Aug 042012
 
 August 4, 2012  Posted by at 1:56 pm Finance
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Black Friday

In the midst of the Eurozone crisis and corporate bankruptcy scandals such as MF Global last year, a smaller-scale yet meaningful scandal went relatively unnoticed. This scandal erupted on what poker players now call “Black Friday” – April 15, 2011. That was the day when U.S. federal authorities unsealed indictments, seized the domains and assets of the three most popular online poker sites – Full Tilt Poker, PokerStars and the Cereus network (Absolute Poker) – and arrested the owners. Hundreds of thousands of U.S. poker players were locked out of their online accounts and separated from their funds.

Initially, the central charge against these sites and their owners was one of bank fraud and money laundering. While PokerStars was soon able to return money owed to players, FullTilt players have yet to receive the almost $350 million owed to them. In comparison, that’s about 30% of the amount that was looted from the wealthy clients of MF Global. After several more months of investigation, the U.S. attorney in Manhattan was forced to state that “Full Tilt was not a legitimate poker company, but a global Ponzi scheme”.

“Not only did the firm orchestrate a massive fraud against the U.S. banking system, as previously alleged, Full Tilt also cheated and abused its own players to the tune of hundreds of millions of dollars,” [U.S. Attorney] Bharara said. “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.”

 

 

From 2007 to 2011, the owners and board members of Full Tilt received about $443 million in payouts while being well aware that the money owed to players worldwide did not exist and could not be paid out. This included payouts to such trusted names in poker as Howard Lederer, Rafe Furst and Chris “Jesus” Ferguson. Players with funds deposited on Full Tilt had every right to be outraged at this criminal behavior, but, then again, these types of corporate ponzi schemes should be viewed as business as usual in the global economy by now.

Every major bank in the world, including the ones that were allegedly “defrauded” by these poker sites (as if they couldn’t figure out what was really going on with all of the sketchily-named transactions they processed), operate on the exact same ponzi principles as Full Tilt. If the “Black Friday” poker disaster can teach us anything, it is that the money you have on deposit at your financial institution does not really exist and there will soon come a day when the banks, in conjunction with the government, prevent you from cashing out your deposits.

For some reason, most Americans still cannot envision such a scenario occurring, even though it has started occurring in Europe and has already occurred to hundreds of thousands of poker players here (as well as the clients of MF Global). They believe that, at the worst, restrictions will be temporary, losses will be minor and the government will eventually make them whole. Well, let’s look at what is now happening with the funds of Full Tilt players to perhaps get a glimpse of how these future “bank holidays” will play out.

Poker Players’ Association Repayment Updates

 

On April 15, 2011, forever known as “Black Friday” to the poker community, hundreds of thousands of US online poker players lost the ability to access their accounts on the major poker sites. Since that time the PPA has made it a priority to do everything it can to help those players get their money back. Thankfully, PokerStars fulfilled its obligation to its players and promptly returned their funds. Players on FullTiltPoker and the Cereus network were not compensated however. In July 2011 the PPA released the Player’s Funds Legal Guide in order to help players understand their rights and the various methods to assert those rights as the situation unfolded.

 

Now, 15 months later, another chapter of the saga has come to an end. As reported here the DOJ, FTP and PokerStars have finally come to an agreement settling the civil cases against those sites and paving the way for account balances to finally be returned. The PPA applauds the efforts of the DOJ and all the various parties for reaching this agreement and especially thanks them for making the return of player funds an important priority of the agreement. While details of the player repayment process, known as “remission of funds,” are still not available, rest assured that the PPA will be working diligently to help ensure a fair and easy process for all parties. We have reached out to the DOJ with player concerns before and we will continue to do so. We also will be available to the DOJ to assist it wherever we can in terms of what either the PPA or the players can do to help make the process easier.

 

The remission process was discussed in the July 2011 PPA Player’s Funds Legal Guide and you can re-read that section to get a general idea of the process. But the specific details of how the process will be conducted with respect to the specific FTP situation are still being determined by the DOJ. The PPA will use this page to keep you informed of all the details of that process as soon as they are available. The PPA will also use this page to provide you with all the assistance it can to help you through this process if you were one of the players affected.

So bookmark this page, return frequently, and keep your eye out for notices of updates. The PPA will make sure the information is here as soon as it is available. Until more information is available the only advice that can be given at this time is to remain calm, gather all the information you still have regarding your FTP account (especially your screen name, your password, and the name under which the account was registered), and stay tuned.

