The Lederer Files Parts 5, 6, and 7

Just got done watching parts 5, 6, and 7 and it’s just more of Howard seeming a bit out of touch. Howard laments the fact that people didn’t seem to be working towards resolution and people like Ivey put their own interests before the players’.

Phil Ivey’s Betrayal

Ever since this first began I have had little interest in whether Ivey is a hero or a villain or what player owed how much to Full Tilt. For me, it seems too tabloid with no tangible value.

For anyone to say that Ivey killed any deal is somewhat misleading. No deal is ever done until the signatures are on contracts. Deals go sideways all of the time. Even by Howard’s own admission in earlier parts of the interview, nobody ever put a contract on the table so there was no deal to kill.

All of this talk about dead deals and Ivey killing any future deal prospects is an easy way to deflect from the real issues to something that sounds exciting but really doesn’t amount to much. It might get all of the fan boys whipped up into a frenzy but for Ivey to kill a deal, a deal had to be on the table. There wasn’t one.

And talk of any potential deals he killed is 100% pure speculation designed to detract from the fact that Ray and the board put the company in the situation it was in. If all you have to do is speculate that Ivey killed a deal that didn’t exist, wouldn’t the same speculative logic state that Ray and the board cost shareholders billions of dollars in future profits?

You can speculate about the future all you want. Unfortunately, you only get credit for what is real.

And, as far as Phil Ivey’s interests or motives, so what? Somehow Ivey is a bigger a-hole than Ray or Gil? And Howard somehow finds it surprising that Ivey didn’t want to be the face of a company who’s name will forever be tarnished?

While Howard seems to remember events such that Ivey made millions from Full Tilt, I’m fairly sure that Ivey remembers events such that he helped Full Tilt make hundreds of millions. Ivey was, by far, the most popular player on Team Full Tilt. His banner ads had higher click-thru rates than nearly any other banner ad. In fact, if I’m remembering this correctly, Phil Ivey banner ads generated more click-thrus than all other affiliate banner ads combined. Ivey’s name being associated with Full Tilt brought in far more money than Ivey took out of the company.

Again, from Howard all you hear about is how these members seemed so ungrateful or so unhelpful but you never get an inkling that Howard realizes that he has destroyed their marketability or at a very minimum made them less valuable after having been the face for what is now known by most players as a criminally indicated organization.

In fact, Howard comes off during entire interview series as someone who is very myopic and working with blinders on. He only seems to recognize his point of view. He’s very dismissive and very critical of anybody who sees things differently. He doesn’t see any of his own faults or failings which contributed to the demise of Full Tilt and lashes out at anybody who tried to point out the cracks in the dam.

And, in addition to the contentious situation with the board and Ray, as well as the uncertainty of the future of Full Tilt Poker, there’s also the fact that Full Tilt would need to earn back several hundreds million dollars in profit which they would need to pay off the US players before owners would see another distribution of profits. That could be a few years.

And lastly on the subject, it seems Barry Greenstein, who has had Phil Ivey’s ear during a lot of this, wrote that Phil had become tired of dealing with the board. He had given them a deadline to get a deal put together which the board missed.

Not only did they miss the deadline but, in Phil’s opinion, they passed on viable deals because of their own greed and desire to control part of the resulting company. In fact, I speculated about this back when it was happening. I couldn’t believe that if they had as much interest as they were claiming that they couldn’t have at least put together a letter of intent pending due diligence. I guess Ivey, via Greenstein, has validated what I thought was going on.

But this does also explain the actions of the other members that Howard seems to piss on. If I was Perry or Juanda, I’m not sure I would be too gung-ho in playing games trying to hold onto the company while players were rioting in the streets wanting their money. Even if they were acting out of their own self interests (and I’m only saying “if”), it’s not like the board or other members were acting in behalf of the player’s interests. It’s just that their self interests conflicted with Howard’s.

Player Borrowings

Much like the discussions over Ivey and torpedoed phantom deals, a lot of people seemed to be fixated on who had borrowed money from Tilt. Again, it’s just mental masturbation. Who cares? The amount owed wouldn’t have amounted to a few pennies on the dollar of what was owed.

