[LEDERER'S MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT AND CLAIMANT HOWARD LEDERER’S MOTION TO DISMISS THE VERIFIED SECOND AMENDED COMPLAINT’S IN PERSONAM CIVIL MONEY LAUNDERING CLAIM AND FIRST AND SECOND IN REM CLAIMS]
The government’s 292-paragraph SAC alleges multiple in personam allegations against three online poker companies, twenty-one other entities, four individual defendants, and in rem allegations against a multitude of bank accounts. The SAC recounts a series of misdeeds allegedly committed by the poker companies, focusing mainly on their alleged attempts to defraud banks as well as their own customers. But despite its prolixity—and its disproportionate fixation on Lederer’s assets— the SAC contains scarcely a word about Lederer’s role in any alleged wrongdoing by FTP.
A. The Complaint alleges few facts concerning Lederer’s role in FTP’s allegedly wrongful conduct:
The sum total of the government’s allegations about Lederer is that he was (1) among FTP’s founders, owning roughly 8.6% of the company (SAC ¶ 30); (2) on FTP’s board of directors from April 2007 until April 2011, during which times he received distributions totaling $42 million (Id. ¶¶ 8, 126); and (3) a managing member of Tiltware LLC, and, “[a]t certain times relevant to the Amended Complaint,” FTP’s president (Id. ¶ 30). While only these three factual allegations implicate Lederer, the SAC devotes an astounding 71 paragraphs to detailing Lederer’s assets.
The government further alleges that FTP defrauded its customers by misrepresenting to players that funds credited to their online player accounts were secure and segregated from operating funds” when, allegedly, they were not. Id. ¶ 107. According to the SAC, FTP received customer inquiries about the security of player funds. Id. ¶ 108. “In response to these inquiries,” the government alleges, “in or about March of 2008, [FTP CEO Ray] Bitar, with Lederer’s knowledge, advised a Full Tilt Poker employee that Full Tilt Poker could represent to players that Full Tilt Poker kept all of its player funds in segregated accounts and that funds would be available for withdrawal by players at all times.” Id. “[A]fter receiving Bitar’s response” an unnamed FTP employee allegedly emailed a response to a particular customer inquiry, which “was then forwarded to Bitar and Lederer.” Id. ¶ 109. When the customer sought further “clarification we to whether ‘player funds are held in segregated accounts which can’t be used by the company itself,’” Bitar reviewed and approved the FTP employee’s response to the customer indicating that customer funds “are not at all at risk.” Id. ¶ 110 (emphasis added). “Subsequently, and based in part on this Bitar-approved response,” FTP allegedly drafted “several form e-mail templates” for use in responding to player inquiries about their funds. Id. ¶ 111 (emphasis added).
That is the only allegation relating to Lederer’s participation in or knowledge of the alleged fraud against FTP’s customers. According to the complaint, after the government had seized FTP’s website and assets on April 15, 2011, Lederer reported to other FTP employees in early June 2011 that FTP had approximately $6 million in its bank accounts, with more than $300 million owed to players worldwide. Id. ¶ 120.
In addition to the IGBA, Travel Act, wire fraud allegations included in the complaint, the government also contends that FTP committed bank fraud in violation of 18 U.S.C. § 1344 by allegedly arranging for the funds received from U.S. players to be disguised as payments to non-existent entities or non-gambling businesses. See id. ¶¶ 41-57. As was the case in the FAC, however, the SAC nowhere alleges that Lederer knew about or had anything to do with this supposed miscoding of transactions by FTP. See id. ¶¶ 41, 44-47, 49, 50, 57 (listing individuals who allegedly conspired to commit bank fraud, but omitting Lederer).
B. The Second Amended Complaint includes no claim against Lederer for allegedly defrauding FTP’s customers:
Based on its threadbare allegations against Lederer, the government has trebled the number of claims for relief at issue in the case, increasing them from four in the FAC to twelve in the SAC . . .
In other words, the government asserts in rem claims against various assets owned by Lederer. The government also seeks in personam a judgment of $42.5 million against Lederer, based on claims that he participated in certain specified unlawful activity, namely the IGBA violations and the Travel Act violations. "