Thoughts on Full Tilt Poker and Howard Lederer

If you’re not a poker player that title might be a bit obscure, so here’s a quick primer: Full Tilt Poker (FTP) was founded in the early 2000s by a couple of poker’s biggest stars, Howard Lederer and Chris Ferguson. Other pros including Phil Ivey, John Juanda and Andy Bloch invested in the start-up and a day-trader named Ray Bitar, who was a friend of Ferguson’s, became CEO. The company became wildly successful and was, before its dramatic demise, the second largest online poker site in the world (behind Poker Stars).

 

The details of the ensuing years are many, complex and still not completely known but on what is known as “Black Friday” (April 15, 2011) the Department of Justice indicted FTP (along with two other poker sites) on charges of money laundering, bank fraud and violation of Federal gambling statutes. Evidence of a host of unsavory, illegal and unethical financial practices was uncovered and once revered people like Lederer and Ferguson have been living under a cloud of suspicion.

 

In September a deal was struck in which Poker Stars will assume control over the remains of FTP and Lederer agreed to sit for interviews to explain what happened (Google “Lederer files” and they will pop up). I’ve watched the interviews. I have, like many poker players, reactions to them. I’d like to share them with you here.

 

First, while watching Howard I kept flashing back on the ‘39 culture-classic “Babes in Arms” with Judy Garland and Mickey Rooney. The kids put on a show, in a barn. It turns into a hit but you know that they’re just two teenagers singing and dancing in a barn. If this thing were ever to get big, if it somehow made it to Broadway, you can’t shake the feeling that they’re not ready for prime time.

 

Well, Howard, Chris and Ray started a company and it got big and all I could think of was two teenagers staring in open-mouthed wonder at the Great White Way.

 

Lederer does his best to put a good spin on events, alternately claiming innocence and embracing ignorance, defending some decisions he made and questioning others, supporting some colleagues and condemning others. Some of what he says feels contrived and self-serving (how could it be otherwise?), some of it feels honest and compelling. And it left me with the image of a couple of smart, basically nice guys who got in way over their heads, trusted untrustworthy people and then naively accepted tales told to them – because believing was easier, less-demanding and more lucrative than asking hard questions.

 

As most of us in the poker world know, the deeper the DoJ dug into FTP the more they found and the worse it looked. Among the more notable practices were disguising the nature of deposits to avoid scrutiny from banks and credit card companies (e.g., you send in money with your Visa card but it ends up credited, not as an FTP deposit, but as the purchase of several shirts from an imaginary clothing company), comingling funds (e.g., monies in player accounts were used for company business), allowing a backlog to accumulate (e.g., recording as deposits funds that were never actually collected) and, most poignantly to players, paying large bonuses to the original owners (e.g., of the order of tens of millions of dollars).

 

Eventually Howard does seem to begin to grasp what has gone on but it’s like a wife who’s been washing lipstick off her husband’s shirt collars for two years being surprised when she encounters him in bed with another woman.

 

But let’s push the Garland-Rooney parallel a bit. Let’s suppose that their play become a hit and made it to Broadway and, importantly, that they held the copyright. But when they get there the producers ask them to give up the starring roles which are handed over to others, tell them they’ll handle the ticket sales, take care of the accounting, advertising and distribution of proceeds. “Sure kids,” they tell them. “We’ll hold meetings over the phone so you’ll be part of the process but don’t worry your head over this. You can just go back home and … of course, we’ll send you checks.”

 

This is what seems to have happened. Howard and Chris are on the Board of Directors and Howard heads it. They basically own the company with the other investors. In principle, the CEO and the CFO work at their pleasure but … like our imaginary Judy and Mickey, they’ve said to the business folks, “sure, yeah, that’s okay, just call me once in a while and, oh yeah, keep those cards and letters with the checks in ‘em comin’ in.”

 

FTP started out as a baby LLC in California, with a license issued by an autonomous tribe in Canada, with offices in Ireland and administrative control in Alderney in the Channel Islands, a CEO with no previous experience at this level and a board of directors made up of absentee poker pros who wouldn’t have known a corporation balance sheet if it spit tobacco juice in their eye and the whole thing was being run on what seems to be a hand-shake and a couple of conference-calls.

 

And what did the executives of this firm do? They laundered money through phony credit-card accounts, misrepresented transactions by setting up nonexistent businesses, violated banking-transparency laws, co-mingled funds, loaned money to owners without standard collateral, failed to keep sufficient resources on hand to cover player deposits and, in a display of mind-bending stupidity, allowed a backlog of unsecured deposits to accumulate that amounted to well over one-hundred million dollars – and, while all this financial legerdemain was going on, shipping millions of dollars in profits to the share-holders.

 

Even if we give Howard the benefit of the doubt, it is fascinating that he and Chris were unable to see what was going on. These guys are poker players. They make a living reading their opponents, sensing subterfuge, spotting deception, reacting appropriately to misplaced efforts to convince. Yet they accepted Bitar’s explanation that all player funds were covered, that the Utah bank being used for the disguised transfers of funds was sound and above-board, that no money was being laundered or otherwise misused, that all deposits were being handled transparently. They also deflected appeals from other early investors like John Juanda to fire Bitar.

 

I don’t mean to suggest that Howard, Chris and some of the other owners and board-members were utterly absent. It appears from the interviews that Howard, at least, was trying to stay abreast of company activity. But it’s hard to shake the feeling that so long as these untold riches were coming their way they had little incentive to probe, to ask hard questions or to pull back the tent flap.

 

Howard, Chris and several other owners are currently under scrutiny by the DoJ, charged with taking tens of millions of dollars that they “knew” was money accumulated by illegal means. Will they make this stick? I don’t know. No one does but if I were in their shoes I would not be feeling comfortable.

 

What’s the bottom line here? Given what we know, I see two possibilities. Either Howard and the other owners and board members are crooks who countenanced inappropriate or illegal financial dealings and got caught or they were a couple of naïve kids putting on a play that became so successful that they lost track of everything including their sense of ethics, their curiosity and their ability to read the cards the guy across the table from them was holding.

 

We may never know the answer.