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Is Online Poker's "Ponzi Scheme" Part of a Larger Trend?

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Embattled online gambling company Full Tilt Poker watched its legal troubles go from bad to worse earlier this week.

On Tuesday, Federal prosecutors filed a civil claim against the company which stated, essentially, that the company had used player money to pay its board members hefty bonuses. One prosecutor referred to the company as a “global Ponzi scheme.”

Three months ago, prosecutors filed fraud and money laundering charges against three major online poker sites including Full Tilt. According to the New York Times, these sites operated in countries where gambling is legal. As a result, prosecutors went after the flow of money from poker sites into the United States.

After the government shut down Full Tilt in April, it forced the site to begin returning player money. However, only $60 million of the hundreds of millions of dollars credited to player accounts has been returned. The majority, $440 million, was paid out to Full Tilt executives, including two celebrity poker players, Christopher Ferguson, known as Jesus, and Howard Lederer, known as The Professor. The site's customers had been told that their accounts were safe and would never be raided. The company is also accused of using client's account money to pay out winnings to other players.

Not surprisingly, Full Tilt Poker executives feel the "Ponzi Scheme" label doesn't apply to their situation. In a statement made yesterday, a lawyer for the company said that his clients' activities don't deserve the title because there was no promise made of a high-paying investment. He suggested the problems were more like those of a mismanaged bank. 

A Florida lawyer and advocate for the legalization of online poker called “Ponzi scheme” a “focus-group tested term to get attention.”

Intentionally or not, the use of “Ponzi scheme” seems to be paying off so far, at least judging by the amount of coverage this story has received. Beyond that though, Ponzi scheme, both the phrase and the scam, seem to be undergoing a resurgence in recent months.

In politics, presidential hopeful Rick Perry compared social security to a Ponzi scheme, sparking a national debate on the subject.

Meanwhile, a quick news search for the phrase comes up with several different Ponzi scheme convictions across the country. In the last week, a California man was sentenced to six years in prison for an $8.5 million scam. A Utah man got nine years for one that pulled in $29 million. And two men in St. Louis were convicted of stealing $52 million in a similar scheme. There are still more examples from the last week, but those three get the point across. Of course, this spat of convictions and the sudden resurgence of the term might just be a coincidence.

It remains to be seen whether we’ll still be talking about Ponzi schemes in a month or so, but if we are, then one particular family stands to benefit.
POSITION:  No positions in stocks mentioned.