The Distortion of Truth in the Lederer Files


Introduction of the series

Recently, Howard Lederer took steps to start filling in the poker community about his role,   or lack thereof, in the events that led up to Black Friday and what transpired after. He made this decision 17 months after the online poker community was stunned by the U.S. Department of Justice’ criminal and civil charges were unsealed on April 15, 2011. That same community was crippled when it became apparent that Full Tilt Poker could not repay the hundreds of millions of dollars owed to it’s customers. Lederer’s version of events was chronicled in a filmed interview conducted by Matt Parvis of, and was released in seven installments over a one week period, named the Lederer Files. Although the final edited version of the interview was very long, seven episodes of approximately 30 minutes each, it’s been said the interview itself consumed almost double that time. Lederer had a certain vision on how this interview would happen, and he had well over a year to prepare for it.     And still, there were many many instances of Lederer’s lack of recollection of events, many “I don’t know”s, too many to count. He agreed to give two more interviews for follow up, if any was needed.  The first was with the TwoPlusTwo Pokercast team, Adam Schwartz and Mike Johnson. The duo taped another three plus hours of follow up questions with Lederer, which was released this week, unedited.  Lederer’s memory was a little better this time, but still missing was a factual accounting of things that transpired before and after Black Friday that he neglected to mention, including of course, his taking any personal responsibility for his own actions. The final interview was due to be published on this site, beginning today.

This weekend Lederer decided to stop talking. After weeks of give and take in the area of the parameters for our interview, Lederer says this ordeal has been harder on he and his family than was expected. The ordeal that he prepared for for over a year. The ordeal that he seemingly had an answer to every conceivable question prepared. The ordeal that he was said the poker community finally deserved to hear about. My interview with Howard Lederer won’t be happening. He advised that his decision was final.  In that regard, I found so many unanswered questions, so many questions not asked, and so many inconsistencies with information that I had amassed from other sources over the last year, that I decided to print my commentary on his interviews. The articles that I publish in this feature over the next week will include that commentary. Also included will be facts that I have taken pains to confirm to be true, but that differ with Lederer’s accounting of events.  Some of these inconsistencies may seem small and trivial in the beginning, but in the end, they will paint a much different picture than what’s been presented to date.  I ask the reader to withhold judgment until the full picture is painted. The community can then make it’s own decision on which version of events is more likely to have happened.

Part I Revisited

What Lederer said about the origination of the company is fairly accurate, that is, the original members received equity in Tiltware after severing ties with their former partner, Brett Scharf, in their first endeavor into the online poker arena. Shortly after that time, it was determined that only “strategic investors” be permitted to buy into the company, that is, only those individuals that had something of value to bring to the company, such as name recognition in the community which would help in marketing efforts for the company’s growth. While this policy of “no outsiders” seems perfectly reasonable in the context of owners at the time for the reasons stated, this mantra becomes much more important later.

It’s also true that the “player pool” was targeted to be maintained at a  5% level of company profits, these profits to be calculated even before distributions. Payments would be made monthly. This pool is what should have been used to pay the Full Tilt “pro’s” for their contribution to helping the company grow, and in allowing their names and likenesses to be used for such. Some of the owners were included in this pool, others were not. There was certain criteria that members of the pool were supposed to adhere to, along with additional requirements their sponsorship agreements may call for, for example, playing a minimum number of hours on the site, wearing FTP logo at live events, taking part in lessons for the FTP Academy, chatting with players as part of the “Learn, Chat and Play with the Pros” campaign.  Many of the owners included in the pool did not meet the minimum requirements in hours and/or events.  Payments continued to those members regardless. The list of names partaking in this “pool” soared over the years, reaching well over 100 participants. Player pool payments were made right up until Black Friday.

