. This is standard practice in banking and insurance. I hear Warren Buffet heads a big ponzi scheme too.
If FTP did not segregate finds as advertised, perhaps they committed some sort of fraud, but theft and ponzi this is not.
If FTP did not segregate finds as advertised, perhaps they committed some sort of fraud, but theft and ponzi this is not.
No, they were clearly trading while insolvent. Saying you can cover liabilities from notional future profits is illegal. As this is hacker news, recommend you dont run a startup while you do not understand this.
"Saying you can cover liabilities from notional future profits is illegal"
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.
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.
I don't get it, a Ponzi scheme is an investment program, in what sense is poker ever considered an investment program?
The numbers don't add up.
Owed to the players: $390,695,788
In the bank: $59,579,413
Lederer took: $42,000,000
Ferguson took: $85,161,305
I imagine they had a ton of employees, server costs, other executives that got paid well. They could have also given out lines of credit to some players and never collected the actual $, etc.
To clarify a couple of points raised through the comments thread.
- 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/
- 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/
I like how their brand name invites writers to construct these headlines like Full Tilt Ponzi and Fraud Tilt Poker. A Google search reveals that a couple of forum posts actually have referred to them as Full Theft Poker which completes the set.
Which in turn leads to the inevitable mashup of nicknames: The eponymous Fraud Theft Ponzi. Zing! Pow!
Which in turn leads to the inevitable mashup of nicknames: The eponymous Fraud Theft Ponzi. Zing! Pow!
You might be interested in the #FTPstandsfor hash tag.
Grand Theft Poker
2 things always bothered me about poker sites:
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...
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 agree with the statement that this is precisely why we should regulate it.