November 28, 2020

Full Tilt Poker Site Misused Players’ Money, U.S. Says

That is the essence of a civil complaint that federal prosecutors filed on Tuesday. It asserts that players around the world entrusted Full Tilt with $390 million in gambling money, and that the company promised to keep those funds in secure accounts. In reality, prosecutors found, the money wasn’t there; instead, much of it had been transferred to the owners and management of Full Tilt, some of whom were themselves among the most prominent and popular poker players in the world.

“Full Tilt was not a legitimate poker company but a global Ponzi scheme,” said Preet S. Bharara, the United States attorney for the Southern District of New York in Manhattan, whose office filed the complaint on Tuesday.

Barry Boss, a lawyer for Full Tilt, which had its headquarters in Ireland, was on a flight and unavailable to comment, a person at his office said.

Prosecutors said they first exposed the scheme this spring while investigating other problems at Full Tilt Poker and two other poker sites, Poker Stars and Absolute Poker, all of which were based outside the United States. In April, the government shut down access to the sites for American players, arguing that they were violating fraud and money-laundering laws.

Before that, American players had wagered hundreds of millions of dollars on the sites. From their home computers, players would put money into accounts with the virtual poker clubs and then bet against one another.

Full Tilt, like the others, told players that it kept their money — including their winnings — in accounts that they could tap into or close out at any time. And the company had a reputation for paying back players in a timely fashion.

When the sites were shut down, prosecutors worked out agreements with them to help them repay players what they were owed.

But reimbursements to Full Tilt players slowed or stopped altogether. The money available turned out to be insufficient, according to prosecutors, because the owners and board members of Full Tilt had themselves tapped those accounts for $440 million since April 2007.

The management’s luck, it would seem, ran out.

Among those profiting, the complaint claims, were some of the biggest names in poker: Howard Lederer, nicknamed the Professor, is said to have received payouts of $42 million. Chris Ferguson, nicknamed Jesus in the poker-playing community for his long hair, received at least $25 million and was “owed” $60 million more, prosecutors said. The two men could not be reached for comment.

Greg Brooks, an accomplished poker player who was once a regular player at Full Tilt, said the federal complaint was a painful eye-opener about what was happening behind the scenes at Full Tilt. In the past, he said, he regularly received sums in excess of $100,000 from Full Tilt, paid within a week of his request, suggesting that he could get access to his money whenever he wanted.

“My impression was that things were working well for years. I had no inkling, not even the slightest guess it wasn’t like that,” he said.

Mr. Brooks, who lives in New York, said he was owed a sum in the “low- to mid-six figures” by Full Tilt that he doubts that he will get back. (He said he was reimbursed a substantial but lesser amount by Poker Stars.) And he added that he was particularly upset with some of the fixtures in the poker community who, he said, paraded around as “brand ambassadors” for Full Tilt. Their behavior, he said, represented a major breach of trust and honor among players. “There’s an inherent level of trust and handshaking in the poker community that is unique to it,” he said.

In its complaint, which is meant to amend the original criminal complaint unsealed in April, the government asks that the members of Full Tilt management forfeit illicitly gained funds. Under federal rules, Full Tilt players could have the opportunity to petition for their money once the lawsuit is resolved.

Some advocates for legalizing online poker pointed to the complaint as another reason that the activity should be federally licensed and regulated.

“This is a system that has been forced into place by the failure of the U.S. to regulate online gambling,” said Lawrence Walters, a Florida lawyer who specializes in gambling and First Amendment law, arguing that players had to send money to risky overseas accounts. “The prohibitionists have gotten their way so far.”

He also quibbled with the government’s characterization of Full Tilt as a Ponzi scheme. He said that the government was using a “focus-group” tested term to get attention, when the allegations suggest that the management of Full Tilt may simply have been lying to players and possibly embezzling funds.

He also said he didn’t think that what prosecutors said happened at Full Tilt was happening in the rest of the industry.

“This is not endemic to the industry,” Mr. Walters said. “Sites live and die on their reputation. To the extent sites get a reputation for slow pay or no pay, that will quickly circulate.”

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DealBook: A Tangle of Details Emerge in an Insider Trading Case

Federal District Court in Lower Manhattan.Craig Ruttle/Associated PressFederal District Court in Manhattan.

6:40 p.m. | Updated

The dark side of Wall Street’s expert network industry was on full display in Federal District Court in Manhattan on Friday.

A former executive at Nvidia admitted to leaking information about the semiconductor company’s financial results as part of an insider-trading ring involving an expert network firm — consultants who connect money managers with public company employees.

Sonny Nguyen, 39, told a judge that he participated in an illegal scheme to supply Winifred Jiau, a consultant at the expert network firm Primary Global Research, and another person with secret information about Nvidia’s quarterly earnings in 2007-8. He faces up to five years in prison.

A few hours later, Sam Barai, who ran the hedge fund Barai Capital Management, pleaded guilty to trading on secret corporate information provided to him by Ms. Jiau about stocks including Nvidia. He also pleaded guilty to obstruction of justice, and faces up to 25 years in prison.

Ms. Jiau, who has pleaded not guilty to insider trading crimes, is scheduled to go on trial on June 1. Mr. Nguyen is expected to testify in the case. Mr. Barai has also been cooperating with the government.

Evan Barr, a lawyer for Mr. Barai, declined to comment. A lawyer for Mr. Nguyen did not return a request for comment.

The pipeline of illicit information about Nvidia, moving from an employee at the company to a consultant to a hedge fund manager, is illustrative of the criminal activity that the government has sought to root out at expert network firms.

The government has criminally charged 13 people connected to these firms, including Ms. Jiau, who is accused of knowingly facilitating the passing of inside information. Of the 13 charged, eight have pleaded guilty.

At a news conference earlier this year, Preet S. Bharara, the United States attorney in Manhattan who has led the government’s investigation, lambasted the expert network business.

“Given the scope of the allegations to date, we are not talking simply about the occasional corrupt individual,” said Mr. Bharara. “We are talking about something verging on a corrupt business model.”

The expert network business developed over the last decade alongside the explosive growth of hedge funds, which have used the firms to supplement traditional Wall Street research and gain an investment edge. The insider trading cases have hurt expert network firms as a number of prominent hedge fund managers have stopped using them.

Primary Global, the firm that employed Ms. Jiau, has been hit hardest by the government’s investigation. At least seven people connected to Primary Global, a California firm started by two former Intel executives, have been charged with insider trading-related crimes.

Mr. Barai, a 39-year-old former Citigroup executive, was a client of Primary Global. In February the government charged him with swapping illegal stock tips sourced by Ms. Jiau with two portfolio managers at SAC Capital, the hedge fund run by the billionaire investor Steven A. Cohen.

After reading news reports about the government’s investigation last November, Mr. Barai instructed one of his colleagues to destroy his BlackBerry Messenger communications and erase incriminating data from his laptop computer.

The two SAC managers, Noah Freeman and Donald Longueuil, have already pleaded guilty. A fourth person connected to the case, Jason Pflaum, an employee of Mr. Barai’s, also pleaded guilty.

The inquiry has reached to the top of SAC, one of the world’s most influential hedge funds and a big user of expert network firms. Federal prosecutors are examining trades in an account run by Mr. Cohen that were suggested by Mr. Freeman and Mr. Longueuil.

Neither SAC nor Mr. Cohen has been accused of any criminal wrongdoing and the firm is cooperating with the government’s investigation.

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