Lederer made quite a point (and continues to do so in later episodes as well) to keep directing back to the fact that the company’s organization was a “California LLC”. He specifically says that the company “very clearly was controlled by all the people that owned it”. “Anything about the company, ANYTHING, could be changed by a simple majority vote”. Lederer claims there is one place where a 2/3 vote would be required, and that would have been to remove a board member abruptly, during a duly elected term. Board members should have been elected to one year terms. Electing a board, on an annual basis, was by a simple majority vote. According to Lederer, any changes about the Operating Agreement itself, about the way the company was structured or about the duties of various people in the company, took a simple majority vote of the members. The original Board of Directors was Ray Bitar, Chris Ferguson, Perry Friedman, Howard Lederer and Phil Ivey. Ivey stepped down and John Juanda was elected to that board seat. When the term was up, Juanda decided not to run again that next year, but Rafe Furst beat out Gordon and Scheinberg for the last seat.  Another year passed, no election was held, and shortly thereafter Perry Friedman resigned his board seat. This four member board is the same that would be in place on Black Friday. There is a caption on the video that states that although the Operating Agreement called for a new Board to be elected each year, elections did not take place due to lack of shareholder interest in taking board seats. There is however, convincing evidence that other members did have an interest in taking Board seats, and that several times there were elections. Candidates, including Howard, actually submitted their c.v.’s to the members for consideration. At various times, prior to Black Friday, Andy Bloch, J.K. Scheinberg, Phil Gordon, John Juanda, and Rafe Furst all threw their hats into the ring, and with others even expressing interest to do so. Also, on more than one occasion it was suggested by more than one member that Board positions, at least some of them, be filled by outside parties who are not stakeholders in the company. This would be the logical answer to the oversight of the “fox guarding the henhouse”. This suggestion seems to have fallen on deaf ears and the sitting board members never took action to address it in a positive way. The importance of this will become apparent later in the series. Interestingly enough, no one is able to say with any certainty how the votes went each time. Each member voted, but those votes were given privately to the attorney that helped set up the Tiltware LLC, and when voting was closed, the attorney reported to the membership who had “won or lost” seats. (Originally the votes were sent privately to Ray Bitar and results announced by Howard).  1

The importance of the role played by the “California LLC” title and the Tiltware Operating Agreement will also become more apparent later.

Howard’s Role As Manager and as President of Tiltware

Howard labels his Board of Directors role, and others, as an “advisory one”. We thought our role “was to occasionally get on the phone with management and find out how things were going, and to discuss the direction of the company”. The board was not expected to work day to day, hence why they did not receive a salary. According to Lederer, “nowhere in the operating agreement did it ever hint at, or suggest or mandate, that the Board should ever conduct outside independent forensic audits of any financial figures that management might provide it”. Lederer however, was also a Manager of the Company. 2 This is not exactly true as to Lederer’s role as Manager of the Company however.  The Operating Agreement clearly states:

Exclusive Management of the Company by the Managers: The business, property and affairs of the Company shall be managed by the Managers, who shall at all times be members of the Company. Except for situations in which the approval of the Members or the Board is expressly required by the Articles or this Agreement, the Managers shall have full, complete and exclusive authority, power, and discretion to manager and control the day-today business, property and affairs of the Company, to make and perform any and all decisions regarding those matters, and to perform any and all other acts or activities customary or incident to the management of the company’s business, property and affairs. The Company designates Ray Bitar and Howard Lederer as its “Managers”.

Additionally, and with specific correlation to his statements about outside forensic accounting:

“The Managers shall perform managerial duties in good faith, in a manner reasonably believed to be in the best interest of the Company and its members and with such care, including reasonable inquiry, as ordinarily prudent persons in a like position would use under similar circumstances. In performing duties, a Manager shall be entitled to rely on information, opinions, reports or statement, including financial statements or other financial data, of the following persons or groups, unless it has knowledge concerning the matter in question that would cause such reliance to be unwarranted, and provided that such Manager acts in good faith:

  • any member, officer, employee or other agent of the company whom such Manager reasonably believes to be reliable and competent in the matters presented;
  • any attorney, independent accountant or other person as to matters which such manager reasonably believes to be within such person’s profession or expert competence; or
  • a committee upon which it does not serve, duly designated in accordance with a provision of the Articles or this Agreement as to matters within its designated authority which committee such Manager reasonably believes to merit competence.”

Multiple sources (members) claim to have requested outside accounting at various points over the years, but those requests were denied.