This development was by far the best news a U.S. player with funds deposited at Full Tilt could hope to hear. After 15 months of separation from their funds, most players had been resigned to the fact that their money had vanished for good. Now, it seems that the acquisition of Full Tilt by an even larger online poker company, PokerStars, will make room for players to finally get their money back. However, it still isn’t at all clear what portion of money owed to U.S. players will be remitted or how long it will take for the process to complete.

In the PPA’s 2011 “Legal Guide” referenced above, they say the following:

It has been well reported and documented that contemporaneous with the filing of the April 15, 2011, indictments against the site owners and their payment processors, the Federal Government initiated substantial forfeiture actions against site assets and specifically moved tofreeze bank accounts used by the sites to hold substantial funds. Subsequently the Federal Government has taken legal proceedings to declare these funds forfeited to the Federal Government as the “proceeds” of illegal activity. Many players believe that a substantial reasonthey have not been paid as of yet is that these seized funds represent a significant amount of the sites’ assets, though exact figures are not yet public knowledge. So, players ask, how about seeking to get player money from the money seized by the Government? Answering this question is enormously complex, and whether and how to seek to do it (or not) will once againdepend on the specific circumstances of the individual player. For players to determine that answer for themselves, the basic principles of Federal Forfeiture must be understood and discussed with private counsel.

 

 

The only thing we know for sure is that U.S. players will have to submit a petition for remission of funds to the Department of Injustice once the details are finalized. So you have to ask yourself – is this the kind of frustrating, drawn-out and complex process that you want to go through to get your deposited funds from the bank? Are you willing to “stay tuned” for more than a year before the insolvent bank is acquired by a larger entity and you can finally petition that entity (or the government) to reimburse you, at anywhere from 100 to 50 cents on the dollar? Remember, this is really the best-case scenario when severely under-capitalized institutions go bust.

That is especially true if the owners are targets in a civil or criminal investigation, as is the case with Full Tilt. We can easily imagine a situation in which the Department of Injustice indicts a network of major and mid-level U.S. banks on various criminal charges for political reasons, but also as a means of giving those institutions an excuse not to pay out their depositors. Just like it did with Full Tilt, this play could go down after a bunch of board members and upper-level management at these banks have siphoned off billions in compensation, bonuses and redeemed equity shares (many of them already have).

And just like with the major poker sites, there will be one or two high-level guys that take the fall and the rest of the charges will be settled before any sort of trial. The major difference is – who will be able to rescue the assets of these banks and raise the funds necessary to pay out depositors? We are obviously talking much, much greater factors of losses than those endured by U.S. poker players. And as we know all too well, only central governments can step in to backstop these financial ponzi institutions. By the time such a rescue is necessary again, those government ponzis will have been bled dry by the corporate war machine as well.

I suspect that most Americans and Europeans with large deposits in the bank will easily see 25, 50 or even 100% of those deposits disappear into a black hole, and they will not be nearly as lucky as U.S. poker players in finding any “white knights” to reimburse them. If anything, they will have to wait a solid 6-12 months before hearing anything about how to go about getting their money back, and then perhaps another 6-12 months to actually get it. By that time, the state of the global economy and society will be quite nasty, and those funds may be useless anyway. What kind of capital restrictions will be in place across the Western world by then?

The only smart move is, and has always been, to get whatever money you will need over at least a year or two out of the bank RIGHT NOW. Despite their after-the-fact claims to the contrary, most people in the poker community had no idea how or when Black Friday was going to hit, and how extensive the ensuing monetary damage would be. All I know is that the poker players who, for whatever reason, decided to liquidate all of their funds before April 15, 2011 now look like geniuses, while the rest of us look like chumps. But I don’t really care what I look like… I just want to get back the money that is owed to me and learn from my misplaced trust.

Home Forums Lessons From the Full Tilt Ponzi

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August 4, 2012 at 1:56 pm #8446

ashvin

Black Friday In the midst of the Eurozone crisis and corporate bankruptcy scandals such as MF Global last year, a smaller-scale yet meaningful scandal
[See the full post at: Lessons From the Full Tilt Ponzi]

August 4, 2012 at 9:22 pm #5018

Professorlocknload

If I may simplify this complex scenario. “Caveat Emptor.”

August 4, 2012 at 11:03 pm #5020

Franny

Don’t forget Knight Capital. I wonder how many people who didn’t even know what Knight Capital was, let alone that they were customers/counterparties of Knight, will lose funds that they thought were safely in their brokerage accounts. Knight simply does not have the money to make good on the trades made on the day that they blew up.

August 4, 2012 at 11:31 pm #5022

SteveB

Prof, while that may be an accurate simplification of the scenario Ash related, it’s an oversimplification of the lesson that he was conveying.

