NY TIMES: Four Wall Street Firms Are Subpoenaed on Online Gambling

[clevfan]

January 22, 2007

Four Wall Street Firms Are Subpoenaed on Online Gambling

By ANDREW ROSS SORKIN and STEPHANIE SAUL
NY TIMES

The Justice Department has issued subpoenas to at least four Wall Street investment banks as part of a widening investigation into the multibillion-dollar online gambling industry, according to people briefed on the investigation.

The subpoenas were issued to firms that had underwritten the initial public offerings of some of the most popular online gambling sites that operate abroad. The banks involved in the inquiry include HSBC, Credit Suisse, Deutsche Bank and Dresdner Kleinwort, these people said.

While online gaming sites like PartyGaming and 888 Holdings operate from Gibraltar and their initial public offerings were held on the London Stock Exchange, companies that do business with them and have large bases in United States have come under scrutiny by regulators in Washington.

None of the biggest United States banks like Goldman Sachs or Citigroup underwrote the initial public offerings in London, in part because of the legal ambiguity of the sites; they are illegal in the United States, but still accessible to residents.

The subpoenas, earlier reported by The Sunday Times of London, appeared to be part of an indirect but aggressive and far-reaching attack by federal prosecutors on the Internet gambling industry just two weeks before one of its biggest days of the year, the Super Bowl.

Unable to go directly after the casinos, which are based overseas, they have sought to prosecute the operations’ American partners, marketing arms and now, possibly, investors.

The prosecutors may be emboldened by a law signed by President Bush last October that explicitly defined the illegality of running an Internet casino. Even before that law, the Unlawful Internet Gambling Enforcement Act, was adopted, the government said that Internet gambling was illegal under a 1961 provision.

These offshore casinos, typically based in Costa Rica or Antigua, allow American bettors to use their home and office computers to place wagers on a range of contests.

Millions of Americans participate; more than half of all bets placed to major offshore casinos are from residents of the United States.

The prosecutors’ efforts have already taken a toll in the last two years on offshore casinos, most notably with the arrest last year of David Carruthers, the chief executive of an Internet sports book, BetonSports. The company is based in Britain and has operations in Costa Rica, but Mr. Carruthers was detained at the Dallas airport while traveling through the United States.

The arrest led to BetonSports’ decision to stop taking bets from the United States, crippling its business.

Several weeks later, agents of the Port Authority of New York arrested Peter Dicks, the chairman of Sport-ingbet, which offers online sports betting and, like Mr. Carruthers’s company, trades on the London Stock Exchange. Mr. Dicks was arrested at Kennedy Airport.

Last week, a British online money transfer business, Neteller, said it would cease handling gambling transactions from United States customers because of regulatory uncertainty.

“It appears that the Department of Justice is waging a war of intimidation against Internet gambling,” said I. Nelson Rose, a professor of law at Whittier Law School in Costa Mesa, Calif., who is an expert on Internet gambling law.

Another lawyer, Lawrence G. Walters of Altamonte Springs, Fla., said the development was disconcerting because the prevailing wisdom had been that investment in a company that is legal and licensed in its jurisdiction was not grounds for prosecution.

“It would be the first time that that kind of liability has been imposed,” Mr. Walters said.

But he cautioned that the subpoenas could be part of a government fact-finding effort and might not signal a plan to prosecute banks.

Matt Richtel contributed reporting.

[SlipperyPete]

Hopefully the DOJ is biting off a bigger chunk than they can chew.

Someone has to fight back

[BuzzRavanaugh]

This is where it gets interesting.

I wondered how mutual funds and the like could invest in illegal businesses.

[all-in]

Originally Posted by SlipperyPete

Hopefully the DOJ is biting off a bigger chunk than they can chew.

Someone has to fight back

The DOJ dont lose and these banks will fold and cooperate like Sammy the bull.

[Juice]

What law or laws say its illegal to invest in gaming companys whom are operating legally in there countries. Who is giving the DOJ the power to go backwards and say we dont approve of your investments. And I mean any investments. Will they stop at gaming or will they go after anyone that does something they dont approve of. The law or lack thereof be dammned.


What happens when these places dont turn over the info and instead fight it out in court with DOJ.

[SlipperyPete]

If companies can sell arms to Iraq and Iran, why cant other companies invest in businesses that are legal in most of the free world-certainly in their own countries

[Louis Cypher]

The Sunday Times
January 21, 2007

US gaming probe rocks top banks
Jenny Davey

THE US Department of Justice has ordered the world’s biggest investment banks, accountants and law firms to hand over all e-mails, telephone records and papers connected with internet gaming firms as part of an investigation into illegal online gambling in America.

HSBC, Dresdner Kleinwort, Credit Suisse and Deutsche Bank are known to be among the banks that have been issued with subpoenas — official requests for information — as part of a worldwide hunt to build a case against those who benefited from illegal online gambling.

Britain has been the fundraising centre for many internet gambling companies, with a number of international operators listing their shares in London.

Fortunes were made by the founders of internet gaming stocks, including Party Gaming, 888.com and Betonsports.com, and advisers pocketed huge fees.