Howard speaks freely in remembering that their first license was with the  Kahnawake Gaming Commission, (KGC). When launching in July 2004 they had almost $ 2.5 million in cash to handle the start up costs of the site, marketing and otherwise. He remembers in those early years, while being regulated by KGC, that the CFO, Alan Urban, would provide financial statements on occasion that the Board would go over with Ray. He also claims not to remember whether there were separate bank accounts at that time for player funds v. operating expenses, but says the company was strong and the reports looked good, so there wasn’t an idea of segregated trust accounts. He claims that it likely wasn’t anywhere in the industry, that people were not even thinking about it, it just wasn’t a real concern. This is not exactly true. In 2004, PokerStars posted a public announcement on their website:

PokerStars is proud to announce that, under new banking arrangements, an amount covering Players’ account balances is held in segregated accounts, not used for any operational expenses. These segregated accounts are managed by the Royal Bank of Scotland plc, one of Europe’s leading financial services groups. The arrangements ensure that PokerStars can at all times fulfill its obligations towards Players, and will provide further reassurance that Players’ funds are always secure with PokerStars.

When asked if at any time, members asked that their concerns be heard, he answers by stating that members didn’t always get along, that there was a group of owners that didn’t like Ray Bitar, that didn’t think he was doing a good job, and would have liked to see him removed.  According to Howard there was never a serious attempt to make that happen. The importance of this statement will become apparent later.

When reminded that, according to a Wicked Chops article published last year, owner John Juanda complained to Howard and Ray about the poor customer service being afforded to their customers, the response given to him was one of “you can’t tell us how to run this company, you are an owner and nothing else, you don’t run the company, so just f’ off”, his response was just that John was a “vocal owner” in the anti-Ray Bitar camp.While Lederer does not admit to being the one to make that comment to Juanda, he does say that he has no reason to not to believe that that conversation happened.

When further questioned about how striking that remark was, ie “you are an owner and nothing else”, Lederer responds and defends the comment by saying that there was an implication that if you want to be more than an owner, “put together a coalition of 51% of the other owners, toss Ray Bitar out on his ear, and start running the company”. He reinforces his sentiment that owners had but one responsibility, that was to elect a Board, and that was their remedy for anything they didn’t like. Since Howard seemed to enjoy invoking conditions set forth by their operating agreement, I will quote one pertinent line from the agreement that puts that conversation in context:  “Members have no managerial authority. The members, other than the Board and the Managers, shall have no power to participate in the management of the Company, except as expressly authorized by this Agreement of the Articles of as otherwise expressly required by the Act.”

That same article references Perry Friedman raising concerns in late 2006, that the company was growing too fast and in fact that he had called for a vote to remove Ray Bitar as CEO. Howard does admit, that the report was accurate and that in his opinion, Perry, more than anyone else, did not get along with Ray. Perry had resigned as a programmer because of his clashes with Ray and also that he (Perry) resigned from the Board for the same reasons. Howard made no further comments as to the vote that may or may not have taken place at that time.

Next installment: The Beginning of Distributions

Edit: Typographical errors corrected.
Edit: Board seats clarified as to chronology.
  1. Edit: The original text identified the attorney collecting the votes as Ian Imrich, who did indeed act as company counsel for many years. In this instance however, the attorney that collected the votes for Board members was  Bruce Dizenfeld, Esq. Diamond Flush Poker apologizes for the error.
  2. Lederer’s resignation as Manager in 2008 was announced to his friends and incompletely to other members. More vital information on this facet of his role in the company will become apparent later.
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24 Responses to The Distortion of Truth in the Lederer Files

  1. Chris Ferg says:

    Go get’em girl…

  2. Howard Lederer says:

    Sorry I had to cancel, the stress is overwhelming and I’ve done enough interviews for now.

    We can all agree on one thing: It’s Problem

  3. Lobster says:

    Keep up the good work! Can’t wait for P2

  4. reuben says:

    Bottom line………..the board was crooked as hell. There is no doubt in my mind that there is tens if not hundreds of millions in missing funds………..As for the rest of the owners what does one epect from a bunch of gamblers. All they cared about was themselves and there bank account. As along as distributions flowed and $$ was lent on demand they may have had concerns but did nothing in the end and they are al just a bunch of greedy punks.

