TELECOM Digest OnLine - Sorted: At PartyGaming, Everything's Wild

At PartyGaming, Everything's Wild

Monty Solomon (
Sun, 26 Jun 2005 21:55:57 -0400


As a rule, companies don't often draw attention to business practices
that could land their executives in jail. But for PartyGaming PLC,
potential illegalities aren't just a secret hidden in its business
plan -- they are the centerpiece of its business plan.

A giant in the online gambling business, PartyGaming is an
often-overlooked megasurvivor from the dot-com crash of the late
1990's. As hundreds of profitless commercial sites disappeared into
the digital ether, PartyGaming's popular gambling sites - like - soared, with revenues and profits growing
exponentially year after year.

This week, the company will go public in what is expected to be the
largest offering in years on the London Stock Exchange, one that will
make billionaires out of its ragtag assortment of founders and major
stockholders - including a California lawyer who earned her first
fortune in online pornography and phone-sex lines. All told, as much
as $9 billion is expected to be raised, with all of the cash going to
private shareholders selling portions of their stakes.

But there will be no Wall Street investment houses lapping up fees in
the giant deal, no victory dances in the offices of American corporate
lawyers. That is because PartyGaming, based in Gibraltar, has no
assets in the United States, and its officers or directors could risk
being served with a civil suit - or an arrest warrant - if they came
to the United States on business.

The reason? The Justice Department and numerous state attorneys
general maintain that providing the opportunity for online gambling is
against the law in the United States - and PartyGaming does it
anyway. Indeed, of its $600 million in revenue and $350 million in
profit in 2004, almost 90 percent came from the wallets and bank
accounts of American gamblers.

To justify this, PartyGaming walks a very thin line. Providing online
gambling is not illegal per se in the United States, the company
argues -- federal prosecutors just say it is. The company has already
received an e-mail message from the Louisiana attorney general
demanding that it cease providing online gambling in that state;
PartyGaming simply ignored the communication and waited for additional
action that never came.

The company's prospectus -- a British document that is not available
in the United States -- at times reads something like a legal brief,
citing American case law to support the company's position that no
prosecution would ever take place.

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