Since BetButler closed three weeks ago there have been a lot of rumours circulating about how the brokerage company managed to get into such financial difficulty.
BetButler didn't front the bets themselves, rather sending them on to bookmakers, the risk should've been minimal.
In fact as a middle man all they needed was a stream of customers and they could cream off their commissions on other bookmakers prices and risk.
So where did it all go wrong?
Its been suggested that BetButler didn't have designated accounts with the bookmakers (such as Ladbrokes, Coral and Bet365) themselves, the bookmakers wouldn't allow it. Instead BetButler used essentially fake accounts, or pseudo accounts, to place the bets at the bookmakers on behalf of their customers. Students and others were paid for the use of their details and it was through these accounts (and the cunning use of 3G dongles in the office) that they could continue to place the bets without the bookmakers knowing.
That was the theory, unfortunately for BetButler (and their customers) the bookmakers got wise and held some of the funds back in the accounts and asked for additional verification (the ironey given the hoops BetButler customers were made to jump through!). With no cashflow BetButler resorted to paying customers from operating funds and the ponzi scheme was formed.
All this was going on for a long time. In one conversation with Finance Director Chris Norman back in April it was confirmed to The Gambling TImes that, inspite of the lies they were telling customers, BetButler was in financial difficulty and that was the primary reason that withdrawals were delayed.
How all this was allowed to continue is a bit of a mystery. Surely the commission knew about the way accounts were set up, and they should've put a stop to it immediately instead of letting them limp on. If they didn't know then it begs the question, how could they not have known? The premise of the business was based on accounts at other bookmakers, so surely the commission could've made a phonecall and checked that it was legit?
We may never know the full extent of what happened at BetButler, and now an insolvency practitioner has been brought in it seems unlikely that customers will see their money returned (screwed over customers aren't preferred creditors).
Previously the Commission has hid behind regulator privalages with regards to freedom of information act requests, but another one has been lodged and it'll be interesting to see what the result of it is. There is certainly more to this story than a simple company not having the customers to keep going, more that they were set up in a very odd way from the start.