Jacob on Jeopardy!

Tuned in tonight to watch Jeopardy! in order to see Alex Jacob, the poker pro (or former poker pro) who is currently enjoying a massive run on the show.

Most in the poker world first met Jacob nearly a decade ago when he won that United States Poker Championship in Atlantic City in 2006, an event that was televised and thus got him some notice even though he’d already made final tables at the World Poker Tour and World Series of Poker by then.

He’d continue to collect cashes up through 2012, earning over $2.6 million total. I feel like he never was a full-timer on the circuit, though, and over the last couple of years has been even less conspicuous, perhaps having stepped away entirely.

In any case, you’ve probably heard about him popping up again on Jeopardy! where he’s been crushing. Going into tonight he’d won five times in a row, winning $129,401 total with mostly dominating performances. At the start of this sixth try, host Alex Trebek noted how Jacob had gotten to Final Jeopardy four of five times with leads of greater than double the nearest competitor, meaning he’d already clinched the win.

I did watch the end of one of those shows and laughed at the end when during Final Jeopardy Jacob appeared to push “all in” by moving his hands forward when his final betting amount was revealed -- $0, actually. At the start of tonight’s show Trebek introduced Jacob as a currency trader, so I’m not even sure they’ve discussed his poker background at all.

Hearing about some of Jacob’s strategies -- e.g., not going top-to-botton with categories but jumping all around the board with his clue selections, and usually betting everything on the Daily Doubles -- I thought back to that fellow from about a year ago, Arthur Chu, who also got a lot of press and poker players’ attention during a run of 11 straight wins on the show.

Chu became known as the “Jeopardy Villain” because of both his unorthodox strategy and his humorous baiting of folks over Twitter during the time of his reign. Chu would also pick clues out of order and routinely go “all in” on the Daily Doubles. Jeopardy! legend Ken Jennings wrote an article for Slate at the time discussing Chu, explaining how that latter decision to go for “true Daily Doubles” was correct.

“Like a poker player trying to increase the size of the pot when he has a good hand,” Jennings wrote, “Jeopardy! contestants should maximize their upside when the odds are in their favor.”

There was one other quirk Chu exhibited during Final Jeopardy. When leading but not having more than twice the “stack” as his nearest foe, he’d bet exactly enough to tie should his opponent bet everything and both players answered the clue correctly.

For example, if Chu had $12,000 and his opponent had $7,000, Chu would bet exactly $2,000 -- not $2,001, as some tend to do -- to end with $14,000 if he were to be correct and tie with his opponent if that player bet everything and was correct as well. In fact, one time that’s what happened and after tying both he and his opponent were able to return for the next show.

That strategy, as I understand it, makes it just a tiny bit less likely Chu could lose should his opponent happen not to bet everything but a lesser amount. In the above example, for instance, if he bet $2,001 and was incorrect he’d end with $11,999, and if his opponent only bet $5,000 even and was correct that player would have $12,000 and win by a buck.

I noticed someone retweeting Chu commenting on Jacob, in fact, interestingly bringing up his own poker playing as he did.

Getting back to Jacob’s performance tonight, Trebek introduced things by alluding to Jacob’s recent run, advising Jacob’s opponents Nikhil and Scott to “get him early, and then try to get him late, too.” Jacob ruled during much of the first round, though, quickly building a big lead before the others finally were able to buzz in and start notching some correct answers.

Then Scott got the Daily Double and with just $600 -- several thousand behind Jacob -- he surprisingly bet only $5. The questioned turned out to be an easy one for him and he won the $5, but it felt a lot like a player too timid to bet without a sure thing.

By the second round Jacob was well in front and in fact went a long stretch without buzzing in at all while the totals of other two went up and down. Scott got another Daily Double, and this time said “Alex is too good, I gotta do it... true Daily Double.” Alas for him he got a tough one about an Italian painter and lost his stack.

A little later Nikhil got the other Daily Double at a point when he had $4,200 and Alex $7,200. Betting it all and being correct would put him in the lead, but he chose only to bet $2,000. The category was “In the Dictionary” and the clue “Fittingly it means ‘Empty Orchestra’ in Japanese.” Nikhil guessed “What is kabuki?” but the correct response was “What is karaoke?” and Jacob’s lead increased again.

There was a clue about “Manhattan prosecutor Preet Bharara” -- he of Black Friday fame -- that perhaps got poker players’ attention. It got Jacob’s attention, too, as he finally buzzed back in to guess correctly that Bharara had vowed sweeping reform of Rikers Island.

