By Jared Stark, J.D. Candidate

Full Tilt Poker was once a prominent poker website that allowed players to compete online for money. The site has been the target of federal prosecutors since April 2011, when the United States filed a civil suit against the company and its officers in the Southern District of New York. On September 19, 2011, however, prosecutors made a startling announcement when they accused Full Tilt Poker of operating as a “massive Ponzi scheme against its own players.”[1]

Preet Bharara, the United States Attorney for the Southern District of New York, filed an amended complaint after his investigation allegedly uncovered new elements of fraud. According to the amended complaint, “Full Tilt Poker used player funds, among other things, to maintain a steady flow of payments to its owners, totaling more than $443 million over the last four years, despite the fact that Full Tilt Poker did not have sufficient funds to repay its players.”[2]

The mounting civil suit is being pursued simultaneously with criminal charges. In April, federal prosecutors in Manhattan unsealed a criminal indictment that charged eleven defendants with “bank fraud, illegal gambling and money laundering offenses.”[3] While no new criminal charges have been filed since the September announcement, the possibility remains quite real. Daniel Richman, a professor at Columbia Law School, notes that “It's unclear at this point whether the government is done . . . It's often the case that criminal charges are preceded by civil charges."[4]

It’s possible that the government is delaying the filing additional charges while it attempts to locate the funds in question. The government may determine that locating the money and attempting to remunerate victims should take top priority.[5] Locating that money does not foreclose the possibility of criminal charges, however.[6] It is also entirely possible that the government is using the prospect of looming additional criminal charges as a bargaining chip to goad cooperation from the defendants.

If the government pursues additional charges, what would those charges be? As the government forays into the relatively uncharted world of prosecuting internet based Ponzi schemes, it must find charges that fit the bill. Mail[7] and wire[8] fraud charges may be a good bet. These “tried and true” statutes have been used to prosecute Ponzi schemers for quite some time.[9] Though somewhat dated, they act as effective prosecutorial tools that will have to suffice until Congress enacts new legislation aimed at more modern fraud.[10]

The amended complaint[11] and the government’s attendant press release[12] may telegraph the prosecution’s “game plan” of filing such charges. The government may be eyeing the elements of mail and wire fraud by alleging that Full Tilt and its officers removed players’ money from trust or escrow accounts without permission to pay its own salaries. The shared elements of the mail and wire fraud are:

(i) A scheme to defraud that includes a material deception; (ii) with the intent to defraud; (iii) while using the mails, private commercial carriers, and/or wires in furtherance of that scheme; (iv) that did result or would have resulted in the loss of money or property or the deprivation of honest services.[13]

Additionally, wire fraud contains the requirement that the communication crosses state lines.[14] If such charges are filed, though, the defense may attempt to combat element (ii) by making the lack of intent a central part of their theory. An attorney for Full Tilt and Raymond Bitar, one of the individual defendants in the criminal case, has already suggested that Full Tilt be likened to a problematic bank rather than a Ponzi scheme, stating that “maybe [Full Tilt] was mismanaged.”[15] Though courts have liberally allowed prosecutors to introduce evidence of intent in mail and wire fraud cases,[16] I believe that negation of that intent will be the lynchpin of the defendants’ case should additional charges be filed.