That said, it is yet another indication of how immature the corporate governance of the company was. Players commonly borrowed money from Full Tilt and the balance sheet for this was an Excel spreadsheet maintained by customer support. Much like finding out that most other companies actually had been segregating funds going back nearly as far as Full Tilt’s entire corporate existence might be a surprise to Howard, casually shooting players a few million here and there wasn’t and isn’t common practice anywhere other than Full Tilt.

I don’t know what world Howard, Ray, or the rest of the board live in but shipping around millions of dollars to loan to shareholders isn’t the norm anywhere else. That may be how poker players handle their own finances but that’s their own money. This is company money. It doesn’t belong to Ray to give out as a loan. It doesn’t even belong to the board to authorize as a loan. It belongs to all of the shareholders.

The casual attitude towards money was part of the problem that resulted in Tilt’s downfall. I’m really disappointed that Parvis didn’t really drill Howard on this point.

Didn’t anybody at Full Tilt watch the movie Casino? There are supposed to be checks and balances. No one person should be able to get away with what Ray pulled off. The fact that he did is a failure of the board of directors for not putting in the proper processes and procedures in place to make sure it couldn’t happen.

Lack of Trust

In videos 5 and 6, I would like to point out that while a lot of the inner squabbling makes for great tabloidesque reading, I think the bigger issue is that if you read between the lines, people simply didn’t trust Ray and the people who had been protecting him.

In earlier videos Howard comments that after Black Friday it became increasingly difficult for Ray to work with the rest of the members due to their hostility towards him. Uhm, shouldn’t that have been a clue that maybe the board should wall him off, remove him as CEO, and basically negotiate an incentive for Ray to remain cooperative (i.e. doing what new management asks of him)?

Also, the board had lost a great deal of credibility itself. Howard even comments that many members felt that the board had played an active role in the payments backlog fiasco. Wouldn’t a better option have been for the board to recognize the animosity and try to work with the most vocal members while giving them some control?

By that I mean that if Phil Gordon was one of the vocal critics of Ray and the board, shouldn’t the board have approached Phil and said, “Phil, it obvious we’ve lost your trust. The other members respect you and will listen to you. What if we stepped back a bit and we let you run with the ball a bit on some of this? It’s not about egos. It’s about getting the players paid. Work with us to do that.”

But, from the way it sounds in Howard’s version, it was still a situation of, “If you don’t like it, vote us out and replace us.”

Some members did take control but they seemed unprepared for the task. Howard almost seems proud of the fact that they quit after figuring out how much work was involved in turning things around.

In other words, while Howard views the problem as one of certain members being more focused on assigning blame than helping, the real problem was that the board and a good chunk of the membership were butting heads and the first priority should have been to concede the mistakes, allow others to take a more involved role, and help from the background.

For instance, I have not heard of the then current board suggesting that they amend the company charter and take on new directors (in addition to the existing board members) from the anti-Ray camp. This is an act that seems, IMHO, like it would have gone a long way in easing some of the mistrust and would have gotten some of the people the board considered obstacles onto the solutions side.

But based on the choice of words and tone used by Howard, it sounds like it was still very much the board dictating terms to the members or at least making it clear that the board was in charge.

And, I do believe that Howard (and Rafe in his public statement after his indictment) plays a little fast and loose with the whole Ponzi scheme refutation. If you go to Wikipedia it says:

Ponzi schemes sometimes commence operations as legitimate investment vehicles, such as hedge funds. For example, a hedge fund can degenerate into a Ponzi scheme if it unexpectedly loses money (or simply fails to legitimately earn the returns promised and/or thought to be expected) and the promoters, instead of admitting their failure to meet expectations, fabricate false returns and, if necessary, produce fraudulent audit reports.

I can’t really think of a better description of what Full Tilt became. Full Tilt started off as a legitimate company. It later found itself the victim of multiple DOJ fund seizures and difficulties processing payments which Bitar addressed by fabricating false deposits, false reports to the board of directors, and false statements to regulators.

