The United States attorney’s office is alleging that the online gambling website, Full Tilt Poker, cheated players out of at least $390 million according to court filings today. The federal prosecutors went so far as to say that Full Tilt was “not a legitimate poker company” and that in reality it was a “global Ponzi scheme.”

Ponzi schemes are something very well-known in the United States after Bernie Madoff operated what has been referred to as the largest scheme in history. According to the Los Angeles Times, Full Tilt distributed almost $444 million to their owners and directors since 2007, but ended up not having enough money to pay back their players, instead crediting them with up to $130 million in “phantom funds” to play with. A plan this sketchy sounds sure to snowball, and it did, as there was less and less money to go around over time.

I think that the federal prosecutors are using the term Ponzi scheme in a less traditional sense than we are used to (if there is even such thing as a “traditional” Ponzi scheme). Commonly in a Ponzi scheme, not unlike with Madoff’s, there is a central hub dealing with all those contributing money in the hopes that they will make something off what they put in. But instead of real profit being made on the money going in, no “new money” is really generated. It’s just shifted around, getting the select few close enough to the hub rich while everyone else gets ripped off. It’s a scheme doomed to crumble, as it relies on the consistent behaviour of both investors and market forces, which are far too hard to predict.

Full Tilt’s board members include poker stars Howard Lederer, Chris “Jesus” Ferguson and Rafael Furst. It is alleged that they were part of the hub that siphoned off funds from their players. Two other popular gambling sites, PokerStars and Absolute Poker have also been involved in the suit, but they have returned or are in the process of returning the money owed. Full Tilt, on the other hand, doesn’t have enough money to cover their debts. If they don’t end up in jail, there might be a few poker players on the tour playing not for themselves, but to pay back some very unhappy customers.