  5. Reid Young says:

    DiamondFlush, sorry that Lederer screwed you our of some hard work that you did to prepare. I’m looking forward to reading the rest of your account and to see what you’ve dug up!

    Reid from

    Bonus riddle: What’s Howard Lederer’s favorite ice creme?

  6. Cornie4ever says:

    Awesome read! Thanks for all the data and diligent quotes!

    Quote of the day:
    The Company designates Ray Bitar and Howard Lederer as its “Managers”.

  7. Vlad says:

    Fantastic write-up! I love nothing more than stone cold facts.

    Too bad the folks who had a chance to interview and question HL to date didn’t care to dig deep enough and press on with factual line of questioning. Quite literally, I had more questions answered and clarified in my head from reading this single post than listening to the 7 hours (pokernews) + 3 hours (2p2) of drivel so far.

  8. Really looking forward to these articles. Diamond, you are the most honest journalist in poker!

  9. Karl says:

    I also noticed Howard’s “Hey nobody does segregated player accounts” bluff

  10. miko says:

    Impressive journalism… i’ll be following closely ^_^

  11. Eddie says:

    When you speak of HL’s comments on segregated accounts you state he talks about the start of FT in July of 2004 but when you site the Poker Stars statement you only state that it happened in 2004 with no month attached? Was it January, July, November??? In the interest of fairness you really should include the month that PS released this statement. I am not taking sides but this tactic lends it self to question whether you are leaving out the month because it may have happened after July which then would make HL’s statement valid when talking about the company in July when they set it all up. I look forward to hearing more of your version of the inner workings of FTP! Would really like to see if you can convince me to believe your account (as a complete outsider) of everything that happened over the opinions of the only FTP member that has said anything of substance in a year and a half.

    • Diamond Flush says:

      In due time, I think you will have no option but to be convinced. Please be patient for the last installment where all information will be tied together.

  12. Jason Williams says:

    Part 2 to be posting now pleases. But seriously, well composed write up and I am anxiously awaiting the subsequent articles. Hope whatever family issues forced a delay in posting Part 1 have been resolved favorably as well.

  13. AsianSpa says:

    Thanks for standing up and being a #SpaApproved #TruthSpeaker

  14. Jim says:

    Will the US ever allow online poker?

  15. Mike says:

    I feel the same for HL as I do for Jon Vilma, if you want everyone to think you’re innocent, DON’T RUN, SHOW UP AND SPEAK!

  16. georgia says:

    please contact me

  17. I was disappointed with Lederer’s interview, given the impact that this scandal has had on the poker community and the victims affected. I felt the recording was not heart-felt, given that it appeared to be choreographed expertly. Lederer should have come out and taken more responsibility for his actions and the actions of his company as opposed to deflecting blame from himself. In my opinion, he was very lucky to avoid prosecution.

  18. Excellent writing, great structure with coherent and cohesive points, backed up with facts that can’t be argued. The only way to approach a topic like this, well done Diamond Flush. Awaiting the next installment!

  19. spanky says:

    it is obvious Hl and friends took the money and ran. He better take that money and hide. I am shocked no one has at least kicked his ass by now. I don’t advocate violence but if it happened I wouldn’t feel sorry for him at all.

    As for the US every allowing online gaming, we are losing more and more freedoms every day. Unless a politician can figure out a way to line his own pockets by legalizing it, it probably wont happen.

  20. mick dundee says:

    sounds like your mad he did not want to do your interview, I dont think you are unbiased.

    I think they are all guilty , no one paid back loans ect ect. Now they are playing big buy in tournaments with my money . makes me want to throw up.

  21. allen phelps says:

    Howard Lederer has done more to ruin onine poker than anyone else in the history of online poker.He is a sniveling worm Howard chris ferguson and jerry lack the common descency to be considered a human being. The casinos should black ball them all.By doing this would set off a chain of events that would therefore isolate and ostrisize these thieving lowlifes and bring serious attention to what has happened and then and only then would they begin to experience the reprocutions of what they have done .Steal there thunder and only then will they experience the storm shun them in the poker community .They are the lowest of the low great research by the way thanks

  22. allen phelps says:

    sorry for the misspelled words and lack of punctuation its late and cant find my glasses