Starting to smell like a Ponzi scheme yet? Whether or not it meets the strict legal definition of a Ponzi scheme is really just semantics since they were not legally charged with running a Ponzi scheme. However it’s a fitting description which helps people understand that Full Tilt was no longer a viable entity as it was currently being operated.

That money was supposed to be there. It wasn’t. The only way the company could conceivably pay back the US players was the lie to the ROW players and convince them to keep playing on the site while they used those funds to pay back the US players.

That’s as close to running a Ponzi scheme as it gets!

Leaks and Full Tilt Silence

I found this to be one of the biggest bullshits of the entire series. While the rest you can sometimes write off as ignorance, lack of memory of an incident years in the past, or even his own opinion which may differ from other player’s opinions, this was straight-up BS.

The reason I say that is that Howard addresses a blog post calling out FTP on the silence and Howard says he would have liked to but the leaks were getting them into hot water with the DOJ. That part I believe. But what the poker community wanted, and needed, was not a date people were going to be paid back but a little transparency into the process.

For the first several months post-Black Friday, Full Tilt was producing nothing but lies. Flat out lies. The whole “your money is safe and secure” thing is a perfect example.

But here’s what Howard never gets . . . all you had to do was acknowledge that you misspoke. If Full Tilt had come out and said, “We realize we’ve made some statements after Black Friday which we have since found to be untrue. We relied on information provided by members of management who did not provide us with an honest picture of the company’s finances. Those people have been removed from their management roles, we have a new team of people auditing the company, and we are getting to the bottom of this.”

And then, keep people updated. You don’t have to issue a press release after every meeting but some interim updates along the way would have been nice. No deals have to be exposed. No private DOJ conversations have to be cited. All that had to be done is to have a regular flow of information that updated players on the overall progress.

And, had the individual board members come forward and publicly committed to doing everything in their power to pay back players as quickly as possible, that would have bought a huge amount of goodwill. How different would people view Howard or any of the other members if they had just come out and said that they were personally committed to making sure player funds were returned?

The silence is what was deafening. The ability of Full Tilt to issue a scathing reaction to Ivey suing them but be completely silent on what was going on is what destroyed their reputation.

And that part that kills me is that Howard says that there was absolutely no excuse for the position players were put in. After several hours of interview where he does nothing but makes excuses.


It still kills me that all the way to the end of this he never takes responsibility. He claims he was never a part of the wrongdoings that Ray and Gil perpetuated but it never really dawns on him that HE WAS ON THE BOARD OF DIRECTORS!!!!!!!!!!!!!!

While he may not have actually committed any acts involved with the deposit backlog, he was on a board which was supposed to make sure this didn’t happen.

In many ways, this is like the president of the US trying to dodge responsibility for something that happens under his command. Like Truman and the “The Buck Stops Here” sign he had on his desk.

When you’re a leader, if it happens under your watch, you’re ultimately responsible. The board is ultimately responsible for the company. That’s why the board has the power to hire and fire the CEO and other executives. They may not run the day to day operations of the company but they are ultimately responsible for the company.

This seems to be a concept totally lost on Howard Lederer.

It takes Howard nearly 3.5 hours (7 x 1/2 hour episodes) to finally say:

“As an owner of Full Tilt Poker, I take full responsibility for what happened. What happened wasn’t right and it caused a lot of pain, a lot of suffering, and in some cases just inconvenience for 3 million customers. That wasn’t right. And for that I am truly sorry.”

Three and a half hours of him denying any role in how this played out (except to pat himself on the back) and then to spend roughly 15 seconds apologizing for the pain and suffering Full Tilt caused is sort of a shallow victory for people who have been waiting for almost a year and a half to hear someone finally accept responsibility.

Overall Impressions

First off, I’ve mentioned Ray and the board being in over their heads so I should mention that Matthew Parvis is also in way over his head in this interview. I don’t mean that as an insult to Parvis but what this interview needed was someone who had more intimate knowledge of the people and the business.

