Howard Lederer and Full Tilt's "Cash Coverage" Cha Cha Howard Lederer and Full Tilt's "Cash Coverage" Cha Cha
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The ugly truth behind Full Tilt Poker’s false claims that player funds were “safe and secure” continues to emerge, with statements made by former Tiltware president and Full Tilt board member Howard Lederer downplaying the connection between the site’s “cash coverage” of player balances and the real impact of the nine-digit backlog of uncleared US player deposits.

Lederer’s own statements in recent interviews with PokerNews and 2+2 poker podcast confirm the shifting sands beneath Full Tilt’s claims of financial security, with players ultimately left holding the bag for roughly $300 million. Had third-party deals not occurred, it’s likely that the Full Tilt victims would have received only pennies on the dollar, if anything, despite Lederer’s recent reassurances that he had only the players’ best interests at stake.

Excerpts from the interviews illustrate the problem with Lederer’s claims, showing his attempt to rephrase the circumstances in a manner less applicable to Full Tilt’s overriding fiduciary responsibilities.

In Part 3 of his “The Lederer Files” interview with PokerNews, Lederer makes up an imagined example to show how Full Tilt’s cashout liabilities could have changed over time.

“If you just say that backlog’s a hundred million,” said Lederer. “What does that mean… to the cash coverage? You can’t just answer that question without a lot of investigating. That was one of the problems I had on [April] 7th, [2011].” The date refers to when Lederer claims he first learned about the massive nature of Full Tilt’s uncleared deposit backlog.

Lederer continued with his example:

Let’s say there’s an online poker company, with no backlog. Now, today, they allow you to deposit $100 and me to deposit $100 on the site, and they don’t happen to have the ability to process those two payments.

So, the answer to the question 'How big is the backlog?’ is $200. The answer to the question, at that moment, of 'What kind of impact does that $200 in backlog have on the cash coverage of the company?’ The answer to that is zero.

You have $100 in your account. I have $100 in my account. And at that moment, if you were to turn around and try to withdraw your $100, the company would inform you, 'Well we didn’t collect that $100 over here, so you’re actually even. And the same thing would happen to me if I tried to withdraw. So the backlog is $200, and the effect on the cash coverage is zero.

Now let’s just say we play a heads-up sit-n-go, and let’s say you win, and you have $200 in your account and I have zero in my account. Now the answer to the question 'How much is the backlog?’ and how it affected our cash coverage, is now changed by $100. If you were to try and withdraw your $200, you’d be told that you still owed the company $100.

He further explains how that $100 might be the company’s real liability in such a case.

“That’s a very simple example,” Lederer continued, “with just two people. The complexity of trying to figure out the effect on the cash coverage for a backlog, that I believe, there were 130,000 people involved is not a trivial matter. And I knew that on the 7th that there was no way that I could understand it.”

The core lie in Lederer’s statement went unchallenged. In his example, the exposure faced by the company was always $200 (less rake fees earned by the company), and neither $100 nor $0, and that exposure continued uninterrupted from the moment those funds were credited to players’ accounts.

That Full Tilt might not have honored a portion of any pretend withdrawals in Lederer’s example belies the very nature of the business itself, in which customers deposited funds on the site and put those funds entirely at risk over a virtual card game, every time those hands were dealt.

Since the very essence of poker involves the transfer of money or chips from one player to another, Lederer disavowed the core function of his business in trying to rationalize his claim that the backlog’s existence wasn’t a clear indication that the company was in financial distress.

The cash coverage topic resurfaced later when Lederer detailed discussions between he and fellow FTP board member Chris Ferguson, in which the two claim to have believed that as much as $60 or $70 million could be recovered directly from depositing players’ accounts, this despite the slow growth of the backlog over many months.

Lederer claims that he and Ferguson were stunned to discover that only a little over $10 million of the uncleared but credited deposits remained in the original players’ accounts, a statement that is fundamentally unbelievable, for the reasons connected to poker’s very nature outlined above.

Not only would professionals such as Lederer or Ferguson have a very clear understanding of how poker money flows from losers (net depositors) to winners over time, the idea that a company such as Full Tilt could take in a billion dollars in revenue without generating reports of studies quantifying that flow is nonsensical.

Ever heard of a company that could take in a billion dollars without ever wondering what percentages of players were likely to deposit and lose money, and more specifically, how much money and how often?

Such information is vital to designing and implementing signup and reload bonuses, player incentives, tournament guarantees and more, all of which not only goes right to the very nature of how a major online poker site is or should be run, but describes exactly the roster of duties that Lederer claimed to specialize in while denying knowledge of the financial dealings of the company. An unspoken assertion that none of this ever even existed at Full Tilt is the only way the tale could hold together, and it just doesn’t pass the smell test.

In closing, don’t believe the core pretense served up by Lederer as explanation for how Full Tilt’s nine-digit cash mess really isn’t relevant. Lederer has woven a complex tale, but the pulled threads and thin spots in the fabric are there for everyone to see.