Tradesports seems to have completed its reincorporation as/ split into two separate entities, Tradesports and Intrade, just in time for the DOJ to immolate the NETeller founders for “conspiring” to enable online gambling. (The founders of NETeller had resigned their power before UIGEA became law.) So this tells us nothing about the reach of UIGEA, which became law well after the “sting” mentioned in the below article. (Bracketed comments are my own. Notice the convicted tone of the article, and its complete acceptance of the law enforcement story that NETeller is “a multibillion-dollar money laundering scheme,” as opposed to a PayPal-like payment facilitator to all manner of parties.)
Anyway;
Focus: United States
The Times – January 17, 2007
Neteller founders charged after sting operation by FBI
James Doran in New YorkStephen Lawrence and John Lefebvre, founders of Neteller, the UK-listed online payments company, were last night charged with conspiracy in connection with a multibillion-dollar money laundering scheme linked to internet gambling. ["a multibillion-dollar money laundering scheme"... no f***ing shame]
The pair were arrested on Monday after an FBI sting operation discovered that Neteller was being used to allow Americans to place illegal bets on sporting events via internet gambling companies based in foreign countries.
Mr Lawrence, 46, who lives in a luxury home on Paradise Island in The Bahamas, was arrested in the United States Virgin Islands and has been ordered to appear later today in the federal court of St Thomas.
Mr Lefebvre, 55, was arrested at the same time in Malibu, California, and was expected to appear in Los Angeles federal Court last night. [You were about to feel sorry for them, too, weren't you? Then you learned they were rich. I doubt they will be by the time the FBI has gotten its tribute, but you still can't feel sorry for them, right?]
Neither Mr Lawrence nor Mr Lefebvre were available to comment in response to the allegations made in the indictment. If found guilty, the pair face 20 years in jail.
The seven-page indictment, filed in New York last night, claims that the pair set up Neteller in 1999 with the express purpose of providing online payment services to gambling companies. The indictment also claims that between 2000 and 2003 Neteller Inc, a Canadian corporation, offered payment services to various internet gambling companies so that they could illegally access customers in the United States.
From 2004 to the present day, the same operation was conducted by Neteller plc, an Isle of Man-based company which in April 2004 raised some $70 million via a listing on London’s AIM. An agent with the FBI named in the indictment claims she used Neteller as a middle man between her US-based bank account and an offshore internet gambling company.
Shares of Neteller were suspended on AIM yesterday before the indictment was released as the company was seeking clarification of its status with US authorities.
A spokesman for Neteller stressed that the founders were no longer employees or directors of the company. “Because of that, this arrest has nothing to do with the company,†he added.
Mr Lawrence resigned as a non-executive director of the company on October 13, having stepped down as non-executive chairman last May. Mr Lefebvre resigned as a non-executive director on December 15, 2005. However, the pair still own large stakes of Neteller. Mr Lawrence holds 5.91 per cent of the company, while Mr Lefebvre owns 5.54 per cent.
Neteller claims to operate the largest independent online money transfer business in the world with 3 million customers in 160 countries and over $7 billion in annual transactions.
It specialises in providing instant payment services where money transfer is difficult or risky because of issues of identity, trust, currency exchange, or distance. In the past, it handled funds for online gamblers in the US but it is said to have stopped the practice when tough new laws banned internet gambling in America last October.
Last year authorities arrested a number of prominent executives for breaching US gambling laws, including two from Britain. David Carruthers, the former chief executive of BetOnSports, was arrested in July while Peter Dicks, former non-executive chairman of Sportingbet, was arrested in September.
Tradesports’ just-completed reorganization will probably buy a little time, but serious damage has already been done on all fronts. Some liquidity will be permanently lost just because of the NETeller incident, and it won’t be back anytime soon. Mssrs. Lawrence and Lefebvre will have to fork over some millions of dollars, joining the ranks of David Carruthers, Peter Dicks, Manfred Bottner, Norbert Teufelberger and others who inadvertently threatened America’s most powerful lobby, the casino industry. Sure, millions of dollars’ legal fees and settlement fees later, a court will do justice and toss out the indictment. But the damage will have been done, and the message will have been sent: The United States of America does not respect your person, your innovation or your property. Do not cross the casino industry. They are too powerful. And if you cross them, they will destroy you.
