The amended suit accuses Full Tilt of being a Ponzi scheme that paid executives with funds that were supposed to be reserved in player accounts. Skeptical as I generally am of the government in these cases, a cursory reading of the relevant information suggests to me that Full Tilt was at minimum guilty of making some really stupid and likely fraudulent business decisions. From what I can tell, in an effort to stay operational after the feds brought down the hammer, Full Tilt continued to pretend to process deposits from U.S. players, even though it hadn’t lined up a legal processor to conduct the transactions. (Because the feds had already arrested and charged the executives of any processing company that tried.) So they were crediting accounts without actually withdrawing money from the players whose accounts they were crediting.

Shortly after the indictments, the feds then barred the company from processing any more payments from U.S. players, but simultaneously told players they could still use the site to cash out their accounts. Full Tilt couldn’t come remotely close to covering the ensuing run. That isn’t really a Ponzi scheme. But if true, it’s certainly not on the up and up. If Full Tilt executives were misleadingly running the site like a (poorly run) bank, I’d imagine that’s a pretty good case for fraud. It’s also fraudulent (and crappy business practice) to pay out your executives and celebrity endorsers first, while knowing that you can’t pay your players the money you promised them was protected and kept separate from general operating expenses. (I’m sure it’s illegal, but unlike the allegations above, I can’t personally conjure up much moral outrage over the allegation that Full Tilt disguised billing codes to get around the Unlawful Internet Gambling Enforcement Act.)

How much Lederer and Ferguson knew about all of this remains to be seen. (Disclosure: I’ve met and like both, so I hope their involvement was minimal.)

I’m sure opponents of online poker will cite all of this as proof that they were right, that these sites are havens for fraud, money laundering, and all sorts of other criminal enterprise. But the reason offshore sites were so popular in the first place is that it was and is illegal for any company based in the U.S. to provide online poker to U.S. residents, despite the fact that millions of U.S. customers clearly want to play. Full Tilt was trying to fill that demand, first legally, then by operating in a legal gray area, and finally (allegedly) by trying to circumvent the law. That doesn’t excuse the company from defrauding its customers, if that’s indeed what happened. But the government has been standing between the millions of people who want to play poker online and the companies that want to provide them with that service legally. This is what happens when you create black and gray markets. It is entirely predictable.

I’ll reserve judgment for now on whether Full Tilt’s legal problems amount to intentional fraud or dumb mismanagement wrought in part by trying to stay up and running even as the feds continued to slam doors. My best guess is it’s mostly the latter, combined with a bit of the former as it became clear the gig was up. What is abundantly clear is that the federal government’s paternalistic efforts to “protect” online poker players from losing money to offshore gaming sites . . . was a colossal failure.

MORE: See this comment from Mike C., who says meshing of player accounts with operating expenses was going on well before last year’s indictments. I’ve also now read the full indictments, and from here it looks pretty bad all around for Full Tilt and its executives. Of course, we do have trials for this sort of thing. So we’ll see how they go about attacking the complaint when the time comes. But the feds depict some really shady stuff going on, well beyond just trying to figure out how to keep the site operational.

MORE: This post initially indicated that Lederer and Ferguson had been indicted. That isn’t true. They’ve been added to the fed’s civil complaint. I’ve changed the post to reflect this.

 Knox County Sheriff’s Office deputies raided yet another allegedly illegal gambling operation Wednesday night.

The latest raid targeted a poker game inside a private residence in the Bexhill subdivision in West Knox County, according to a KCSO spokeswoman Ashley Haynes.

Deputies discovered eight people around one poker table at 1304 Buxton Drive, and seized approximately $1,000 cash, Haynes said.

No arrests were made, but all information was turned over the Knox County District Attorney General’s Office for possible charges, she said.

I was going to make your usual “Knox County can sleep safer now” comment until I did some poking around and found this poker raid in Chattanooga last April, in which the police spokes-sergeant makes my point for me, only without the sarcasm:

“Any arrest obviously reduces crime in our city and a crime reduction means safer streets and safer communities.”

MORE: Via the comments, here’s more on the Knox County raid. It’s looking more and more ridiculous. Here’s a comments from a woman who says she’s the owner of the home that was raided:

Thanks for the comments folks. Here is the problem with the raid they did at my home Tuesday. There were 8 people there the lady who let them in even with my reservations with the deputy on the phone who threatened arresting everyone there and getting warrants ( you see I was not at home I was and still am in the hospital). The lady was doing laundry My other roomate and two friends were playing a card game called Fantan its like 3 way solitaire on a poker table left out from our holiday get together Sunday. Fantan requires you to chip if you cannot complete a sequence – wel l since you can only play with 3 l dont see where 8 people around a table playing poker came in. There were other guests there watching TV and enjoying a quiet evening. The deputies claimed they were gambling because chips and cards were involved.