Jacob then rattled off a few more correct answers, seeming at one point to pause unnaturally after buzzing in to answer an easy one about a Halloween TV special featuring a character who instead of candy gets a rock.

“Who is... Charlie Brown?” he said, and for a moment I thought he might have been stalling a little as the round was winding down. But he immediately picked back up the pace thereafter, and the trio was able to complete the entire board with Jacob sitting with $17,400, Nikhil $10,200, and Scott $3,600.

The Final Jeopardy category was “Book Reviews” and the clue was an easy one (I thought) -- “A 2008 review of this novel, later filmed, compared it to ‘Battle Royale’ & said it’s ‘a future we can fear.’” -- although I guess it might not have been easy if I hadn’t read The Hunger Games.

Nikhil missed it, though, while Jacob got it correct. He bet $3,001 -- meaning he did not choose the Chu approach -- and ended with $20,401 to bring his six-day total close to $150K.

To be honest, while it’s probably safe to say Jacob is using some of the same skills and strategic thinking he honed at the poker tables while playing and winning at Jeopardy!, there wasn’t that much in his play that obviously recalled his poker background. In fact, it was the timidity of the other two players that made me think more of poker, as well as a kind of “tell” from Scott when he declared he didn’t like one category as he was selecting it.

I guess, though, at the very end of the show I was reminded again that Jacob played poker. “Smile, Alex... smile!” said Trebek to Jacob who remained stoic even as the audience applauded his victory. He reminded me of a seasoned player who has just won a big pot and who has trained himself not to show emotion afterwards.

Jacob may be a “currency trader” now, but he still has that poker face.

Talk About Red Pros (More on the DOJ vs. Full Tilt Poker)

Have been perusing that amended civil complaint a bit this morning.

Like PokerStars and UB/Absolute Poker, Full Tilt Poker was accused in April of violating the Unlawful Internet Gambling Enforcement Act, bank fraud, and money laundering. Now the DOJ’s amendment to the civil complaint, besides adding Howard Lederer, Chris Ferguson, and Rafe Furst to those being accused, adds a few other major allegations as well, including...

(1) that the company’s manner of crediting accounts without first securing those deposits plunged the company into serious financial trouble;

(2) that the owners were skimming from players’ funds in a major way, thus further accelerating the company’s progress down that road to ruin; and

(3) that all along the way the company was inaccurately telling players everything was hunky dory.

Looking at these separately...

(1) “Phantom Money”

That first item is mentioned early on in the amended complaint when the DOJ explains how “Full Tilt Poker’s payment processing channels were so disrupted that the company faced increasing difficulty to collect funds from players in the United States,” and thus made the grievous decision to begin crediting accounts without finalizing transactions.

The complaint estimates the site did this to the tune of about $130 million worth of so-called “phantom money,” funds that appeared on the site between the summer of 2010 and April 2011.

I read a piece yesterday over at the Reason site arguing that “The Government Blames Full Tilt Poker for the Disruption the Government Deliberately Created.”

The author, Jacob Sullum, makes a couple of good points in the piece. Alluding to what has surely been the most-quoted line this week regarding the DOJ’s action, the one from U.S. Attorney Preet Bharara (in the press release) stating that “Full Tilt was not a legitimate poker company, but a global Ponzi scheme,” Sullum correctly points out that in Bharara’s eyes, there is probably no such thing as a “legitimate poker company” operating online and serving U.S. players.

I thought the exact same thing when I first read Bharara’s statement. That never mind the “Ponzi scheme” stuff... what the heck does he mean by a “legitimate poker company”?

Sullum also points out how by passing the UIGEA, “it was the U.S. government, of course, that deliberately disrupted Full Tilt Poker's payment processing network in the United States in the name of preventing Americans from playing online poker.” Again, that is eminently the case. If not for the UIGEA, the site’s payment processing channels would likely not have been “so disrupted.”

But from there Sullum draws the odd conclusion that “the government created the very situation it is now blaming on Full Tilt Poker.” Which makes no sense.

Full Tilt Poker is being accused of a host of blameworthy offenses, none of which are “the situation” created by the passage of the UIGEA. Some of those offenses may well have never been committed had not the UIGEA been passed. But it’s silly to say the DOJ is blaming Full Tilt Poker for the “disruption” because it’s not. And it’s also silly to suggest that when it comes these other allegations -- of owners’ skimming funds or the site’s deliberately misleading communications to players -- that culpability can somehow be transferred away from Full Tilt Poker and rested at the feet of the U.S. government.

