Disgorgements by NETeller could lead to other Companies’ paying fines?

Key Implications:

·         NETeller’s agreement to cooperate fully with US authorities in all matters relating to the ongoing investigations by the United States Attorney’s Office could lead to more charges and fines of other companies.

·         United States Attorney’s Office could go after more companies who were involved in financial processing of iGaming

·         NETeller’s stay of guilt could bode well for other companies involved in discussions with United States Attorney’s Office

·         United States Attorney’s Office could glean information from NETeller records on US citizens who may be involved in tax evasion or money laundering

NETeller Plc (LSE: NLR) announced that the Company had entered into a Deferred Prosecution Agreement (”DPA“) with the United States Attorney's Office for the Southern District of New York (”USAO“). The DPA represents the resolution of the USAO’s investigation into the Company.

Pursuant to the Deferred Prosecution Agreement, NETeller consented to the filing of criminal information relating to transactions between Internet gambling merchants and persons located in the United States. The United States Attorney's Office for the Southern District of New York (USAO)  agreed to defer the prosecution of any federal charges and, as a consequence, the Company will not be convicted of any federal crime, as long the Company fulfils the set conditions of the DPA during the two year term of the agreement.

At the conclusion of the two year term, the criminal information will be dismissed. The key terms of the DPA are set out in more detail later in this announcement. The United States District Court for the Southern District of New York has approved the deferral of the prosecution. As part of the DPA, the Company has also agreed to forfeit US$ 136 million to the United States. This amount includes the approximately US$ 60 million that the USAO has previously seized.

THE USAO must see this as a victory as the fines will bolster their efforts to date and possibly fund future ones.  This leaves open a number of possibilities that may include the USAO begin investigations on other processing companies who have processed financial transactions in the same manner in the past.  While there are no mainstream companies now processing, publicly traded companies such as Citadel Commerce and Fire Pay (Fire One) may come under scrutiny.

A key Term in the DPA specifies that NETELLER would agree to cooperate fully with US authorities in all matters relating to the ongoing investigations by the USAO. 

When merchants join NETeller, corporate information and key officer / director profiles are disclosed as part of the application process.  This information was supposed to be private.

By turning over information on its clients, NETeller will be able to provide the USAO data on European-based companies that have previously not had such information scrutinized by the US Government. 

While companies Party Gaming Plc and 888.com Plc have voluntarily been in talks with the USAO, the actual amounts that these companies processed in the geographic USA over the past few years will be now available to the USAO. 

Private companies such as Full Tilt Poker may also now find themselves in the crosshairs with records of transactions now transparent to the USAO.

Whether the USAO uses them to build cases or mandate fines against more companies is something that will have to be watched closely.  However, because NETeller agreed to a Deferred Prosecution Agreement, a precedent has been set that may allow foreign companies in the iGaming space plead in the same manner.

Finally, the United States Attorney’s Office could glean information from NETeller records on US citizens who may be involved in tax evasion or money laundering.  By looking at individual transaction records of US citizens, the USAO may discover individuals who have won monies and not paid taxes.

All in all, the USAO had a lot of information to process, and now has the funds to spend on more investigations.

Harrah's begins journey into the world of iGaming

Harrah's License Company LLC, an affiliate of Harrah's Entertainment, Inc. (NYSE:HET), has executed a non-binding letter of intent to form an alliance with Betfair.com that will designate Betfair.com as the Presenting Sponsor of the World Series of Poker Europe through 2011. The inaugural WSOP Europe will debut in London September 6-16. Harrah's Entertainment is the world's largest operator of casino-entertainment resorts.

Key implications

Recent filings by Party Gaming plc and 888.com plc have shown that the European poker market has realized growth and has strong potential.  While front-loading of marketing has seen a CPA of up to $350 to get EU players, the total value of a player remains at about $700 over a 60 day period.  There is a drop in yield per active player day to about $11.00 from about $17.00 before the introduction of the Unlawful Internet Gaming Enforcement Act.

As well, Party Gaming recently announced that its second quarter financial performance had 'met expectations', and added that it was confident about prospects for 2007.

It is this growth that Harrah’s must have been studying before making a move into Europe with the inaugural WSOP Europe debuting t in London September 6-16. The first WSOP event to be held outside Las Vegas, Nevada, the tournament will be hosted at three casinos operated by London Clubs International – Fifty, in St James; The Casino at the Empire, in Leicester Square, and The Sportsman, at Marble Arch.  The largest of these is the Main Event, a £10,000 buy-in, 750-player, six-day tournament spread over three casinos with a prize pool of roughly £7.5 million. The winner will take home cash and a WSOP gold bracelet, the most coveted prize in poker. It will be the first time a WSOP bracelet can be won outside the US.

The letter of intent, which is subject to execution of a definitive agreement, calls for the largest-ever union of its kind between an offline and an online gaming company. As part of the agreement, Betfair will be integrated into several facets of WSOP Europe and will promote the event internationally on a year-round basis.

Betfair, a licensed bookmaker in the UK, also has licences in Australia, Malta, Austria and Germany and is the world's leading betting exchange, a concept it pioneered. In addition to the exchange Betfair has an established games portfolio, including Betfair Poker, Betfair Casino and a number of exchange-enabled games.

The implications for this are that a major B & M operation is valuing the online world, and building partnerships in areas where iGaming is legal.  Given the strong brand that Harrah’s has now, if legislation is passed and the company builds an internet gambling site, I would predict that they do $8 billion in revenues in their first year; effectively doubling there gross.

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