The U.S. Department of Justice declared itself “all in” Tuesday in its high-stakes battle against popular online poker room Full Tilt Poker, alleging in a civil suit that Howard “The Professor” Lederer, Chris “Jesus” Ferguson and other directors defrauded thousands of patrons of some $300 million owed.
A Department of Justice statement asserts that “insiders lined their own pockets with funds picked from the pockets of their most loyal customers while blithely lying” about the safety and security of their deposits.
“Full Tilt was not a legitimate poker company, but a global Ponzi scheme,” said Preet S. Bahara, U.S. Attorney for the Southern District of New York, whose office filed the complaint.
Time. Can I get a chip count?
A Ponzi scheme, according to the New Oxford American Dictionary, is “a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.”
See: Bernie Madoff.
A bluff, on the other hand, is “an attempt to deceive someone into believing that one can or will do something.”
See: U.S. Department of Justice.
If anything, Full Tilt Poker was operating under a fractional-reserve banking system in which, like virtually all banks, its obligations greatly exceeded its reserves, or on-hand deposits.
Fractional-reserve banking is the most prevalent banking system in the world. It’s also the reason Washington Mutual and IndyMac failed in 2008, and Full Tilt Poker in 2010.
WaMu and IndyMac, however, aren’t considered Ponzi schemes, which is telling.
“Players were not investing in any company-run investment vehicle,” said Jeff Ifrah, Full Tilt Poker’s attorney. “Players were never promised any type of high rate return.”
Their deposits were guaranteed, though — by the company.
Bank crises are generally averted by regulation — the Federal Deposit Insurance Corporation, for instance, guarantees the safety of its member banks’ deposits.
But there is no regulatory authority for online poker rooms, which were prohibited with the passage of the Unlawful Internet Gambling Enforcement Act of 2006.
Prohibited, of course, in the same sense that alcohol was prohibited in 1919 — not at all.
The 2006 legislation didn’t target the players but instead sought to limit online gambling sites’ ability to transact with American financial institutions. As a result, millions of Americans continued to play poker online, but the sites moved offshore, using unregulated third-party financial processors as intermediaries to facilitate players’ transactions.
Notwithstanding, the obvious solution would have been to enact legislation regulating the booming online gambling industry — which, incidentally, would have protected the players affected by Full Tilt Poker’s failure.
To boot, the tax implications of a hypothetically regulated online gambling industry are staggering. A 2009 report from the Congressional Joint Committee on Taxation estimated that online gambling regulation could ostensibly result in tax revenues of $72 billion over the next ten years.
$72 billion?
No, it’s not the indiscretions of Lederer and Ferguson et al. that’s put me on tilt. It’s the government’s. As the Kenny Rogers song goes, you gotta know when to hold ‘em and, more importantly, know when to fold ‘em.
Toss in the cards, Uncle Sam.
Phil Sweeney is a 25-year-old English senior from New Orleans. Follow him on Twitter @TDR_PhilSweeney.
 
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Contact Phil Sweeney at [email protected].