This is the second installment in a series of articles designed to bring attention to some of the contradictions and misrepresentations contained in the Howard Lederer interviews, specifically those conducted with Pokernews.com, now dubbed the Lederer Files and a follow up interview on TwoPlusTwo’s Pokercast. The series will, in each installment, point out key comments that should be remembered. All of those comments will come together in the final chapter of the series to paint a better picture of the story that the facts really tell. The first installment can be seen here.
According to court documents, owners of Full Tilt Poker received over $ 443 million in distributions, based on pro rata shares, between 2007 and 2011, the final distributions being paid April 1st, 2011, two weeks before Black Friday. In his interview, Howard claims that the members had been very patient, “initially”, and that all profits before 2007 had been invested back into the company. While stating that it was not a one person decision to begin distributing profits, Lederer states that discussions began because the company had reached a point when there was excess cash that the company did not need at the time, reportedly $20-30 million. While he does not specifically state it, according to the Operating Agreement, the determination on payment of distributions rested solely with the Board of Directors. The board was “to make quarterly determinations on whether distributions shall be paid to the members for that quarter, and if such distribution shall be paid, the amount and date of said distribution”. Howard Lederer was then and always, a member of the Board of Directors. The critical importance of this will be discussed later.
Howard make a special effort to put into the record that “there was one person, amongst the membership, who was always very anti-distribution, never wanted to make them in the first place, always argued very strongly against them, and always argued that every single distribution that the company made would weaken the company…and that was Chris Ferguson”.
Ferguson, of course, was the largest shareholder in the company, was on the Board of Directors, and in fact, Chairman of the Board.
While there are many confirmations available that Ferguson did not practice a showy lifestyle nor make routine extravagant purchases, I have not been able to find one person, other than Howard Lederer, who makes the claim that Ferguson was not interested in paying out distributions to owners. While the decision to distribute profits rested with the Board, made up of Ferguson, Furst, Bitar and Lederer, and that conversation could have happened privately in a Board meeting, there is no evidence that any such concern was ever raised to the membership once the topic was being discussed in 2006/2007. There is also no evidence that Ferguson ever refused to accept distributions. Although he managed to see that a portion of his monthly share was placed in a “special” bank account each month, aside from the portion that was wired to account(s) in his own name, there is compelling evidence that he routinely ordered withdrawals and other payments from that account for his personal use, having nothing to do with the operation of the company, even though the bank account itself was in the name of Pocket Kings. There is more information in an article written in January on this subject. It is unclear why Howard felt the need to make this point.
When Matt Parvis asked during their video interview if there was a methodology for distinguishing between accounts for distributions/player money/operating etc. Lederer stated : “I would say no, again, it wasn’t my area…I’m not a financial guy, I am not an accountant, … I was being shown some kind of a general balance sheet/financial report often enough that I was very confident that we had cash well in excess of customer deposits at all times when distributions were being paid and I don’t think our regulator was demanding that (segregation),and there wasn’t pressure from the poker community …(no one) was demanding that from the company. Looking back on it, I know it sounds bad, but it just wasn’t …from every owner on down, no owner…people were pushing for distributions, but no owner would have wanted distributions if we didn’t have cash in excess of what our player balances were.”
When asked then to confirm that no owners believed that distributions would have been coming from an account that held player balances, Howard answers that no time in the history of the company were there any accounts that were “the player funds”. While it certainly is true that we now know player funds were never truly segregated into special bank accounts, this is interesting because it is exactly the opposite of what was being inferred by various official forum posts by Full Tilt personnel, including emails sent to various customers, stating in part that the “company does not mix deposits with operational expenses”. Several specific incidences are memorialized in the court documents, as well as the implied safety of player funds continually referred to as “safe and secure” even on Full Tilt Poker’s own website.
Howard’s new claim however, does mirror the claim set out in the second amended civil complaint that “at no time in its history did Full Tilt Poker protect player funds in separate accounts.”
This is all critical information whose relevance in the big picture will become more clear later. Information regarding rumors and allegations that the members pushed for increased distributions will be discussed in depth in a separate installment.
UIGEA and The Move to Dublin
Howard claims that after the move to Dublin took place that he sort of lost touch with so much of what he had been involved with before, particularly his relationship with employees. He admits not being happy about that, but he found himself focused on software and marketing, and was wrapped up in the internal marketing of the company, the promotions, like Iron Man, and that he “ lost touch with the total sense of the whole thing, we were getting so big”… In the end though, he says that he felt “Ray had a pretty good handle on it”. The importance of the scope of Lederer’s duties while in Dublin will be discussed further in another installment.
UIGEA was signed in October 2006. According to Howard, it was a simple process to decide whether to stay in the USA or not. He points out that clearly FTP was different than Party Poker (who had voluntarily left the USA market post UIGEA), mainly because Party had offered house banked games in addition to poker, while FTP did not. Lederer asserts that the company received their legal opinions then from very reputable lawyers….all those opinions were unanimous, that UIGEA did not cover poker.
When asked if there was a member vote about staying in the USA, Lederer replies ”there was no need for a member vote”, members were not suggesting we leave the country. When asked about the backing of the members to stay in the US market, Howard says “there was zero struggle”, although it may not have been unanimous. Further he says that any member who believed it was a terrible mistake to stay in the United States could have just said, “here are my shares, I am leaving”. No one did.
