Le Monde du Poker.

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September 23 2011, Chad Holloway

In order to get a legal perspective on the Full Tilt Poker allegations, PokerNews caught up with Maurice “Mac” VerStandig, an associate from Offit Kurman Attorneys At Law in the mid-Atlantic region, who is a litigator with extensive knowledge of the gaming industry and the laws governing monetary fraud, and with extensive knowledge on Ponzi schemes. In addition, VerStandig is well-versed on the American poker scene, including the recent developments in online poker.

What are your initial thoughts of the Black Friday indictments?

As an attorney and someone cognizant of the gaming industry’s goings on, there was an element of it that seemed inevitable. In a sense, PokerStars and Full Tilt in particular, I suppose UltimateBet to a degree, had really been flaunting their presence. The advertising scheme, not just on ESPN anymore, but it had really moved to network television, seemed almost too cued by hassle. The .net appearance, again, just felt too cued to some regards, and I was not surprised to see that the government finally came down on them. I know there has been a push toward legalizing, I had followed that push and I was optimistic that something would come of it, but for the time being it probably got to be too big too fast, and sort of, to borrow the Icarus analogy, flew a little too close to the sun.

For those who might not know, what is a Ponzi scheme? From what you've read, is this a Ponzi scheme?

The Ponzi scheme does not actually mirror what we’re talking about here, and that’s one of the significant misnomers I think that’s come out. The first Ponzi scheme was run by Charles Ponzi, and what he did was he advertised with potential investors an arbitrage opportunity involving postal vouchers. He in essence promised a 50 percent return within a certain number of days and instead of having any legitimate investment, what he would do is use the positive buzz that came from this tremendous return to find new investors and he would use the new money to pay the old.

So a Ponzi scheme is an investment scam where there’s no legitimate investment, but where new investment money pays off old investors. The two famous ones are Charles Ponzi, and of course, Bernie Madoff, who has sort of flickered through the news for several years now, but Ponzi schemes also happen regularly on a much smaller basis. There was actually just an Amish Ponzi scheme on a much smaller level, but still millions of dollars, that got a little attention. If you go through sort of the countryside of the U.S. you’ll find various schemes and scams, oftentimes related to the cultivation of homing pigeons and the fertilization of their eggs, or fairly ridiculous things of the like.

How does this alleged fraud differ from the likes of Bernard Madoff’s infamous operation in terms of structure, scope, and purported goals?

Well, and that’s sort of the key to this, normally with a Ponzi scheme your investors are promised a return in exchange for passive activity. In essence, the promise is give me your money now and I’ll give you more money later. With Full Tilt Poker, the "investors" are the players because the genuine equity investors were the ones perpetrating the scheme, or allegedly I should say.

Players were never told that their money sitting in a Full Tilt account would grow automatically just by being on deposit. To the contrary, the promise made was that you can upload funds and if through your strategic playing of poker, a game of skill, you win monies, we’ll give you those monies. So it lacks the traditional passive element and that’s the big difference. This really wasn’t a get-rich-quick scheme. This was just a pure fraud as alleged by the U.S. government.

So was “Ponzi scheme” just a poor choice of words by the Justice Department?

I appreciate where the notion comes from because the one commonality is that Ponzi schemes are dependent upon new investors constantly coming in, for new money to come in, and it looks like Full Tilt Poker was heavily reliant on new money coming in. That would be the only way they would be able to honor player withdrawals. If the complaint is true, the owners were taking out something to the tune of $10 million a month, and the only way that Full Tilt would have any money on deposit was if new players came in. So, I don’t know if it was a poor choice of words, I think it may have been a little overly simplified, but I can also see where it has an appeal in the media age we live in, and simply calling something a massive fraud is not as sexy as it once was.

Many in the poker world believe that Full Tilt did not begin with the intention to commit fraud, but rather that it was a result of poor business management. Do you have any thoughts in that regard?

Let me first say, I have no knowledge of what Full Tilt did or didn’t do. I’ve read the government’s amended complaint, and I know what’s being alleged, but I was certainly never on the inside of Full Tilt and certainly don’t know what anyone’s motivations were. I can tell you that before the Unlawful Internet Gaming Enforcement Act came about in 2006, Internet poker, from a purely economic point of view, was probably a decent investment. Party Poker was certainly a ravishing success in the United States by most accounts, and even after passage of the UIGEA, there seems to have been a model for success.

It is telling that the U.S. Attorney has not levied some more charges against PokerStars, which was by all accounts a larger operation than Full Tilt Poker. In that sense it seems, if properly run, there was a lucrative opportunity. It may have fringed on illegal, and it may have been rife with risks, as you considered how to create a U.S. presence, how to market in the U.S., and how to keep your assets safe and personnel free from arrest, but there’s a reason poker has been dealt in casinos for decades . . . the house takes a rake, it’s a profitable proposition.

Why do you think only Lederer, Ferguson, and Furst were added to the civil complaint and not all of the approximately 23 "owners" of FTP?

There’s a reference [in the complaint] to "Player/Owner 1," which seems to be a John-Doe-like figure, who has not been added. I couldn’t tell you, and I don’t know the specifics behind this case or the manner in which this case is being dealt with by the U.S. Attorney’s Office. I can tell you that there are normative situations in law where people, or the government, would make a conscious and strategic decision to not sue all defendants at once, or to privately deal with certain and more cooperative defendants and bring suit against others.