There were just too many opportunities for him to ask follow up questions that he missed because he just didn’t know Howard was making a factually incorrect statement. For instance, as I mentioned in the previous comments on the interview, everyone in the industry did a spit-take when they heard Howard say that player money segregation was not something anybody was thinking about.

If you were in the business on the operator side or had a solid knowledge of how online poker rooms work, you would have really nailed him down on that.

In the end, it became just a fluff, PR piece for Howard and his allies. Howard outplayed Parvis and was able to avoid lines of questioning that would have forced him to admit wrongdoings.

There are so many moments where I’m shouting at the computer for Parvis to hit him with this or that fact or to force Lederer to address a logical inconsistency but it just flies right by with Parvis moving right on to the next question.

Like I said, I don’t blame Parvis per se. This is the biggest interview in the entire poker world. I don’t know if any current poker media journalist would have been better prepared for it. It’s a tough gig and you have to know going in that nobody is going to be 100% satisfied with what you end up getting out of Howard.

Would a 60 Minutes reporter be better prepared? I think so. A lot of investigative journalists would have had the money and resources to do all of the background checking before they sat down. But, our industry hasn’t matured to that point yet so Howard had a bit of an edge since he already knew what he was going to say and Parvis had to try and keep up. Howard had a year and a half to anticipate the most burning questions while Parvis had no idea what Howard’s responses would be.

Lederer is a smart guy. It was never going to be easy to pin him down.

I mean, what color would Howard have turned if Parvis had known Howard had intended on throwing Juanda, Perry, and Ivey under the bus and interviewed them first so he could counter Howard’s one-sided view of events?

What’s that one rule they teach to trial lawyers, “don’t ask a question you don’t already know the answer to.” That seems like a pretty good rule of thumb for journalists as well.

UPDATE: Wendeen Eolis was kind enough to point out that Howard, Chris, and Rafe are not indicted as I may have said or implied. Apparently, this has been something that was originally reported in error and often gets repeated in other news sources which is why you can probably find references to an indictment on various news websites. Wendeen discusses the confusion in this article.

23 thoughts on “The Lederer Files Parts 5, 6, and 7”

  1. @abjcampbell: Hard to tell since no audit was ever made public. Seizures made up a lot. Phantom deposits made up a bit.

    There’s also some speculation from FTP shareholders that money was skimmed off by board members. Hard to prove though.

  2. Where did all the money go? I still don’t think I understand what happened to it. You say player loans were a drop in the bucket (mental masturbation was good!) Was it DOJ seizures, did Ray take most of it?

  3. I don’t consider myself part of the poker media. I also consider sites like DF’s, PokerFuse, etc not to be real poker media either. That’s not an insult towards them in any way because I do think the do a better job than the poker media on specific things like deep research but they’re not really poker media in my mind since they don’t try to report all poker news.

    I picture them more like myself. I just analyze what’s in the news. I don’t try to report on the news.

  4. @Robert: True, but Iโ€™m assuming that if they had the moral fiber to make a personal public commitment that they would do EVERYTHING it took to get players paid back.

    Seems like a thin assumption for most of them.

  5. This is the biggest interview in the entire poker world. I donโ€™t know if any current poker media journalist would have been better prepared for it. Itโ€™s a tough gig and you have to know going in that nobody is going to be 100% satisfied with what you end up getting out of Howard.

    You don’t thin Diamond Flush would have done a better job? Or you?

  6. @Robert: True, but I’m assuming that if they had the moral fiber to make a personal public commitment that they would do EVERYTHING it took to get players paid back.

  7. How different would people view Howard or any of the other members if they had just come out and said that they were personally committed to making sure player funds were returned?

    I can’t speak for others, but post-shutdown it would have taken a lot more than words to change my opinion of the FTP higher ups. I would have wanted to see them putting at least some of their disbursement money into escrow as a seed fund to pay back the players should a white knight not appear.