When questioned about whether he would agree that payment processing was the biggest hurdle to be faced post UIGEA, Lederer replied”payment processing was not part of my daily duties” and “whenever I heard about a new payment processor offering ACH, I was assured by Ray and company counsel that those processors and those payments were transparent”, “that the banks knew”. This is one of the few times, that Howard says on the record that he doesn’t want to talk further about any payment processor questions. He did say that he was always told by the company that they thought this transactions were always transparent to the bank, and then offers up what he terms a fact, that he does know:
Sometime after April 15, Lederer asks Ray, during some casual conversation, about the banks named in the indictment, and Ray says, according to Howard, they were all transparent, and Lederer further claims to have seen a transparency letter from “a bank” signed by an officer of the bank, that the bank had a legal opinion. Howard then clarified that at least for that particular processor and bank, that the relationship was a transparent one. While he clearly remembers seeing this letter, and remembers that it was on the bank’s letterhead, he does not specify the bank he is referring to.
In his final comments about payment processors, he reinforces his claim that he never met with any processors except “one time at a party” when he was introduced by Ray Bitar to one unnamed processor, and then when asked by Parvis if he was familiar with the fact that FTP reached out to sue Daniel Tzvetkoff/Intabill, Howard quickly says, yes, he “heard about that”. He claims to have no knowledge about who may have tipped off the US authorities that Daniel Tzvetkoff was in the US, whether it was someone at FTP as rumored, resulting in his arrest, and Lederer says it could be the case, but again he doesn’t know.
While he declined to confirm or deny that he was CC-1 (co conspirator #1) in the criminal indictment against Ray Bitar, Lederer did confirm that he DID receive the email from the customer in 2008 asking if their money was held in trust by the company. He got the email, noting that it was important to him. It was not his area, and even though in March 2008 he knew he would be resigning in September, this question, says Lederer,was important, and it was one he wanted an answer to. He claims to have said at the time ”we need to provide this customer with a good answer”. According to Lederer, this answer would come mostly from company counsel. While looking into the subject further, he specifically says that he had never seen a financial document stating that there was more in cash than was due in player liabilities, which was, according to Lederer, very different than the balance sheets he was routinely provided.
After some time passes, and after management had agreed upon a good response to that customer, Parvis reminds Howard that the customer with a question comes back for clarification and asks if his deposit is at least held in a segregated account which cannot be used by the company itself. Reportedly, the reply was that player accounts are separate and distinct from the operating accounts. Full Tilt only transfers to the operating accounts after they have earned the money as profit.
Lederer says that in 2008, that statement was probably accurate, but that it was “odd”.
In March or April of 2008, Howard admits that it was he that personally endeavored to have the company financial department produce a document that would answer the fundamental question, that is, “Do we have more cash on hand in our various accounts than we owed our customers”. According to Howard, this was “not necessarily the easiest document to produce, at least for the finance department”. They had never had to do that particular document, but by early summer of 2008, that document was produced on a weekly basis, maybe monthly.
One might assume this this question would have been broached long before 2008, especially in light of the fact that the Board had determined that there was substantial enough profit being generated by the company to begin making distributions to the shareholders.
According to Lederer: “I wanted that document to be produced and to be accurate. I wasn’t a key license holder with AGCC or KGC, I never spoke to either regulator, ever. I wasn’t part of the compliance, I didn’t know whether they ever asked for a cash coverage report”.
When Lederer was questioned about his confidence in this report prepared by the finance department, he says he made it clear what he wanted in that report. He states that he “may have sat down with one of them (finance) and asked, where does this number come from”. While stating again that he isn’t a trained accountant, he says he wanted to make sure that the numbers he was looking at were accurate. He admits that it was explained to him and that he trusted the report.
Having seen this report, I have more questions for Howard. The vital importance of all of the above will become more apparent later.
When Howard discussed leaving management in Dublin in September 2008, he said he was “not sure what his contract looked like, or even if I had a contract”.
According to Howard, the initial reaction from the Board of Directors (where he was a member) was “we need a Howard replacement, a C.O.O type…maybe recruit from another gaming company, or find someone else with a lot of experience, and bring someone in, taking on that role, just below Ray”. Lederer says the discussions all revolved around finding someone who had experience handling a company of that size.
Before they found anyone, Ray brought in some senior managers instead. According to Howard, these were “good people” “people with experience in the industry” . But he says however, that he regrets very much that the company never brought in that “O level” person.
Howard admitting to the Board’s view, and his, of his importance in the company, his value to the company being compared to a ‘Chief Operating Officer’ is important and will be tied in later.
Parvis specifically asked if Howard thought that he and Rafe Furst felt “handcuffed to the board” when he resigned as a manager? While saying that he certainly never said that he “wanted out” as a Board of Directors member, he does specifically say that he would have welcomed a change, at the same time saying the Chris and Ray were never going anywhere. This is completely contrary to multiple sources that have said that under no circumstances was Howard giving up his board seat voluntarily, even in 2008.
Next installment: The backlog surfaces