Remember, the case that we’re talking about with the Ponzi-scheme allegations is not the criminal case, it is a civil forfeiture complaint. So all we’re talking about is money and property. There’s no effort to put Howard Lederer in jail, there’s no suggestion that Chris Ferguson’s gonna have to do 500 hours of community service. It’s simply about money . . . Without speculating I couldn’t tell you why the other individuals are not named, other than to say that there are legitimate reasons that someone who is cooperative might not be named, that someone who is thought to have not taken an appreciable sum of money would not be named, that someone might be named at a later date, that a different civil forfeiture action could be undertaken, that someone based overseas might be thought of as too difficult of a target, or someone over whom the court wouldn’t have jurisdiction could be excluded. I couldn’t tell you which it was, and I won’t speculate.

Why are the charges against them only civil and not criminal? In the case of Bernie Madoff, he faced jail time.

I think that’s a decision on the part of the U.S. Attorney’s Office. Now there is a criminal action running around, and that’s part of what precipitated Black Friday. Here, it makes sense for the government to initiate a civil action seeking forfeiture of the funds because it’s an alternative means that the government can come after the monies. It’s worth pointing out that the four counts in this complaint, even though it’s a civil complaint, are all things that have very close criminal siblings. We’re talking about illegal gambling, wire fraud, bank and wire fraud, and money laundering.

As to why the criminal complaint has not been brought against Howard Lederer and Chris Ferguson, again, I don’t want to pretend I have any inside knowledge, I don’t know what the U.S. Attorney’s motive or lack thereof is. It is interesting that the way that the civil complaint is written, there are no specific allegations that Lederer or Ferguson made any of the misleading statements about monies being safe and secure, that they directed persons to make the statements, or anything of the like. They appear to beneficiaries, but certainly from knowledge as imputed to them, again because of the fraudulent allegation and the money-laundering allegation.

What sort of actions can we expect the DOJ will take against Lederer, Ferguson, and Furst?

Based on the civil complaint, the proposed amended civil complaint, which I imagine the court will grant . . . you can anticipate that certain assets have already been seized. The most notable of those assets, maybe not against those four defendants, but against some of their co-defendants, were UltimateBet.com, FullTiltPoker.com, and PokerStars.com. It is actually through this case, not the criminal case, that the domains were seized and that is how the domains went offline on April 15 before the subsequent agreements were reached between the DOJ and the operators.

Now in terms of actual assets, this alleges that certain payments were made into Swiss bank accounts, this alleges that the players that you’re asking about, specifically Ferguson and Lederer, have bank accounts . . . I wouldn’t be surprised if there were an effort to restrain activity on the domestic account pending the outcome of this case. But I don’t know what has actually been done. I don’t know what will be done in the coming days.

If their property and bank accounts are seized, will that then be distributed to the players who had money tied up on Full Tilt?

A civil forfeiture action, if successfully brought by the government, leads to the DOJ just collecting the funds and they’re normally held actually by United States Marshals thereafter. I will say the United State Marshals, as a result of a successful forfeiture actions, manage an astonishing amount of monies.

There is nothing about this specific complaint that suggest the government would endeavor to redistribute those funds to players. That is not to say that there are not means in which the government and/or players could seek to work that out, but there’s nothing about this that suggest this complaint is brought for restitution purposes.

One of the difficult things, in light of the allegations, would be ascertaining what funds you’re looking at. With Bernie Madoff, it is very easy to say that John Doe investor put up $100, and we’re going to disregard all of the alleged profits because they were bogus, but we’re going to try to get him his $100 back.

Well, here John Doe poker player deposited $100, and lost $50 of it, it’s an interesting question as to whether or not you’re trying to get him $100 or $50. I don’t think the government wants to recognize the legitimacy of the rake that was operated, and the sorts of nuisance this case will go into. The other legal problem in a regard is there’s an allegation here that some of the deposits were phantom, I think to the tune of about $130 million, that in essence Full Tilt Poker, in a certain point in time, lost the ability, at least lost the ability to regularly, move money from U.S. bank accounts onto deposit.

For one reason or another, and I’m really curious if this is true, as to what the rationale would have been, [Full Tilt] elected to credit those monies nonetheless . . . there’s a question with those individuals if you started with phantom funds then you won legitimate funds, what type of distribution are you looking at? This is not a complaint that’s trying to address any of that. If successful, these monies would accrue to the interest of the United States government, would be held by the U.S. Marshals, and everything could be dealt with from there, but this is not a restitution suit.

What impact do you think these recent developments will have on the possible legalization and regulation of online poker in the future?

I can tell you that this is probably the best argument yet for the legalization and regulation of online poker. The reality is that even after Black Friday, online poker is played in the United States . . . This shows the lack of regulation and the risk the U.S. poker players are put at. In that sense it presents a very compelling argument to remove that risk and to instead give U.S. poker players the same protection they would have anywhere from the Hard Rock in Hollywood, Florida to Bobby’s Room at the Bellagio . . . I suspect this will become one of the better arguments for legalization, but I’m sure that opponents will also use it to cut the other way.

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