Investors and US gamblers are heaving a sigh of relief after shares in Neteller plc, having been suspended for over six months with the heavy cloud of US legal threats hanging over the company, have returned to market with a rallying cry from its CEO Ron Martin.
Neteller plc had, until the middle of 2006, been one of the London-based AIM market's stellar performers, earning multiple gains for investors as the company virtually monopolised the processing of money transfers by online gamblers and poker players, earning fat fees every time money was transferred by customers to the their Neteller "e-wallets" from credit cards and other sources. The customers, many from the US, then proceeded to transfer the money to individual online poker and gaming accounts. For poker players and other users, this was a convenient method to facilitate a recreational pastime. Players could even transfer funds to each other via their Neteller accounts.
What many players would not have considered is that all such transfers represented the movement of funds, much of it from the US, to bank accounts held in offshore tax havens, the location of virtually all online gaming companies and Neteller itself. Of course, the flows were reversed every time a player cashed out back to their Neteller account and from there to his or her own bank account, but that was not of concern to the US authorities who concentrated on the potential for the "laundering" of criminal proceeds. In January 2007, after the arrests of the founding shareholders and former directors of Neteller, Stephen Lawrence and John Lefebvre, FBI Assistant Director Mark J. Mershon was quoted as describing the multibillion-dollar online gambling industry as "a colossal criminal enterprise masquerading as legitimate business".
Last week, an announcement was made that Neteller plc had entered into a Deferred Prosecution Agreement ("DPA") with the United States Attorney's Office for the Southern District of New York ("USAO"). This represents the resolution of the USAO's investigation into Neteller and, under its terms, Neteller has consented to the filing of a criminal information relating to transactions between internet gambling merchants and persons located in the US.
The USAO has agreed to defer the prosecution of any federal charges and, as a consequence, Neteller 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, following which the criminal information will be dismissed.
As part of the DPA, Neteller has agreed to forfeit $136,000,000 to the US which amount includes the monies of approximately $60,000,000 that the USAO had previously seized. This sum is described as the "disgorgement of certain profits received by Neteller from the activities described in the Statement of Admitted Facts." In this Statement, Neteller admits that it had operated in the US an unlicensed money transmitting business and had participated in the performance of financial transactions for the purpose of promoting unlawful transactions between internet gambling merchants and persons located in the US."
Neteller's plan to return funds of around $94,000,000 to US customers and the restoration of the company's shares to trading on the AIM market have since been announced. US investors will know more about the return of their funds by 30th July, the date when the "plan" is to be implemented. Meanwhile, trading in Neteller's shares has been restored.
Neteller has also announced its long-awaited 2006 financial results and issued a trading update for 2007. While the 2006 results show strong profit growth, Neteller has since had to pull out of its major markets of the US and Canada, along with the smaller markets of Turkey and Israel (the latter recently announced due to regulatory changes in that country affecting online gambling).
Ron Martin, President and Chief Executive Officer of Neteller, concedes that the withdrawal of Neteller's payment solutions for the US and Canadian online gaming market is expected to result in a contraction of the group's revenue on an annualised basis of between 70% and 75% for the year ending 31st December 2007. He recognises that an impact of this magnitude requires a "comprehensive recovery strategy." However, Mr Martin concluded:
"Whilst 2007 will require a restart in terms of revenue growth, the Group has many strengths and a successful track record. The online payments space remains a rapidly growing, highly desirable market and Neteller is committed to taking advantage of these opportunities. Despite the challenges we face, I remain optimistic about the potential for further success and stability well into the future."
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