If you’re into playing poker or watching it on TV, you probably know the name Full Tilt Poker – the web site for playing Texas hold ’em and presumably other poker games. You may know of Howard “The Professor” Lederer and Chris “Jesus” Ferguson and have seen them on TV wearing Full Tilt Poker hats. On-line players put real money into supposedly secure accounts to use as they gambled on line on this company’s and other off shore web sites. One analyst estimates U.S. players alone bet $14 billion each year in on-line poker.
Well, it turns out the U.S. federal government says the “secure” accounts weren’t so secure after all. A U.S. District Attorney filed suit saying Full Tilt Poker in reality was a global Ponzi scheme where hundreds of millions of dollars were taken by the owners and managers – though some observers see it as simple embezzlement. Several months ago It, along with Poker Stars and Absolute Poker, all based outside the United States, were closed to American players by the government on the charge that they were violating illegal gambling, bank fraud and money-laundering laws.
From poker players who look up to the Lederer’s and Furguson’s of the poker world, we can almost hear the cry, “Say it ain’t so.” But it appears to be so, where “The Professor” is alleged to have received $42 million and “Jesus” (no sacrilege intended – that’s his nickname based on his long hair) $25 million with $60 million more due from the company. The owners and board are said to have taken $440 million for themselves from player’s accounts.
Why is this so compelling? Well, I’ve never played on-line, though I’ll admit to having watched these guys several times on TV, and I host a monthly poker game with friends – though the stakes are so low that the cost of the soda, pretzels and cookies is about what I might win (or lose) in any one night. No, that’s not it. But there are some lessons. For investors this is another example of Ponzi schemes or other illegality we need to be on guard for, especially when fronted by presumably “good guys.” For risk and compliance officers, it’s necessary to be continually alert to potential legal and regulatory compliance failings both within your organizations and those with whom it does business. And probably most important, is the simple reality that regulation in the on-line and offshore worlds often doesn’t come close to providing the vigilance that can be present within our borders.
So, it ultimately comes down to knowing the risks, analyzing them, and deciding what actions and controls are needed to manage them effectively. There don’t seem to be many, if any, shortcuts to this critical process.