(2) “FTP Insider Accounts”

The amended complaint includes some remarkably precise details, obviously obtained by the DOJ from someone inside of Full Tilt Poker. These details include information that helps to measure just how deep the doo-doo was in which FTP found itself as well as the extent to which the owners were apparently funneling money at a rapid clip into their own “FTP Insider Accounts.”

We learn that “according to a balance sheet prepared by Full Tilt Poker, as of March 31, 2011, Full Tilt Poker owed players from around the world over approximately $390,695,788 but had only approximately $59,579,413 in its bank accounts.”

We also find details about how much “Defendant Bitar,” “Defendant Lederer,” “Defendant Ferguson,” and “Defendant Furst” each allegedly received into their personal accounts between April 2007 and April 2011, an amount totaling about $120 million, with about $60 million more “allocated” to Ferguson though not paid.

“The other approximately 19 owners of Tiltware LLC” are said to have received the rest of the $443,860,529.89, including one unnamed owner (“Player Owner 1”) who received about $40 million plus another $4.4 million in “loans,” a person many have surmised must be Phil Ivey.

These are all just allegations, of course. Rafe Furst, one of those named in the amended complaint, has already denied any wrongdoing. Other Team Full Tilters who might be among the “approximately 19” who could be considered “owners” have made statements as well, including Tom Dwan and Gus Hansen.

And Ferguson’s lawyer, while not denying the specific charges against his client, issued a statement yesterday decrying Bharara’s use of the term “Ponzi scheme” to describe Full Tilt Poker, claiming the characterization is both inaccurate and “inflammatory... in the post-Madoff era,” and thus “may violate pre-trial publicity rules of professional responsibility.”

Whatever you want to call it, should these allegations prove true they certainly suggest some pretty serious culpability. And while I suppose one could argue that if it weren’t for the UIGEA there wouldn’t be a need to be moving funds around like this -- including into personal accounts -- it looks pretty bad, regardless.

(3) “Please Know That Your Funds Are Safe and Secure”

Here’s where I think the average Full Tilt Poker player gathers most of his or her outrage -- from those statements by the company, repeated ad infinitum, that funds were “safe and secure.”

The amendment compiles a bunch of examples of such statements made between 2008 and 2011, although most of us are already familiar with them via our email inboxes, Two Plus Two, or simply visiting the fulltiltpoker.com website.

We read how in May 2008, Full Tilt Poker was emailing customers saying “we would like to assure you that your money is not at all at risk and there is no poker site on the Internet where your money would be any safer than at Full Tilt Poker.”

Think back to the summer of 2008. When one site told you then that your money was safer with them than with all other sites, which of those other sites would have sprung to mind? The ones where “super-users” and cheating occurred, right? Over which the poker community was split regarding whether or not one should feel safe when playing. The fact was, in such an environment, reassurances that Full Tilt Poker was no UB or Absolute Poker had some effect.

Along the same lines, the complaint quotes another boilerplate sent out around the same time in which the company pointed out that “unlike some companies in our industry, we completely understand and accept that your account money belongs to you, not Full Tilt Poker.”

Then come more specific assurances regarding the segregation of funds, such as “FTPDoug”’s July 2008 contribution to a thread on Two Plus Two (referred to generically in the amended complaint as the “Poker Forum”) in which he responds to posters’ apprehensions about the site's using players' funds for operational expenses. “I can say with authority,” writes FTPDoug, “that we do not mix deposits with operational expenses.”

Again in another thread, this one begun in June 2009, concerning the seizure of funds from a payment processor, FTPDoug chimes in “to reassure everyone that your funds remain safe and secure at FTP.... We always make sure we can cash out any of our players at any time. You should never have to worry that you won't get your money, and we’re doing everything we can to ensure you always have plenty of methods available for both deposits and withdrawals.”

Full Tilt made similar claims to the Alderney Gambling Control Commission apparently, too. The amended complaint quotes from a document (no date is given) in which the site ensured its licenser that “[a]ll players have an account that holds money that is available to them on the Full Tilt Poker system,” that “[t]he player may withdraw funds up to the current balance of their account at any time, subject to any applicable bonus terms and conditions,” and that “[n]o play may commence unless the player has credited his account with cleared funds and has adequate funds to participate in the selected game.”

Such was certainly not the case starting some time in 2010, if not before.

Then, in response to Black Friday, came a “Statement from Full Tilt Poker Regarding Recent Check Withdrawal Issues.” “In light of recent events involving the freezing of certain accounts,” the statement goes, “Full Tilt Poker would like to assure all players that their funds remain safe and secure. Processing of both deposit and withdrawal requests is proceeding as normal and is still available to all of our players.”