(Non-American readers, please do not fall back onto the puritanical-American stereotype as explanation for this. There was simply no demand for this legislation from any corner of American society, other than the casino lobby. Which was why Senator Jon Kyl, Senator John Ensign, and Rep. Jim Leach among others had to insert it as a rider into a port-security bill in the dead of night for it to pass. This episode is a grotesque embarrassment to the country.)
I think this was why Tradesports split into two sections, the one section dealing with all securities that compete with what American casinos offer, and the other offering more obviously “socially beneficial” contracts. However, while this does superficially help reassure Americans who might have money in Intrade, I don’t see how it really helps. If the feds pressure Delaney enough, Delaney has to choose between his professional reputation, and being able to ever set foot in the United States again for fear of getting cuffed and hauled off to a cell next to Carruthers et al. (I hope Delaney has wired every dime he can out of the United States before the government tries to freeze his US assets to use as leverage against him.)
Addendum: I hope Paul Tetlock, Justin Wolfers, and others who have made a mini-career mining the insights of prediction markets are as fine with the decimation of said markets as their complacency would otherwise suggest. The only way this will stop is if 1) the government issues a statement that prediction markets will be exempt from the intended swathe of destruction; and/or 2) respected intellectuals publish op-eds, lean on influential people, and otherwise pour negative publicity on the regulators and officials who have been doing this. Regulators’ career advancements are significantly governed by the political price of elevating them, i.e. if they cause more negative publicity, that will hurt their career prospects. Potential further victims of that bullying, including most of us, need to be just as ruthless about destroying reputations as they have. Just my personal — not general to MidasOracle — reckless 2c, because that really needed to be said.)
I am sure Tradesports/Intrade is bitterly learning that you can never pay somebody off once (their first time was the $150,000 CFTC fine, for violating the oligopoly of American commodities exchanges and running an oil futures market). You either refuse to pay at the outset, or pay over… and over… and over again.
(Originally posted at the Tradesports Political Maven)
PS — as a frequent contributor here, I know that there are some very disparate opinions of John Delaney and his enterprise. I have not held back from broadsiding Tradesports in the past, but I also feel compelled to say that, in light of the pall cast over Tradesports/Intrade’s future, I think Mr. Delaney’s decision to hold up the integrity of his enterprise, even at the cost of not being able to come to the United States again, is worthy of enormous respect. I have a lot of issues with the way Tradesports does certain things, but that is for another time. The current chaos does not have me wondering “What the hell is wrong with Tradesports?” just yet.
–Alex Forshaw
“respect”
Generally speaking, I can’t respect somebody who sends insult e-mails under a series of forged e-mail accounts and disguised identities.
“I hope Paul Tetlock, Justin Wolfers, and others who have made a mini-career mining the insights of prediction markets are as fine with the decimation of said markets as their complacency would otherwise suggest.”
I share Alex’s outrage and shame for the country, but I think we will have CFTC-regulated presidential markets in time for the 2008 election. (I am a 50% bid, at least) The CFTC will soon approve Credit Event Futures, and I think this is the path of legality, with all its possible restrictions, that prediction markets will take in the US. Unfortunately, there might not be any unambiguously legal real-money trading options for 6 to 18 months.
The prediction markets we’re accustomed to are about all areas of sports, politics, current and legal events, domestic and international, not just US presidential elections.
As for HedgeStreet, they are great people but they are not powerful Internet marketers, as of today.
Any popular prediction exchange (TradeSports, BetFair) offers a wide range of betting lines.
That was just an example. I meant all non-sports markets that aren’t politically sensitive. (“with all its possible restrictions”)
Tradesports and Betfair are different animals with their own paths of evolution.
It is a long, expensive and difficult, but not impossible, road to become a (retail) DCM.
Well, slashing NETeller at the knees has already scared lots of liquidity away from Intrade, I think. Many TS’ers used NETeller, and some of them will switch over to some other method, but others will be deterred by the uncertainty of government threat and the hassle.