Here’s a follow-up:

they conficated my tables to be stored after our holiday party they broke them because they were too lazy to take them apart, they took non-denomination chips that we use for tourneys, the money they confiscated was not gaming money it was personal property of my guests in their pockets, in their search they found poker paperwork had stats and point values, my cell phone because it had poker related pictures and last names that said poker not last names, and a 2lb bag of epsom salts that they recorded on a receipt as drugs. 2 computers mine and my housemates My problem is they have embellished the truth with each raid to Justify to the public the “good” they were doing. I am outraged that they have my neighbors thinking I am some criminal because I play poker! Heck their coworkers, other law enforcement areas have been to games I have played in and hosted what about them?

Under federal “adoption” policy, any local police department working with the federal government in a criminal investigation gets to keep up to 80 percent of the property it seizes in that investigation. And once the feds get involved, the whole thing officially becomes a federal investigation, which allows local police departments to skirt state laws aimed at protecting citizens from forfeiture abuse.

In this case, the Anne Arundel Police Department bagged $30 million seized stolen from online poker players. They celebrated with a press conference and oversized novelty check. They’ll use the money to buy some cool new police equipment. Let’s hope it’s for more SWAT gear, so they can feel a bit safer the 150 times each year Anne Arundel County SWAT teams are deployed, most of the time to serve search warrants that result in misdemeanor charges.

I love the line from the U.S. Attorney’s Office in Baltimore: “The government is not going to give the money to gamblers.” Except for the working stiff who finally wins $100 after spending $500/month on the state lottery for 10 years. Then the government will gladly give money to gamblers. Because they know they’ll get it right back.

(Via Amy Alkon)

This is obviously terrible, and I hope the guy is released. But the premise here is no different than when the U.S. government arrests the executives of online gambling sites at U.S. airports and charges them under U.S. law, despite the fact that online gambling is perfectly legal in the countries where they’re citizens and where their companies are incorporated.

We set a pretty nasty precedent here. I don’t see how the U.S. government has much moral standing to demand this guy’s release.

This is the by far the most serious federal attack on online poker to date. I just checked my Full Tilt account. The site still appears to be up, but it isn’t accepting payments. Or at least it didn’t accept mine. The L.A. Times article linked above says Full Tilt’s website was down with an FBI seizure notice put up in its place. But as of this writing, it appears to be back up.

Good to know where the DOJ’s priorities lie. In this case, it’s preventing millions of people from consensually wagering money in online card games, an exchange that causes no harm to anyone else.

I predict this is going to prove to be a politically foolish move. Poker players are young, wealthy, and tend to be progressive on social issues. Reaction from the Poker Players Alliance here.

Reason on online gambling here.

In case you can’t read the fine print at the bottom, it says:

Paid for by: California Indian Nations Gaming Commission

A relatively routine raid of a low-stakes poker game in Greenville, South Carolina turned bloody yesterday night — as police tried to gain entry to a poker house. The game host, now known to be Aaron Awtry, 72, shot through the front door, striking sheriff’s deputy Matthew May with a bullet that went through his arm.

A vice squad in SWAT gear returned fire, hitting Awtry with multiple rounds in his arm and thumb … which was followed by a 20-minute standoff between cops and players, according to a spokesman for the Greenville County Sheriff’s Department. Both shooting victims were taken to the hospital where they are in stable condition.

There were 12 people and Awtry in the house at 502 Pine Knoll Drive when police arrived at about 9:20 pm last night. According to frontline witnesses, they had just finished a small buy-in dinnertime tourney … and a 1/2 cash game was just getting underway when someone saw 5-0 approaching on a security monitor. Before he could clearly vocalize an alert, a battery ram begin slamming the front door and players froze. Awtry, who players say has notoriously bad hearing in his senior years and presumably believed the game was being robbed, began shooting at the door with his pistol, firing “at least once” according to a player, “multiple shots” according to police. At least four officers returned fire at the door with at least 20 bullets from their higher-powered assault weapons.

As Awtry fell back into the poker room entryway, he balked, “Why didn’t you tell me it was the cops?”

Local news coverage of the raid here. Police seized about $5,000 in cash. Everyone but Awtry was issued a $100 fine. Ironically, both the South Carolina Supreme Court and state legislature may soon clarify the state’s confusing laws about private poker games.

This is far from the first time police have brought the SWAT team to a poker game. Reason.tv covered a similar raid at on a charity poker game hosted by an American Legion post in Dallas.