Happy 10 Year Anniversary to the Worst Day in Online Poker History
One of the strangest things we’ve ever seen happen in the online gambling world in general happened 10 years ago. It culminated in an event known as Black Friday, which happened exactly a decade ago today. On Friday, April 15, 2011, online poker took a blow that shook the entire industry at large.
Understanding what happened and how we got to that point is critical. It’s so important because it’s the foundation of what’s happening in the online poker industry now.
It’s also an important story of why regulation is important. A lot of people relatively new to online gambling don’t understand how big of a “Wild West” it used to be because they never really had to deal with it so much. With things becoming so overly regulated now, that has changed for the most part.
That’s definitely a good thing, but we’re going to take a look at what happened before with this major event.
PokerStars Gets Creative
The United States was generally considered the center of the online poker world at the time. PokerStars was number one in the world. They were followed by Full Tilt Poker and some other less populated sites. It wasn’t unusual for more than 100,000 players to be online with PokerStars from all over. However, the United States is where a substantial portion of their player base came from.
In 2006, the Unlawful Internet Gambling and Enforcement Act had some effects on banking that made it difficult for players to make deposits. On a basic level, banks had to decide for themselves which deposits were legal and which were not. If they guessed wrong, then they could be fined majorly. As a result, most banks opted out of processing online gambling deposits completely.
PokerStars got creative with this. They more or less paid off or bought a bank and created a bunch of fake companies, the details are beyond the scope of this discussion, and then them to process payments. The way they went about it landed them in a world of trouble with tons of criminal charges being filed. These ranged from bank fraud to money laundering, not to mention running illegal online gambling operations.
As such, they were shut out of the United States. Their domains were taken on Black Friday. However, the story gets even more interesting and crazy from there.
Full Tilt Goes Broke
Full Tilt Poker had a few major problems. One issue is that the owner, Howard Lederer, used it as somewhat of a personal piggy bank to pay some of his friends to play there. These friends were high-profile players who were supposed to pay him back. Because of the culture of loans in the poker world, they ended up not paying him back for long periods of time. This contributed to their financial problems.
A second issue is that player funds were supposed to be kept separate from operating expenses. They were not. The industry standard now is for each player’s account to be held in a separate bank account. That was supposed to be the case for Full Tilt Poker, but they didn’t abide by those terms.
Finally, they had a major payment processing error. Lots of players would make deposits that were reflected in their account balances. However, the money would never actually be taken from their bank accounts. Their withdrawals would be paid, adding to the company’s financial stress.
The End Result
When both of these companies were taken down from US operation, that’s when Full Tilt’s money problems were discovered. This was resolved by PokerStars making a deal with the US Department of Justice. In addition to paying a lot of money in fines, they agreed to purchase Full Tilt Poker. This included paying back all of the players who had outstanding balances.
This particular point is important because Full Tilt didn’t have enough cash on hand to do so.
Overall, it was an absolute mess that established the need for regulation and financial transparency. With the courts in the United States having ruled that the Wire Act doesn’t apply to poker only recently, the conditions for another poker boom are starting to come together. It’s important that we remember our history if that time comes.