The Department of Justice first issued subpoenas in October, only days after George Bush sounded the death knell for America’s $6 billion (£3.2 billion) internet gambling industry by signing legislation banning all related transactions. But until now the investigation has been kept secret.

According to City sources, the subpoenas have continued to arrive over the past few weeks.

It is thought that some investors in online gambling companies, including Party Gaming and 888.com, have also been hit with requests for information.

One source said: “To say the situation is sensitive is the understatement of the decade. The problem is, even if you know you have done nothing wrong, you have no powers of resistance.”

He added: “You can quickly go from being a bystander to a target, so even if you are bomb- proof, you have to assume you are subject to hostility.”

The source went on: “The Department of Justice has taken a shotgun, not a rifle approach in relation to lots of gaming companies and has just asked everyone to hand over all the information they have.”

The request could force banks and other advisers or former advisers to the gambling companies to hand over hundreds of thousands of e-mails and files to American investigators.

Another City source familiar with the circumstances said: “There is no doubt at all that this situation is escalating. This has definitely got legs.”

Another source described it as one of the biggest “fishing expeditions” ever undertaken by the Department of Justice.

Vast riches were made by the founders of internet gambling companies, including Party Gaming and 888.com. Party Gaming floated with a value of £5 billion in the summer of 2005, propelling it straight into the FTSE 100 index ahead of British household names such as British Airways and ICI. Its four founder shareholders — Anurag Dikshit, Vikrant Bhargava, Ruth Parasol and her husband, Russ DeLeon — took out £797m and valued their remaining shares at about £ 3.3 billion. Meanwhile, 888.com, which floated in September 2005 valued at £590m, created another batch of dotcom millionaires, this time among the company’s Israeli founders. Avi and Aharon Shaked received more than £10m from selling a quarter of their 70% stake.

The probe by the Department of Justice will spark outrage in Britain, coming so soon after the extradition of the so-called NatWest Three to America.

“UK plc should be really worried about yet another encroachment of American investigators on to British territory. The City is clearly under threat,” said one British businessman who asked not to be named.

The subpoenas do not reveal whom the Department of Justice is targeting. But some believe the ultimate goal is to find information incriminating the founders of the online gambling firms.

The inquiry vindicates the City professionals who refused to act for internet gambling firms because of the uncertainty about its legality in America. Banks that have been subpoenaed have lined up lawyers to act for them.

None of the banks involved would comment on the subpoenas. The Department of Justice also said that its policy was not to comment about ongoing investigations.

HSBC advised 888.com, one of the most high-profile internet gambling companies, on its flotation. Credit Suisse advised the original shareholders of 888.com on their strategic options before the flotation. Deutsche is co-broker to Party Gaming, while Dresdner advised on its public listing.

[SlipperyPete]

Who is behind all of this?

Is there like a politician who wants to enforce this law so badly?
They created a special task force or something?

[buddyboy]

the DOJ falls under the executive branch... my guess is everyone is trying to make a name for themselves before they are out of a job in less than 2 years.

[clevfan]

US seeks data on internet gaming groups

By Brooke Masters in New York and Roger Blitz in London
Financial Times

The US criminal investigation of internet gaming is currently targeting the gambling companies and their principals rather than the banks and other business partners who have received subpoenas in connection with the probe.

The US Attorney for the Southern District of New York has sparked anger in London by seeking information from several banks and other businesses in connection with its wide-ranging inquiry into online gaming.

The subpoenas were issued by a New York grand jury at the request of Michael Garcia, the US Attorney, starting in October. Sources familiar with the language in the subpoenas say they demand e-mails, telephone and banking records dating back to 2001 in connection with an investigation of specific gambling companies, including 888 Holdings and PartyGaming.

However, it is understood lawyers representing some of the banks have argued with the US Attorney's office that demands for information via subpoenas from British institutions have to be lodged at the Home Office under the Mutual Legal Assistance Treaty. The Home Office declined to comment.

Unlike British investigators, US prosecutors routinely subpoena information from their targets' bankers, telephone companies and business partners. That step ensures that the evidence gathered can later be admitted in court.

Sending a company a subpoena "doesn't automatically mean that they're automatically going to indict a corporation. They are often gathering information against other people who will be charged later," said John Coffee, a Columbia University law professor.

US prosecutors generally inform companies and individuals if or when they begin to regard them as targets of an investigation rather than simply sources of information.

Sources familiar with the probe said the companies that have been publicly identified as having received subpoenas, including HSBC, Dresdner Kleinwort, Deutsche Bank and Credit Suisse, have not been told they are targets. Other advisers to online gaming floats, including accountants and lawyers, could also be the subject of subpoenas.

Prosecutors often follow up later with more specific requests.

Spokesmen for Mr Garcia and companies that have received subpoenas declined to comment.

Unlicensed gambling for money is illegal in the US, and the US attorneys in St Louis and New York have each brought cases against foreign nationals for their roles in using the Internet to facilitate gambling by US customers.

Last week, Mr Garcia's office charged two Canadian founders of Neteller, which processes gambling transactions, with money laundering.

The US investigation has been highly controversial because Internet gambling is legal outside the US, and most of the targeted companies are publicly traded in London or elsewhere in Europe.