PartyGaming Shares Slide After Betonsports Indictment

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PartyGaming Shares Slide After Betonsports Indictment (Update4)

July 18 (Bloomberg) -- PartyGaming Plc's shares slid after U.K. Internet gambling company Betonsports Plc and its chief executive officer were indicted in the U.S., where the government views online wagering as illegal. Stock in Sportingbet Plc also fell.

Betonsports and CEO David Carruthers were yesterday charged with racketeering and fraud, while a separate civil case barred the company from taking bets in the U.S., its main market. Shares of PartyGaming dropped as much as 14 percent in London today and Sportingbet declined as much as 24 percent.

Lawmakers in the U.S. are cracking down on online gambling, a $12 billion-a-year industry for companies including Gibraltar- based PartyGaming, the world's biggest Internet poker operator. The U.S. House of Representatives last week approved a measure to stifle Internet gambling by restricting the flow of money to illegal gaming Web sites.

``The online gaming industry has been alive to the risks of dealing with customers in the U.S. because they have known that it may have been illegal,'' said Anand Doobay, partner in the extradition and mutual assistance team at Peters & Peters in London. ``What they have been comforted by to date is that there hasn't been very much inclination to prosecute in the U.S. This is an alarm bell.''

`Huge Market'

PartyGaming dropped 9.25 pence, or 9 percent, to 93.75 pence at 1:15 p.m. in London. Sportingbet, the Web bookmaker that owns Paradise Poker, slid 50 pence, or 18 percent, to 232 pence. BETandWIN.com Interactive Entertainment AG, a Vienna- based online sports-betting company, fell 5.15 euros, or 9.5 percent, to 49.23 euros. Betonsports shares were halted.

``Currently this appears to only apply to sports betting,'' said Christian Holland, who helps manage about $1 billion in stocks for Cavendish Asset Management in London. ``Obviously the U.S. is a huge market for sports-betting companies, some of whom derive most of their profits from it.''

Leisure & Gaming Plc, the owner of the VIPsports betting brand, declined 10 pence, or 11 percent, to 82.5 pence. 888 Holdings Plc, the world's largest online casino company, lost 22 pence, or 11 percent, to 171 pence.

Conviction

Carruthers was detained by federal authorities in Dallas as he changed planes on a trip from the U.K. to Costa Rica, according to Betonsports. The company also must return deposits from U.S. customers, who accounted for almost three-quarters of the $48.3 million in deposits taken in during its first quarter.

Gamblers based in the U.S. accounted for more than 80 percent of sales in PartyGaming's latest fiscal year and about 55 percent at both Sportingbet and 888.

Jay Cohen, who according to Canaccord Adams analyst Greg Harris is the only person to be tried and jailed in the U.S. for running an illegal Web gambling business, was charged in connection with sports betting. Cohen, the former president of online bookmaker World Sports Exchange, was among 14 people charged in March 1998 and was convicted in February 2000.

The U.S. government regards online gambling as illegal under a 1961 law against using telephone lines to place interstate bets. The House bill, written by Virginia Republican Bob Goodlatte and Iowa Republican James Leach, clarifies the statute's applicability to Web gaming.

The measure would bar credit-card companies from collecting payments for Internet casinos and require financial institutions to help law enforcement shut down money transfers to illegal gaming sites. It now goes to the Senate, where similar measures have failed.

`Aggressive Stance'

U.K. executives involved in selling online bets in the U.S. ``should be worried if the U.S. is really taking an aggressive stance in prosecuting Internet gaming,'' said Doobay, who co- wrote ``Jones and Doobay on Extradition and Mutual Assistance,'' a leading legal text.

``Internet gambling per se is not illegal in the U.K., but conversely some of the conduct which will have been engaged in might give rise to U.K. offences, such as conspiracy to defraud,'' he said.

As well as attempting extradition, U.S. prosecutors could issue a so-called Interpol Red Notice, under which the subject would be arrested at passport control as soon as he or she crossed an international border, according to Doobay.