Black Friday: Is regulation always fail-safe?

On April 15th the face of online poker changed for everyone is some respects, hitting American players the hardest when the DOJ shut down three of the largest online poker companies freezing player’s funds. There has been mass call for regulation of the poker industry & segregation of funds to protect players, but I question whether it really is that easy but looking at a number of case-studies where these measures failed.

CASE STUDY #1 : Lehman Brothers - Segregation Fail

Lehman Brothers collapsed due, in part, to unprecedented sub-prime losses. They managed to mask their financial woes for a while with repurchase agreements temporarily removing these risk securities. One of the subsidiaries, Lehman Brothers International Europe (LBIE), regulated by the FSA was required to segregate client funds under FSA's client assets rules (CASS rules), making their funds identifiable. However, in this case, it was found that LBIE hadn't done this for all clients’ funds. Once the client funds were held in the general account of LBIE they were no longer identifiable & clients would only have a claim against the firm as an unsecured creditor. When LBIE failed there wasn't enough money in the ring fenced account to cover the deposits they had taken. So it would seem having companies segregate client funds isn't 100% infallible. This example would have played out in Full Tilts case, when it came out that they had continued to credit player’s deposits without actually being able to collect the money

CASE STUDY #2 : Equitable Life - Regulation Fail

Equitable life is a UK life insurance company which got into trouble when they offered large guaranteed pension payments without financially backing them in the event of a market downturn. After trying to reduce the value of policy payments when that financial downturn arrived, the House of Lords refused to allow the cuts ruling them illegal. Facing having to pay back the additional money estimated at £1bn-1.5bn the company closed to new business. Parts of the firm were sold off to cover the costs & pensioners had to fight for compensation through the ombudsmen as a result of poor regulation, but an estimated 30,000 died before getting anything. This example shows that although a product & company is fully regulated, the actions of an incompetent board of directors & management team have caused several losses resulting in financial hardship for many thousands of people.

CASE STUDY #3 : Kaupthing Singer-Friedlander (IOM) - Cross Country Fail

The next case study I want to consider is the Isle of Mann subsidiary of the Icelandic bank which went into administration during the credit crunch. Another example of a victim of the credit crunch, this one started in Iceland with the collapse of Heritable and Landsbanki banks located in Iceland.

All foreign subsidiaries of KSF were given a guarantee of 100% on depositor funds by the parent bank. After the collapse of the Icelandic banks, the Icelandic authorities disclosed to the British government that they had no intention of covering those guarantees. As a result, depositors began withdrawing funds as quick as possible. Days later the UK government declared Iceland to be in default & the FSA put Kaupthing Singer (UK) in administration.

Contrary to normal practice, much of the Isle of Mann subsidiaries funds were tied up in KS(UK) & while the UK government committed to covering 100% of UK mainland deposits, no such agreement existed for IOM depositors. They were left to claim compensation, but what made the situation worse was much of the clients money was held via a life company offshore bond for tax efficiency. The problem with this is under the depositor’s compensation scheme, £50,000 is the maximum amount guaranteed to be paid back, but this was per institution of which each institution had hundreds of clients who had invested hundreds of thousands of pounds. Rather than each client getting an already paltry sum of £50,000, this had to be shared out between all clients, resulting in only a few thousand. Again, another example of regulation failing, but this time regulation failing in another country had detrimental effects in other fully regulated countries.

It's quite easy to come to the conclusion that regulation or segregation of client funds will solve the problem. These issues do need to be addressed but it's not the underlying issue, it's trusting the management is running the company properly. All of which continued to accept & distribute player funds after UIGEA came into effect.

All three companies have the same quality of management regardless of payout status of US player’s funds. Granted PokerStars have paid players money back, but they still committed bank fraud as did Full Tilt & UB, players should have know about the UIGEA, how it was illegal to transfer funds & they also knew the FBI wasn't about to leave this issue alone. The NETELLER seizure should have been a red light, but the overall reward of online poker were too enticing. 

Hindsight has shown us regulation is desperately needed in the online poker industry, but so is transparency & a due dilligence procedure for players to follow when deciding where to play.

New York Trip Report, Part 2: Got Married

The biggest event of my weeks stay in New York was the wedding, which was a huge task. We (I say we, mainly Jen, my wife) had been planning this for around a year. I had no idea what we needed to do, what we had to think about or anything. All I knew was I needed to turn up & say I do!

Enter Lisa Burton, from the bridal consultant who helped us from start to finish. As part of her service she has preset wedding packages for a plethora of venues throughout New York & Central Park, which are easily tailored to individual needs & prices are given up front for each additional requirement so there are no nasty surprises. Ultimately, Lisa is looking to sculpt your perfect wedding to your requirements & nothing is too much trouble.

Lisa kept in constant contact with us, via email, phone & face to face to make sure we were clear on proceedings running up travelling over & also answering any queries we had or concerns. Upon arriving in New York, we knew what was needed from us in the preparation, just a quick visit to the City Clerk's office to get our wedding licence & then we met with Catarina Bill , our New York planner.

On the day Catarina had everything under control, like Alex Ferguson managing Manchester United she controlled proceedings expertly, giving hairdryer treatments behind the scenes when she saw things beginning to drift & brought them right back into plan giving us our special day which ran smoothly throughout & not a problem in sight. She even managed to cancel the thunderstorm which was scheduled for when we were getting married.

If you are planning a wedding in New York (she also covers seven other destinations), then for the small price I would definitely recommend Lisa & her team to get the job done, leaving you to enjoy a stress free wedding.

New York Trip Report, Part 1: Go Mets

During my second visit to New York, I was subject to many new amazing experiences which only fuelled my love for 'The big Apple'. My first memorable experience was at a Mets game, which amazed me as to how much more entertained I was than at a match where I actually support the team I'm watching.

My first baseball experience was unbelievable; I was even amazed by the stadium. The only comparison I have is with a football game which pales in comparison. It had the usual cheers when runs were scored, which is the only likeness to the glorious game of football. After that, we were treated to a sporting show of pure entertainment value which even kept the kids engrossed the whole time.

There was a constant stream of music, lights, bundles of T-shirts fired into the crowd along with the occasional game ball to catch. A flurry of games where contestants won game tickets, kids won as many baseball cards as they could grab & free pizza from sponsoring pizza places. Cheers were encouraged, not just from the rowdy members in the crowd but the team really wanted you to get behind them & urge them to victory.

Now, the stadium was something else, not too dissimilar to a football stadium, multi-tiered seating, but not once did I see a huge line of people waiting for a bad pie & a Bovril. Each tier had its own food & beverage concession stands in addition to the constant stream of mobile vendors to keep you topped up, all designed to keep the fan happy, suitably lubricated & free to relax & watch the game.

I think football can learn a lot from baseball, I'd be happy to return to a Mets game at any time, when I go see a football game, it has to be a special occasion & that all revolves around the entertainment value I got from a similarly price ticket to two very different forms of entertainment.