A lawyer for Full Tilt Poker rejected allegations made by U.S. federal prosecutors that the online poker operator and its board of directors ran the company as a global Ponzi scheme.
"I disagree strongly with the allegation that FTP operated as a global Ponzi scheme," Jeff Ifrah, an attorney based in Washington, told Reuters on Wednesday.
"FTP may have made mistakes, but I have seen no evidence to support the DOJ's characterization of it as a global Ponzi scheme."
U.S. prosecutors announced new civil allegations on Tuesday in their probe of the Full Tilt Poker website, accusing the company of paying its directors more than $440 million while defrauding players, even after charges were filed in April.
An amended civil filing, in Manhattan federal court, accused Full Tilt of running a Ponzi scheme and sought the forfeiture of funds received by Full Tilt directors as well as civil penalties for money laundering.
"Full Tilt was not a legitimate poker company, but a global Ponzi scheme," U.S. Attorney Preet Bharara said in a statement.
Full Tilt was first civilly charged in April along with two other Internet poker companies.
Prosecutors on Tuesday did not seek to add charges to a separate criminal indictment, unsealed at the same time prosecutors brought the civil charges in April.
The indictment charged 11 people, including the chief executive of Full Tilt, with bank fraud, illegal gambling and money laundering.
Ever since Bernard Madoff's fraud reintroduced the term Ponzi scheme into the everyday lexicon of Americans when he was arrested in December 2008, it has come to be associated with devastating financial crime.
The point was driven home when Madoff was sentenced to 150 years in prison in 2009, a breathtaking sentence for a white-collar criminal.
A Ponzi scheme generally refers to a fraud in which existing investors are paid with funds supplied by newer ones, until the money stops flowing in and the scam collapses.
"Ponzi scheme is certainly the term du jour these days," said Daniel Richman, a professor at Columbia Law School. "If you want to drive home the point of taking people's money and not giving it back and sustaining it through later deposits, using the word Ponzi captures it."
But when there are allegations involving a Ponzi scheme, seeking criminal charges is often not the first priority among prosecutors, said Boston University Law School professor Tamar Frankel.
Finding the money controlled by the defendants is more important, she said.
"It may make a lot of sense to collect first and then punish later," said Frankel. "You're afraid the money will melt away. Money can travel very vast, especially these days."
Some of the defendants deposited their funds in accounts in Switzerland and the Isle of Man, according to the prosecutors. The company was founded in 2004 with headquarters in Dublin. Tiltware, a California-based company, owns all the Full Tilt Poker entities.
In the court papers filed Tuesday, prosecutors said Full Tilt continued to operate its online gambling business outside of the United States following the April charges even though it did not have enough money to cover its liabilities.
Richman said the latest civil charges in the case do not foreclose the possibility of criminal charges being filed eventually. The U.S. Attorney's office in Manhattan declined to comment on the matter.
"It's unclear at this point whether the government is done," said Richman. "It's often the case that criminal charges are preceded by civil charges."
In addition to the government's case, Full Tilt directors also face a proposed class-action lawsuit filed in June by U.S. poker players. In that case, Ifrah, a lawyer for Full Tilt and its directors, is seeking to withdraw from the case. In a motion filed last month, he said that to continue would "result in an unreasonable financial burden to our law firm."
The government case is USA v Pokerstars, et al, U.S. District Court for the Southern District of New York, No. 11-02654. The class action case is Segal v. Bitar, 11-4521, same court.