August 4, 2012 at 11:36 pm #5023

millerbowen

worth rereading: http://theautomaticearth.blogspot.com/2011/02/february-9-2011-glimpse-into-stubborn.html

August 5, 2012 at 5:46 am #5030

Professorlocknload

Yes, SteveB, I include that simplification in the “lesson” segment of Ash’s article, as well. Some folks use the banking structure as a clearing house, while other, more trusting ones use the system as a wealth storing facility. I, like Mark Twain, would be, to paraphrase, “More concerned with the return of my capital, then the return on my capital.” Not much has changed since his day, eh?

To take my viewpoint another step, at least in the short period one’s funds are at risk in the banking monolith, as clearing device, they are “insured” by the FDIC, an acronym who’s last letter stands for what?

Now, imagine the stunned looks on the faces of those less suspicious of the profit creation process, when the uninsured, unbacked, unreal Mutual Fund Industry crashes and burns. An industry, it has been said, which consists of more “Funds” than there are stock issuing entities on the exchanges. Do we sense a dollop of Ponzi financialization (fictionalization) here?

I never had the advantage of a formal collegiate edumication, but, boy howdy, have I paid some tuition in life ;) My adopted street thesis is simple too, “Fool me once, shame on you. Fool me twice, shame on me.”

August 5, 2012 at 11:28 am #5032

Nassim

Too many dear contributors are using the phrase “Nasser’s Pan-Arab-Nationalism” with no real understanding, IMHO, of what really went on. Well, I was brought up under “Nasser’s Pan-Arab-Nationalism” in Egypt, and just a short distance from the presidential palace to boot. I was there from 1950 to 1962 and one of his sons, Khalid, was in my class at one time – I was the youngest in the class and he was a year older than me. Much later, he bankrolled an attack against some Israelis in Cairo – to get Sadat into trouble – and the Israelis put the screws on him and he had to pay a huge ransom to avoid being murdered in reprisal. Of course, you will not find it in the laudatory Wikipedia reference:

http://en.wikipedia.org/wiki/Khalid_Abdel_Nasser

Let’s see in black and white some of the “accomplishments” of Nasser and his henchmen.

1- When he came to power, the Egyptian pound was far stronger than the pound sterling, and there were very substantial gold reserves to back it. When he died, it had become worth less than 20p.

2- Nasser forced all foreigners to leave including those, like the Greeks and the Jews, who had been there for hundreds, if not thousands, of years. He confiscated most of their wealth and property and ensured massive enmity and bitterness abroad.

3- Later, he did the same to any half-decent business in Egypt – factories, hotels, industries – owned by private Egyptian interests. Every company on the stock exchange was sequestrated. He stole all this wealth and spread it among his friends and cronies – especially the officers.

4- Egypt had avoided getting involved in either the WW1 or WW2 (even the British who largely ran the country had been unable to get them involved). Nasser invaded Yemen and gave the Israelis a good pretext for smashing his army and air force and for occupying Sinai and cutting the Suez Canal (a major source of income for Egypt).

5- He imported a large number of East German Stasi intelligence specialists and built up a huge intelligence network (Mukhabarat) which monitored everything anyone of any significance did or said (including the children of these people). He opened many new prisons for political prisoners and torturing prisoners became standard practise.

6- He took any land over 50 acres from its owner and gave it to the peasants. Of course, superficially this might seem a great idea. However, he lowered the controlled prices at the farm gate so that this “benefit” was really a poisoned chalice. Just like Lenin, for political reasons he favoured the town dwellers over the peasants. If you want to know why Egypt imports half its calories, this might be a good starting point. He told the poor to “go forth and multiply” – which they gladly did.

The Nasser family is immensely wealthy (just like the family of Yasser Arafat) and they live like kings of old. This wealth was entirely stolen from ordinary people.

August 5, 2012 at 6:44 pm #5033

Golden Oxen

It has become impossible to hide in the financial system of today without cash only.
That creates the problem of being caught with it and having to explain to the authorities why you have it, and that you are not a drug dealer or terrorist. You will be reported to the authorities by law if you try to get more than five thousand in cash, so that is not an option for people with substantial assets. You also have the inflation problem with hoarding cash to deal with. Gold and silver solve that problem but leave you open to the same intrusion of your rights and liberty as the hoarding of cash.

We are screwed, most of it was our own doing by letting the corruption get out of hand,as well as the power of the Government. Accept it, There is No Place to Hide, we reap what we sow.

The gold bugs warned you and you laughed and still do.

August 7, 2012 at 5:36 am #5056

snuffy

Hi Nassim,

Your account reminds me of a “Explanation of the way of things.”by a “for real” spook I ran into on-line a bunch of years ago.[I only made the connection that he was for real after the events of the outing of Valori Plame…He had mentioned almost in passing,of her cover company being a front for Langley…funny,what you used to run into online 15-20 years ago…[!].