As noted above, this came a couple a weeks after that internal balance sheet was showing Full Tilt Poker owing its players about $390 million while only having a little under $60 million in its accounts.

And apparently it got even worse rather quickly, as another communication, this one an email sent by Ray Bitar on June 12, 2011, noted how “at this point we can’t even take a five million run” should players suddenly begin withdrawing.

The complaint also notes -- sort of like a weak, almost obvious punch-line -- how “As of September 19, 2011, Full Tilt Poker’s website stated that players’ funds were ‘safe and secure.’” Indeed, that line continues to appear on the site today.

There was clearly a moment, one that came well before Black Friday, when Full Tilt Poker knew it was operating in a way that could not be sustained indefinitely. In other words, even if it didn’t exactly match the criteria some would require to call it a “Ponzi scheme,” it was like a Ponzi scheme insofar as it was destined to fail.

What’s next for Full Tilt Poker? The amended complaint outlines its argument for forfeiture -- i.e., when it comes to whatever is left of the company’s assets, the government wants whatever it can get. F-Train and Chops (in that podcast I was referring to yesterday) speculated about a possible “widening of the net” by the DOJ to include other yet-to-be-named individuals. And there’s that still ongoing hearing with the Alderney Gambling Control Commission, where rumors about possible investors continue to swirl.

Who knows, really? There will surely be more drama, but from the perspective of most who played on the site, it appears the damage has been done.

The players sponsored by Full Tilt were called “red pros.” The innocent among them are now red with embarrassment and/or anger. Those less so are being colored red as well as a symbolic reference to their guilt. And, of course, the whole dang outfit is deep in the red, now, too.

Full Tilt Poker “a Ponzi Scheme” Says DOJ

“Up til now, it was ‘the government says online poker is bad, but we know better.’ Now it’s ‘online poker is bad.’”

So said my friend @tropicalsteve over Twitter a little while ago, his observation coming after breaking news that the U.S. Department of Justice was filing a motion to amend its earlier “Black Friday” civil complaint to add new charges, all directed at Full Tilt Poker and its owners.

The amendment adds three more names -- Howard Lederer, Chris Ferguson, and Rafe Furst -- while also alleging Full Tilt Poker “defrauded its poker players by paying out hundreds of millions of dollars of player funds to Full Tilt Poker owners while misrepresenting to players that funds credited to their online player accounts were secure and segregated from operating funds.”

In a press release accompanying the action, the DOJ notes how the company had been using player funds to pay board members and owners as far back as April 2007.

That release quotes U.S. Attorney for the State District of New York Preet Bharara claiming “Full Tilt was not a legitimate poker company, but a global Ponzi scheme” that not only was guilty of the previous charges (violating the UIGEA, bank fraud, money laundering) but “abused its own players to the tune of hundreds of millions of dollars… while blithely lying to both players and the public alike about the safety and security of the money deposited with the company.”

Not sure if “Ponzi scheme” quite describes what was going on Full Tilt Poker, but you get the idea. As we have already known for some time, the company’s books were hardly in order. If there were books, that is.

The press release goes on to note how emails were sent to players by Full Tilt in 2008 and 2009 stating that funds were segregated and safe. It also describes how “approximately $443,860,529.89” was distributed to Ray Bitar, Lederer, Furst, Ferguson, and others. Gotta love that approximation... right down to the last red cent.

Also noted there is a report by Lederer this summer “to others at Full Tilt Poker that there was only approximately $6 million left, and therefore no realistic ability to repay its new depositors.” And Bitar apparently believed FTP couldn’t even pay $5 milly if they had to.

“Yep,” I responded back to @tropicalsteve. “Other eye blackened,” I added, referring to online poker’s further weakened status in the U.S. “Will be stumbling around blind for awhile.”

I’m not entirely sure, actually, how today’s news will affect ongoing efforts to license and regulate online poker in the U.S.

I would think the DOJ’s amendment should end whatever hope FTP had for getting the Alderney Gambling Control Commission to lift the suspension of its license to operate. As it happens, representatives of Full Tilt met with the AGCC yesterday, and apparently were planning to continue discussions today over that matter.

The news probably won’t help the situation for those few still-U.S.-facing sites either, where the great majority of Americans who played online poker for real money prior to April 15 were reluctant to deposit and play already.

In any case, Full Tilt Poker’s example as “not a legitimate poker company” but some utterly illegitimate, corrupt enterprise that successfully masqueraded as one for seven years will likely stand as ample, difficult-to-refute evidence to be employed by those arguing for the need for regulation.

