PARTY GAMING INITIATES TALKS WITH U.S. ENFORCEMENT AUTHORITIES

8 June 2007

Gibraltar based online gambling groups seeks to clarify its American position

One of the world's largest online gambling companies, Party Gaming plc announced this week that it has initiated discussions with the US Department of Justice to clarify its position prior to October 2006, when financial transactions with online gambling companies were made illegal by the passage of the Unlawful Internet Gambling Enforcement Act.

Party Gaming withdrew from the US market immediately the law passed, suffering substantial financial damage in the process.

The Gibraltar-based company told Bloombergs and Reuters news services that it is consequently "voluntarily'' responding to an (unspecified) request for information from the U.S. Attorney's Office for the southern district of New York, and that it is too early to say what the outcome will be.

Bloombergs reminds readers that online gambling industry executives were arrested in the U.S. in the middle of last year, naming David Carruthers of Beonsports plc and Peter Dicks of Sportingbet plc. Last month Betonsports pleaded guilty to U.S. racketeering charges (see earlier InfoPowa reports) and agreed to cooperate in a case against the company's founder Gary Kaplan and other co-defendants including Carruthers.

In March this year Sportingbet brokered a deal with the state of Louisiana to have charges of "gambling by computer" against its former chairman, Peter Dicks, dropped.

Anaysts speculate that the intention of Party Gaming may be to clean the slate on its American activities prior to the advent of the UIGEA, which would clear the way for business initiatives that may be currently impeded by the legal uncertainty over US operations in the past.

"If Party Gaming can positively resolve this it will be good news for the share price, because anxiety about legal issues has been holding up potential merger and acquisition activity,'' said Julian Easthope, an analyst at UBS AG in London. Potential acquirers and lenders are concerned about possible future legal action or costs related to past activity in the U.S., Easthope added.

Shares in Party Gaming have gained 37 percent in the past six months after losing more than half their value on the first trading day following the UIGEA. PartyGaming lost about three-quarters of its revenue when President George W. Bush signed the bill into law last October.

"Bottom line is they're trying to eliminate any cloud that's hanging over their heads," said Joseph Kelly, a business law professor at the State University of New York at Buffalo who has worked with online gambling companies. "They want to be able tell their shareholders that there are no threats of impending prosecution."

Kelly said that U.S. attorneys had sent out subpoenas and questions to online gambling firms in recent months. A compromise with PartyGaming would likely take the form of an agreement, rather than a financial settlement, and if the company reaches an understanding with the New York Attorney's Office, it won't face action from other prosecutors.

Discussions with the DoJ is "the most sensible route for operators that used to offer their services into the US, essentially working with the authorities to hopefully draw a line under any potential ongoing litigation," said James Hollins, an analyst at broker Daniel Stewart.

The Reuters news service reports that analysts have opined that the Ladbrokes plc attempt to buy 888 Holdings plc earlier this year were called off because of concern about US legal risks. Discussions had also been held between Party Gaming and 888, people familiar with the situation have claimed.

The discussions with U.S. legal authorities follow "...some uncertainty as to what actions, if any, U.S. law enforcement agencies may take against'' Internet gaming companies following last year's arrests, the Party Gaming statement said.

In more recent legislative moves in Congress, Representative Barney Frank has proposed a regulatory and licensing regime for online gambling in the United States, and Nevada politician Shelley Berkely has proposed that an independent commission be set up to report on all the implications of online gambling in the USA.

Online Casino News courtesy of InfoPowa