Youbet Reaches Settlement in IRG Deals

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Youbet Reaches Settlement in IRG Deals

By Ryan Conley
Updated: Thursday, November 20, 2008 4:23 PM
Bloodhorse

Youbet.com said Nov. 19 it has settled several disputes with the former owners of defunct off-shore wagering entity International Racing Group, a deal which features both cash and stocks changing hands, and mentions that a federal investigation into IRG may still be active.

Under terms of the agreement filed with the Securities and Exchange Commission, Youbet will pay $2.252 million in cash to the IRG’s original sellers, who in turn will relinquish their rights to 55,554 shares of Youbet common stock.

“The settlement agreement settled existing disputes and claims among the parties,” which included disagreements over stock purchase and management deals in the 2005 acquisition of IRG, the filing said.

IRG, which was closed by Youbet earlier this year when a federal investigation into the off-shore’s operation became public, was acquired in June 2005 for $3 million at closing, plus the prospect of additional payments of about $9.7 million over a three-year period. Youbet said in June it had raised the estimated final earn-out payment in the deal to $4.3 million, but at the time vowed to fight for a lower amount through negotiations.

The original sellers of IRG were listed as James Scott, Louis J. Tavano, and Richard Tavano. Louis Tavano at one time served as general manager of IRG while it was a subsidiary of Youbet.

But the SEC filing suggested all or part of the settlement payoffs may not get into the hands of the respective parties, due to the purported federal investigation into IRG by the U.S. Attorney’s Office into Nevada.

“The parties recognize that the funds payable under this agreement could be subject to seizure, restraint, or forfeiture by the (U.S. Attorney’s Office) or another governmental agency,” the filing said, adding it was “required” to notify the federal agency of the settlement.

Conversely, the filing also said the certificates for the 55,554 relinquished stock shares were “in possession” by the U.S. Attorney’s Office, although the sellers agreed to deliver “executed originals” of the stock powers.

As part of the investigation believed to involve certain IRG customers and employees, Youbet in October 2007 reported federal officials had seized $1.5 million in three IRG Nevada bank accounts and had conducted a search of the Youbet California headquarters. Youbet subsequently shuttered IRG in February.

In March, Youbet said it had reached an agreement with federal investigators, exchanging a pledge of cooperation for not being charged in the matter. The U.S. Attorney’s Office in Nevada has never acknowledged the existence of such an investigation, which is a typical policy for the agency.

The settlement on paper represents significant savings for Youbet from the $4.3 million it had calculated for the earn-out payment, which contributed to a $28.4 million loss by the company in 2007. The IRG business was responsible for an $11 million impairment write-off in last year’s fourth quarter alone, according to amended financials Youbet reported in June.