Exodus of Online Gambling Firms Continue as US Authorities Continue to Clamp Down on the Industry

January 17, 2007

Ever since the United States Senate passed the Unlawful Internet Gambling Enforcement Act at the end of September 2006, the American online gambling market has been experiencing upheaval after upheaval. When the bill was first passed, the public trading companies were the first to leave the US market. After all, they had stockholders to answer to and could not risk partaking in any illegal activities on US soil.

Since the fateful day that the law was passed, the number of online casino operators who are willing to cater to American gamblers has been sharply shrinking. However, there was always hope that some of the bigger private giants would hang on in the market and make a stand against what everybody considers an unjust law. This week, unfortunately, one of the last standing online casino companies, Pinnacle Sports, closed its doors to US customers and ushered in one of the largest migration of online customers in recent history.

When Pinnacle Sports announced that it was exiting the United States market, literally tens of thousands of US customers were forced to withdraw their funds from the site and seek alternative sportsbetting options. Many of these players are now trying to ensure that they can still enjoy top quality fun without the problem of safety issues. As more and more companies leave the market, a vacuum is being created for shadier operators who are simply preying on these players’ need for sportsbetting and gaming entertainment. It seems beyond reason how the US authorities think that they are protecting their citizens from the ‘evils’ of online gambling and yet create a situation where players need to turn to crooked, unregulated gambling operators in the hope of getting some online entertainment.

As the exodus of online operators continues, the United States authorities are not letting up on their witch-hunt after any company or organization connected with online gambling. From the summer of 2006, online casino heads and employees have been continuously arrested in on US soil. The first to be arrested was BetOnSports CEO David Carruthers and several other detentions have followed. There are also warrants out for the arrest of BetOnSports founders, Gary Kaplan and Tom Miller.

This week saw the US authorities turning to a different segment of the industry. The founders of one of the internet’s biggest money transfer services, Neteller, were arrested in the United States on Monday night. One of the services offered by Neteller – but certainly not the only one – is the processing of internet gambling transactions. In 2005, Neteller processed more than $7-billion worth of transactions, with some 90% resulting from internet gambling. The company is situated on the Isle of Man and publicly trades on the London exchange (AIM).

The arrest of the two – named as John LeFebvre and Steve Lawrence - certainly sent shockwaves through the entire industry. It has been noted that Neteller employed both men until the end of 2005 and both still hold substantial stocks in the company. United States authorities say that the two are being held for laundering billions of dollars in gambling proceeds. They were also charged with “conspiring to transfer funds with the intent to promote illegal gambling”, according to federal prosecutors. LeFebvre and Lawrence were both arrested on US soil – the former in California where his wife originates from, and Lawrence in New York. It is not clear whether both were planning to meet up in the United States and whether their arrest was a well-planned police scoop. If convicted, both men could face up to a maximum of 20 years in prison.

The pull out this week of Pinnacle Sports, as well as the US authorities’ arrest of the two Neteller founders, paints a bleak picture of the gambling situation in the country. Five months after the Unlawful Internet Gambling Enforcement Act was passed, it seems that things are only getting worse for the remaining online casino operators and the hunt for the heads of major companies is not letting up at all. It remains to be seen what the future holds for the online gambling market in the United States.