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Online Poker Settlement Could Shake Industry

POSTED: 01:38 PM ET, 04/ 7/2009 by The Editors

By Gilbert M. Gaul
Washington Post Staff Writer

In a development that could signal a shift in the murky and unregulated world of online gambling, the parent company of one of the most popular Internet poker sites said today it has agreed to pay the U.S. government $105 million to settle charges that it illegally offered gambling to players in the United States.

PartyGaming Plc, the publicly traded parent of the Web site PartyGaming, said it would pay the money over three years as part of a "Non-Prosecution Agreement" it recently reached with the U.S. Attorney's Office for the Southern District of New York.

Prior to the enactment of the Unlawful Internet Gambling Enforcement Act in October 2006, PartyGaming operated one of the largest and most active Internet poker sites in the U.S. The company immediately withdrew from the U.S. market and stopped accepting U.S. players, which caused a dive in its earnings and stock price. Nevertheless Justice Department prosecutors continued to consider charges against the company for targeting U.S. players before 2006, contending that previous laws also outlawed Internet gambling.

As reported in a Washington Post series on online poker last year, some legal scholars and Internet gambling proponents see the government crackdown as a disconnect between 21st-century technology and the 20th-century laws used to protect Americans from gambling.

The Justice position is considered controversial with some members of Congress and gaming analysts arguing it has steered U.S. players to unregulated offshore sites. "The U.S. government has now succeeded in driving out the reputable publicly-traded Internet gaming operators," said Joseph M. Kelley, a professor of business law at the State College at Buffalo, who has also served as an expert witness for gaming and government interests. "It has not decreased online gambling, but has reduced the ability to monitor suspicious transactions."

The chances for the PartyGaming settlement increased in December when the biggest shareholder, Anurag Dikshit, one of India's richest businessmen, turned himself in to U.S.authorities. He pleaded guilty to violating Internet gambling laws and agreed to pay $300 million in fines.

Today's news sent online gambling stocks soaring overseas. That's because some financial analysts see the settlement as possibly leading to others, thus reducing uncertainty in the industry and opening the door to industry consolidation and expansion outside the U.S. Some analysts said PartyGaming also had now increased its chances of gaining a license from any future regulated U.S online gaming market.

Under the terms of the agreement, PartyGaming officials said the government would not prosecute the parent firm or any of its subsidiaries for offering Internet gambling services to U.S. customers between 1997 and October 2006, when it voluntarily withdrew from the market.
Jim Ryan, the chief executive of PartyGaming, said it made "commercial sense" for the gambling site to resolve the "long and complicated process," adding that it cleared the way for the firm to expand. PartyGaming is now based on the Isle of Man in the Irish Sea.

By The Editors |  April 7, 2009; 1:38 PM ET Inside Bet , Post Investigations
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