Analysis: Full Tilt Poker not really a Ponzi scheme

I don't fault Preet Bharara, the U.S. Attorney for the Southern District of New York, for using the term "Ponzi scheme" to describe the situation at Full Tilt Poker. He was looking to generate headlines for the Department of Justice's amended civil suit against the disgraced online poker room, and his efforts paid off. Full Tilt's financial mess was covered by the mainstream media, thanks in large part to his use of that term.

The only problem is, Full Tilt wasn't a Ponzi scheme. In fact, the 103-page amended civil suit never uses the term once.

A Ponzi scheme operates by tricking people into thinking that they're making an investment. Victims put money in, and every so often, they get paid a dividend and are told that the value of their investment is increasing. As they see their balances go up on quarterly statements, they start telling their friends. And as their friends pour in more money, the schemer uses those funds to pay out dividends to his other existing "clients." Eventually, the whole system crashes and burns, because it's unsustainable.

Full Tilt, on the other hand, is accused of using money deposited by players to fund operations, including paying salaries and bonuses to owners and sponsored pros. Their license allowed them to do so, and prior to the company's problems processing deposits from American players, it is unlikely Full Tilt had any cash flow problems.

That said, Full Tilt is clearly no saint. When American deposits started being declined, for some bizarre, unthinkable reason, Full Tilt allegedly decided to credit the balances of those American players anyway. This created a $130 million "surplus," whereby players were playing with house money. In addition to this shortfall, Full Tilt allegedly lied to players who inquired about the safety of their funds, stating in a form e-mail that "our players funds are … separate and distinct from our operating accounts."

Despite these two major errors, I don't believe that Howard Lederer, Chris Ferguson, Rafe Furst, Ray Bitar, and the rest of the Full Tilt management team set out to line their own pockets by bilking players out of their deposits. Yes, they made terrible decisions. Yes, they lied to players about the safety of their funds. And yes, they should be forced to pay back everything they made as a result of those decisions, first to Full Tilt players owed money, and then to the U.S. government (assuming they are either found guilty of bank fraud and money laundering, or they make a plea agreement to avoid a court case).

And if you still think Full Tilt Poker is a Ponzi scheme, ask yourself this: When Bernie Madoff was on trial, did anyone step in and say that they'd like to take over Madoff's operation and pay down all his debts? According to Subject: Poker, Full Tilt might just have such a buyer in the works.