  8. I still feel the FTP issue was much more of a scam that presented in the 7 part Howard Lederer interview series. I don’t believe for one second the shortfall was only discovered after the events of Black Friday. I remember having trouble withdrawing a lousy $400 in 2007 & having FTP & their payout provider blaming each other for the delay. I realize it’s a tiny drop of money but to me it was symptom of a financial relationship problem between FTP & the payout provider I was using for that particular transaction. I received multiple reasons/excuses from both sides for the cause of the delay. The money was lost in cyber space for 5 weeks so I finally gave up & asked them to credit the money back into my poker account. Amazingly they were able to locate the funds within 24 hours after I was willing to put it back on the tables! This is 2007 I’m talking, 5 YEARS ago! I also remember 2-3 years ago seeing FTP’s cheque withdrawal limits drop & the lead time between transactions increase. Im my mind, these were all signs something was wrong in Dublin! Now I recently had a friend tell me he always wiithdrew his money thru Instadebit & never had a problem! But perhaps certain payout providers had strict policies & FTP was forced to priortize Instadebit transactions. I seem to remember withdrawal limits were quite low with that method anyway. That is my 2 cents on the matter at hand!

  9. @newinjp: Exactly. I remember when Matusow won the WSOP tournament of champions and they had someone follow Mike to the cage to collect $800K that Matusow owed them.

    It’s really stupid that they thought they could just make multi-million dollar loans to people as part of normal operations.

  10. Great stuff, Bill. Thanks for this.

    I thought his complaint about the “foibles of the accounting department” was really rich. This was a culture he had a big part in creating. I can remember seeing Howard approve six-figure loans to players at the FTP suite at the WSOP and saw loans being paid back with bags of cash. There were stories of Tilt reps waiting at the cage at Poker After Dark to get payback when a certain team member won.

    This is the way a billion dollar corporation behaves?

    Everyone in ownership (and most in the poker community) knew that during the WSOP, Rich Bitar had a duffle full of cash from which he dispensed buy-ins. Anyone from ownership could have spoken up at some point. You don’t need to be a captain of industry to realize this isn’t how a real company does it’s work.

    I thought the Phil G. takeover was really high comedy. His plan to save the company would have installed Phil Ivey on the board and put a software engineer in at CEO. Genius.

  11. Your article is interesting and thought provoking, but how can you quote legal definitions from Wikipedia? Seriously, that makes me question YOUR judgement.

  12. When I first heard of the Lederer files, I decided I was not going to listen and instead wait for comments and analysis that I could trust. Thank you for sharing and saving me hours listening to Howard’s lies and self serving ramblings.

    You are my hero.

  13. @RK: Thanks

    @James: I am considering it but I don’t hold out high hopes that Howard will sit for another interview. Based on the reactions from the poker community I don’t think Howard would see much benefit.

  14. Bill, Mason at 2+2 has said they may get an opportunity for an interview with Howard as well, and have asked for (reasonable) questions that the community would like put to him. You might want to check for that thread and submit anything you’d like asked. I bet Mason would appreciate questions from you more than most of what is in that thread. (It’s in NVG, after all.)

  15. Awesome analysis. I’ve been following this saga for years and knew this was coming based on FTP customer service and the fact that i knew poker players were running this site in 2004. There were so many loans to the pro players it was ridiculous. Lederer lied as there were way more loans and more pros involved. They treated the company like their own poker bankroll and we know most tv pro players are broke, so full tilt was inevitable. They weren’t business men and had no clue how to run or govern a corporation. When the deals were being leaked I had suspicions too about the greed. It was never about the players getting repaid it was we have ruined a 3 billion dollar company how the heck do we salvage ourmoney train. Greed took over and internal fighting of how much to get paid became a huge issue. Then potential deals start getting rejected and the value of the company goes from 3 billion to 0 in a matter of weeks. Lederer lied about the run up and ftps goal to get players paid. They wanted to recoup value personally and once they ruined any value they changed their story to lets get the players paid. Alot more shady truths will come soon when other owners start speaking. I want to hear from Ivey, Seidel, Harman, Cunningham, Oppenheimer, Hansen and Grey. Keep up the good work.

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