Yesterday the US Attorney for the Southern District of New York sought leave to file a first amended civil complaint in US v. PokerStars et al. Mr. Pokerati posted a link to the amended complaint; if you haven\’t seen it yet, it\’s here. The government\’s memorandum in support of the motion is here. As widely reported yesterday, the order granting leave to file the amended complaint was granted.
I have read the amended complaint and the exhibits, all of which are available on PACER. Two of the bigger allegations in the amended complaint – I won\’t call them \”new\” – as they relate to Full Tilt are that Tilt: a) didn\’t hold player funds separately from operating funds, contrary to its public statements; and, b) distributed money to its insiders when the enterprise was insolvent. The two allegations are discrete but connected; player funds being co-mingled with operating funds set the stage for the alleged misappropriation of \’easy money\’ by the principals.
Some have spoken about the prosecutor\’s characterization of this as a Ponzi scheme. This appears to have been mentioned twice in the press release from the US Attorney\’s office: once in the headline and once in the second paragraph of the release. There\’s no doubt that use of this term was designed to get maximum media exposure, but it wasn\’t a true pyramid scheme. A Ponzi scheme needs investors seeking returns and payouts to older investors using newer money. Here, there were players depositing money – not investing – and, while some of the funds may have been paid out to players cashing out, it seems that they were mostly used to line the pockets of the insiders. I wouldn\’t have used the term, but the allegations point to something conceptually akin to a pyramid scheme, i.e., an inherently unstable financial structure perpetually relying on new funds to keep it going, so I\’m not put out by use of the term \”Ponzi scheme,\” even if it was done for political reasons.
Without responses from some of the parties added to the amended complaint, which will come in the fullness of time, there\’s not much that I can say that hasn\’t been said – and said quite well – elsewhere. As with the rest of this case, there continues to be a great volume of quality online commentary available. The effects of the lies and of the plundering of the enterprise (if proved) are and will be terrible, both in terms of money that people lost on Tilt and to the extent that Internet poker will get another black mark in the eyes of the wider public. I expect the parties and as-yet unnamed plaintiffs to fight hammer and tong with the government and among themselves about who gets what part of any funds that can be traced and recovered.
On a related point, the American Gaming Association picked yesterday to release its Code of Conduct for U.S. Licensed Online Poker Companies. It was happenstance that it came on the same day as the DOJ\’s actions, but it\’s welcome. The Code of Conduct is an interesting document and it provides a good summary of key principles that many US players, policymakers, and operators can back. The AGA has its own agenda, and that must always be remembered. And yes, it\’s plugged in with Senator Reid, whom some online poker stakeholders don\’t seem to trust. But a lobbyist – sorry: trade association – can have its own axes to grind and still help push the debate in a fruitful direction, if sometimes only in a small way. It\’s with that kind of perspective that I look at the Code of Conduct. There\’s a great deal of sensible talk coming out of the AGA these days, even if it\’s political.
If and how the Manhattan indictment will affect legalization by Congress (when it happens) is still unclear, but both tracks continue to be worth watching.