Although, of course, as @tropicalsteve points out, those hoping to make that argument are going to have to deal with the fact that for many -- the idea perhaps further reinforced by today's developments -- “online poker is bad.”

(EDIT [added 7:30 p.m.]: As I am sure anyone reading this blog is aware, the news of the DOJ’s action against Full Tilt Poker has been extensively reported by many mainstream outlets today, including CNN, FoxNews, MSNBC, the New York Times, the Wall Street Journal, Forbes, and elsewhere. In fact, at this moment the story appears front and center on the CNN website -- a sight startling enough I thought it worth adding a screenshot of it here.)

Bharara’s Hammer

That’s a picture of Fiorello Henry LaGuardia, taken in September 1934 during his first year as mayor of New York City. Those are slot machines he’s smashing with a sledgehammer. “Mechanical pickpockets,” he called them.

LaGuardia’s campaign had included promises to rid the city of organized crime, and indeed among his first actions upon taking office were to go after figures like Lucky Luciano and Luciano’s cohort, the gangster Frank Costello, a.k.a. “The Prime Minister of the Underworld.”

When one looks at the history of gambling in the United States, it is an especially uneven narrative, full of fits and starts with periods of legalization and prohibition falling upon one another in a disorderly, non-linear fashion. After a lengthy period of prohibition of gambling, the Great Depression had inspired a resurgence in legalized gambling in the U.S. as a way to try to restart the economy. And along with that came a crackdown on illegal gambling, such as had been managed by figures such as Costello.

After having rounded up 1,200 or so of Costello’s illegal slot machines, LaGuardia and a group of NYC policemen staged a media event in which they destroyed the machines before pushing them into the Long Island Sound. The whole scene was filmed and shown as part of a newsreel in theaters that fall. Click here to see that footage.

As it happened, the crackdown on organized crime led by LaGuardia and special prosecutor (and later governor of NY and presidential candidate) Thomas E. Dewey would have significant influence on the subsequent history of gambling in the U.S. Most particularly, it drove many of those interested in the business of gambling to move out west, particularly to Nevada where most forms of gambling were legalized in 1931.

Looking back today at the newsreel footage of Mayor LaGuardia swinging that hammer, I can’t help but think of what Preet Bharara, the U.S. Attorney for the Southern District of New York, did when he brought those several charges against the founders of PokerStars, Full Tilt Poker, Absolute Poker/UltimateBet, and others, charges that were unsealed 10 days ago on “Black Friday.” You could say that much as LaGuardia and the NYPD destroyed those slots, Bharara effectively destroyed innumerable poker “machines” with those indictments -- or at least has rendered them inoperable by U.S. players.

The indictments include charges related to violating the Unlawful Internet Gambling Enforcement Act of 2006 (counts 1-4) as well as the Illegal Gambling Business Act (counts 5-7). All of the sites have also been charged with conspiracy to commit bank and wire fraud (count 8) as well as with conspiracy to commit money laundering (count 9). I lack the legal knowledge to discuss the charges or speculate with any specificity whatsoever about what might come of them if the defendants ever come to trial. I do not lack the humility to admit as much and thus avoid indulging in uninformed conjecture.

I will say the first seven counts related to the UIGEA and illegal gambling appear somewhat sketchy, and from what I’m reading likely couldn’t withstand a court challenge. The last two seem more serious and harder to counter, although I’m intrigued by the observation that the banks were hardly “victims” here. (See F-Train’s recent post for more on that point.)

I believe at present three of the payment processors who were charged have appeared in court, with two pleading not guilty and the other scheduling a date to appear again. The other defendants -- including the founders of the sites -- are all out of the country and will likely never be entering the U.S. to face the charges.

In other words, it does not appear as though we’re going to see any real legal resolution of the charges against those operating the sites. Thus, the indictments -- like the UIGEA, really -- will ultimately have more symbolic than actual significance. Sort of like Mayor LaGuardia’s display there next to the Long Island Sound so many years ago. Isai Scheinberg, Ray Bitar, and Scott Tom aren’t going to prison for this. Nor will their non-U.S. companies likely be forfeiting $3 billion in assets to the U.S. government, either.

But symbols can have real, tangible effects. Like the UIGEA, the indictments have forced the online poker sites -- the largest ones, in fact -- out of the U.S. And may eventually work to pressure the smaller, remaining ones out, too. Much as those running the games were encouraged to move westward in the 1930s, so, too, should anyone wanting to spread online poker shy away from the U.S. For the near term, anyway.

I mean, there are lots of other places in the world to go. Places where people aren’t going around smashing your machines with sledgehammers.