Lederer Files Synopsis Parts 3 and 4 – Trip More Important Than Backlog

September 20, 2012
Lederer Files Synopsis Parts 3 and 4 – Trip More Important Than Backlog

“The Lederer Files” continued over on PokerNews.com earlier today with Matthew Parvis continuing his questioning of Howard Lederer. Part 3 dealt primarily with the initial internal report in 2010 talking about a shortfall in funds and then transitioned into Black Friday. Part 4 dealt with the aftermath of Black Friday and what steps the company took to try to get an investor deal prior to the 2011 World Series of Poker.

Part 3 – Knew There Was a Backlog But Had to Go

Parvis opened Part 3 of the interview talking about the backlog in player deposits at Full Tilt Poker. According to an internal report cited by the US Department of Justice, there was a shortfall of $122 Million in August of 2010. This occurred due to payment processor’s inability to collect funds from US player accounts.

Lederer claimed no knowledge of the report stating that it was a “mystery” to him. In addition, he was upset that the company even allowed a situation to occur that would allow a backlog to occur.

Parvis also asked Lederer about threads on sites like TwoPlusTwo from players that claimed that they did not have funds withdrawn from accounts and Lederer admitted that he had even been approached by a select few players at poker events regarding not being able to deposit or funds not being taken out.

Lederer said that at the time that he attributed the problems to a “glitch” in the system based on the fact that there were Millions of players on the site. Also, he wondered why there weren’t more people bringing up this issue since the number of players affected was indeed significant.

As Parvis continued, Lederer stated that it was not until April 7th of 2011 that he was made aware of the backlog of player deposits, which he was told was over $100 Million.
He also stated that the way it was presented, it did not seem that the company was in financial distress and that the number had actually been bigger at one point and seemed that it was being cleared.

Lederer then revealed something that may come back to haunt him in the future. While admitting that the backlog was a significant issue, he was scheduled to go on a USO tour and record a poker program. He said that he had to go on the trip and would deal with it when he come back. He was scheduled to come back on the 18th of April. Of course, Black Friday hit on April 15th.

The last part of Part 3 transitioned into Black Friday. Lederer admitted that he found out via email and the initial hours were spent by the company essentially scrambling to figure out things such as blocking US players, what money was in accounts seized, etc. In addition, he was part of the conference call to discuss the initial Full Tilt press release on Black Friday. He stated that when the press release was issued, he truly believed that player funds were covered.

Part 4 – Shortfalls and Uncooperative Members

Part 4 dealt with the immediate aftermath surrounding Black Friday and how Full Tilt tried to secure a deal to sell the company. Lederer revealed that by April 21st of 2011, they had financial records reviewed internally and discovered that there was a $250 Million shortfall between player deposits and actual cash on hand.

When asked whether he had any trouble believing that number was accurate, Lederer stated that the number he found hard to believe was the negative effect the backlog would have on cash coverage. According to Lederer, they discovered that out of $134 Million in player deposits that were never collected by US players, only about $10 Million of that would be recoverable by Full Tilt.

According to Lederer, Chris Ferguson had thought that the number would be around $70 Million and they both were shocked about the number. Lederer then made a statement that the shortfall was a great argument for skill in poker as it appeared that most of the $134 Million was pseudo-funds by losing players.

The discussion then transitioned into the first meeting by the board with members about what was going on and how to proceed. Something that would ultimately set the tone for future meetings was that Perry Friedman was represented on the call by his attorney, something that would become the norm for around a dozen of the members by the next call.

According to Lederer getting the members to work together became a challenge as some were more concerned about preserving their equity in the company than in repaying players. In fact, Lederer admits to practically being booed off the conference call where he tried to read the terms of the Benny Binion deal.

While he admitted that term sheets by several interested buyers had been submitted, members did not seem to be pressured to sell. Lederer tried to convince them that the longer they waited, the less the company would be worth, but they apparently would not listen according to him.

Through this, Lederer painted himself as the main voice in trying to get things done, but members felt they had time. He even said that the company was supposedly making money in May and the members felt they could wait. As the last part closed, Lederer stated that he felt that the matter should have been resolved prior to the 2011 World Series of Poker to avoid what he called an echo chain of negative publicity for the company.

In my view, parts of the last two segments of this interview did not help paint Lederer in a very positive light. One has to wonder why he would choose a USO tour over trying to fix a significant problem with finances. Also, it would appear that he has confirmed what has been rumored for a while in that the Full Tilt membership was putting their equity above their players. It will be interesting to see what the next two segments reveal and whether Lederer continues to claim ignorance to many of the major issues.

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