Anyway,the gist of the discussion was how each society”resets” itself in such a way to allow for the advancement of the human animal as a whole,how does the cream rise in a static, conservative,class-oriented/dominated society?…[He said that a major topic that had confounded many of the elite who had studied the matter]How can you maintain control of resource base for “the right sort”,when, the very bright,motivated and most able of the society are from there other side?.Backing a revolution was one way…

War,as a method,was discussed as simply a way of shaking up the status quo,so to speak…a shaking of the dice by those who wield true power…to see how the new methods and ideas can shape the reality [we,the great un-washed masses] all live in…a game,by those who can cause such events.Read carefully the accounts of the second world war and you can guess the unseen players by their shadows.

The most telling thing I remember of that discussion,was the realization that …TOTAL WAR…Like WW2,was never going to happen again….because the elites realized That nuclear weapons,if used widely,would most likely smoke them too,and end the game for everyone…..Low level brushfire wars over resource control are “acceptable”.

The last few years have seen a upsurge of “Diplomacy by other means”…resulting in side effects that we all are noticing.Things like the militarization of the police.The human wreckage…the horrible cost to the occupier and the occupied…is”acceptable”.

I cannot help but wonder ,as the drones begin to fill our own skies, how much collateral damage will become “acceptable”.

If you look at the “Modern” history of the world,you see war and famine,revolution,anarchy and chaos,hitting just about everywhere,when the elite’s children lose touch with their poor cousins,and forget hunger…Then maybe someone, a ways up the food chain,sees there is no chance for their own advancement,unless a whole bunch of the top dogs lose their share.Revolutions are rarely started by the desperately poor[they are busy trying to stay alive],but someone who thinks that they know where a lever is that can move the mountain that is a society.

They might have stamped out the hot little spark that was “Occupies”but even so,the huge,fire-suppressed pile of tinder is still there,still waiting patiently,for the next hot little spark.[I recall it took 4-5 years before the 'nam demonstrations really got legs]

I watch the jockeying,and moment,statements,and such,of the politicians…the deadening reality that “is” for those still seeking some kind of life for themselves, after the disintegrating economy grinds them up and disposes of their job,and their life…and wonder.

How long have we got?…

I have the gut-feeling that we are close to some kind of inflection point,a place we can say”It.Changed.Here”.

Couple of things on the horizon, coming closer, I think.

I have noticed,War,as a method of determining the outcome of American overseas policy,is a slow to start…then terrifyingly fast,once the orders are given.No-one is paying much attention to Iran right now,as the most bellicose mouths have been silenced,more or less..but the quiet preparations for a major confrontation with the USA have been made..”legal” declarations by their parliament of the intent to close the Straits of Hormuz,due to outside influences,as well as other “players”in the area,moving in to position,”Assets”.Some in public…and I imagine some very quietly.

Very little would be needed to set the whole area aflame,with Israels focused on turning Iran’s society back 200 years technology-wise,and removing the most creditable threat to their total military control,and our desire to nip off the bottom 1/10th of the their territory next to Iraq [Where the oil is].

I am hoping it stays quiet till after the elections,as I don’t think O-man wants to try and defend himself from the charge of provoking a war to ensure his re-election…Which I am sure The repugs would make….

But I am sure that would be a great cover for the huge “Reset””The system” is getting redey for

As far as the bank fraudsters…

All those who say that its too difficult to get your [substantial]assets in a “safe”place…

Take heart.You wont have to worry much longer about them as they will disappear in a cloud of electrons…soon

Buy “things” of true value. A farm w/water& gear.Gold,silver,Cash…seedbanks…BIG propane tanks topped off w/cars& generators,and tools-equipt designed for off-grid.What would 2000 ,340watt solar panels be worth after a collapse?Your life?Your families life?If you have the power,guess what?you ARE the power in your community.And that is the real focus you must aim for…how can you provide for your community,because its those folks who look out after their own ,in a community,that will prosper in the future

Yes,its a pain to do the paperwork.Be careful,but if you want to keep you stash,you had better get your ass[ets] under your direct control Now,boys and girls.The system still works now..you can get on a phone and order whatever you think will do you and your tribe “Good” now.Next month?who knows…your starting to see lots of big names[Knight ring a bell?] getting taken out back and shot now…

I think its time to head back outside and start watering the gardens,there is always things I should be doing in sweet summer weather.

Bee good,or
Bee careful,

snuffy

August 15, 2013 at 6:57 pm #8447

Raúl Ilargi Meijer

Test number 2

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