USA Probes Banks for Info on Pacific Poker & Party Poker parents: 888Holdings & PartyGaming

The U.S. Department of Justice (DoJ) has requested information from investment banks, law and accountancy firms that supported IPOs for Pacific Poker parent 888 Holdings, and PartyGaming, parent to Party Poker, as part of a probe into online gambling in the United States according to banking sources reported by The Sunday Times of London this past Sunday.

Subpoenas have been issued by the Southern District Court of New York to at least 16 banks, including HSBC, Dresdner Kleinwort, Credit Suisse and Deutsche Bank, with orders to hand over all e-mails, telephone records and documents connected with Internet gambling firms such as 888 Holdings and PartyGaming.

Recent subpoenas seem to be strategically timed to come right before one of the biggest days for sports betting sites - the SuperBowl.

"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, California, USA, who is an expert on Internet gambling law.

When President Bush signed the Unlawful Internet Gambling Enforcement Ace (UIGEA) into law last October, it became illegal for financial institutions to handle transactions between online gambling sites and US residents. A government board has yet to specify procedures for financial institutions to take to comply with the UIGEA. It has until July 2007 to do so.

Another US law, the 1961 Wire Act, specifically makes it illegal to bet on sports using the telephone [poker was not specified]. It was extrapolated to sports betting over the Internet, as used in the arrest of David Carruthers, the chief executive of BetonSports and several weeks later in the detainment of Peter Dicks, then-chairman of Sportingbet, parent company to Paradise Poker.

Earlier this month the Wire Act was used to charge Neteller founders John Lefebvre and Stephen Eric Lawrence with money laundering for handling sports betting transactions with US customers, to support the intent of the UIGEA.

Apparently the first investment bank subpoenas were issued only days after President Bush signed the UIGEA into law. Further demands for information were made as recently as three weeks ago.

Lawyers representing the banks and other companies have been talking to FBI investigators since October to try to clarify the meaning of the subpoenas, the details of which have only just emerged.

One source said it was a blanket demand for all documentation, papers, e-mails and telephone records. "There isn't a lot of detail, so nobody understood what it was all about at first," he said.

"It's very broad-reaching. Nobody knew who was being targeted," he continued, "but now we have an understanding that they are targeting individuals who were behind the start-up operations and the day-to-day running of the operations. The DoJ will be looking for any evidence that points to transactions being carried out with US customers after the bill was passed into law."

Though 888 Holdings and PartyGaming are Gibraltar-based, the DoJ's investigations are focused on London Banking firms because London is where the gaming companies' high profile initial public offerings (IPOs) were held.

The IPOs made internet gambling founders enormously rich, while their financial advisers received immense fees.

Deutsche Bank was co-broker to PartyGaming, the largest online gaming company. Dresdner advised PartyGaming on its IPO in the summer of 2005, which raised 5 Billion pounds (US$9.8 Billion, or 7.6 Billion Euros using today's exchange rate) and propelled the company into London's top 100 stocks, the FTSE 100.

PartyGaming's four founder shareholders, Anurag Dikshit, Vikrant Bhargava, Ruth Parasol and her husband, Russ DeLeon, took out 797 million pounds (US$1,572 million, or 1,214 million Euros) and valued their remaining shares at about 3.3 billion pounds (US$6.5 million, or 5 million Euros).

Meantime, HSBC advised 888 Holdings on its 590 million pound (US$1,164 million, or 899 million Euros) IPO flotation September of 2005. Credit Suisse advised the company's former shareholders on their strategic options before the flotation.

This time the dotcom millionaires were the company's Israeli founders, Avi and Aharon Shaked. They received more than 10 million pounds (US$19.7million, or 15.24million Euros) from selling a quarter of their 70% stake.

The London banking community is outraged over the DoJ's probe, and has called on the British Government to spell out the limits of the US authorities' reach.

One London banker has been quoted saying, "This is a massive, ongoing fishing trip."

Alan Duncan, UK Shadow Trade and Industry Secretary, said, "There is growing suspicion that the US Department of Justice is using its muscle in a highly unpleasant manner, and is targeting financial institutions beyond their own shores in a way that cannot be justified. I hope the Department will stop and review its approach so that its behaviour doesn't sour relations between us."

The Sunday Times noted that none of the banks involved would comment on the subpoenas. The Department of Justice also told them that its policy was not to comment about ongoing investigations.

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