British payment processor NETeller (NLR.L) said on Wednesday it expected to announce a plan to distribute funds seized by U.S. prosecutors to its U.S. customers within the next 75 days. NETeller quit the United States in January, abandoning 65 percent of its business, after authorities there arrested its two founders in a crackdown on online gaming. A month later, NETeller said U.S. prosecutors had seized funds, stopping U.S. customers from accessing their money. The firm said on Wednesday it had signed agreements with the United States Attorney’s Office for the Southern District of New York (USAO) and consulting group Navigant Consulting Inc to outline terms and a timeline under which it would work toward distributing funds to its U.S. customers. “Per the agreements, the group anticipates that within the next 75 days it will announce a plan by which the funds will be distributed to U.S. customers,” NETeller said in a statement. The firm said in February that the amount of funds seized by the USAO or otherwise restricted by third parties did not exceed $55 million. The legality of Internet gambling in the United States was ambiguous for many years, but it was effectively banned last October when President Bush signed legislation outlawing gaming financial transactions. The big UK stock market-listed companies pulled out just ahead of the ban, although some privately owned Web sites such as Bodog.com and Pokerstars continued to take wagers through payment processors. NETeller requested its shares be suspended in January, after its Canadian founders, Stephen Lawrence and John Lefebvre, were charged with handling billions of dollars in illegal gambling proceeds.

Previous: Criminal prosecutions related to online gambling will be pursued even in cases where assets and defendants are positioned outside of the United States. + NETELLER RECORDS OF THE TRADESPORTS-INTRADE CLIENTS WHO ARE US CITIZENS/RESIDENTS ARE NOW IN THE HANDS OF THE US DOJ AND IRS.

Anyway;

From the Tradesports forums:

Focus: United States

The Times – January 17, 2007

Neteller founders charged after sting operation by FBI
James Doran in New York

Stephen 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

Press Release
NETELLER PLC Trading Update

18 January 2007 – NETELLER Plc (LSE: NLR), the leading independent online money transfer business, today issued the following update regarding its position in the US market in the light of the Unlawful Internet Gaming Enforcement Act of 2006 (the “Act” or “UIGEA”) and the Act’s associated anticipated regulations.

US market withdrawal

- Withdrawal of US Transfers to Gambling Merchants: The Board confirms that the Group will cease processing online transactions related to gambling for the US market with effect from today in light of the passing of the UIGEA and the uncertainties and likely delays relating to the drafting and implementing of regulations.
- Phased Compliance: This announcement reflects the culmination of a series of deliberations and steps the Group has taken since the passing of the UIGEA in October 2006. Previous steps have included the development of country blocking and instant funds transfer restriction enhancements to the Group’s software platform.
- Timeline: As of today Thursday 18 January 2007, at 12:01AM GMT, US resident customers were no longer able to transfer funds using NETELLER’s services to or from any online gambling site.
- Continued Safe Choice: Customer funds, including those of US residents, are held in segregated trust accounts and are fully secure and will be available for withdrawal by customers, on demand. US customers continue to be able to use their e-wallet accounts for non-gambling transactions.
- Group’s Future Focus: These decisions will allow the Group to focus on opportunities available in the growing markets of Europe, Asia and the Americas outside of the United States.

Recent US developments

- On 16 January 2007 shares in the Company were temporarily suspended pending clarification of the situation surrounding the detention, by US authorities, of Mr Stephen Lawrence and Mr John Lefebvre, two founder shareholders and former directors of the Company.
- On 16 January 2007 the US Attorney’s office in the Southern District of New York charged Mssrs. Lawrence and Lefebvre with conspiring to transfer funds with the intent to promote illegal gambling. The charges are a matter of public record. As of this point, neither of Mssrs. Lawrence nor Lefebvre has responded to the charges. The federal authorities allege as one of the bases in the complaints against Mssrs. Lawrence and Lefebvre that NETELLER’s involvement in handling financial transactions between gambling customers in the United States and numerous offshore online gaming businesses constitutes illegal conduct.
- As noted above, today’s withdrawal from the US market by NETELLER is the culmination of months of careful planning. Along with this action, the Group is actively assessing what further steps it may take in light of the two arrests made earlier this week to clarify the Company’s position in this matter.
- Pending further clarification of this the shares of the Company will remain suspended.

Trading highlights

- Following the passage of the UIGEA and as preparations for a withdrawal of services to US residents were being completed, the Group experienced slowing fourth quarter growth in terms of customer receipts and new customer sign ups.
- Average daily receipts from customers in Q4 2006: US .75m; average daily new customer sign ups for Q4 2006: 3,493; total customers at 31 December 2006: 3,526,325.
- Active customers in Q4 2006: 640,701, with a growing percentage from outside of the United States.
- Revenue for the full year 2006 expected to be between US$ 255 million and US$ 260 million.
- Continued focus on geographic diversification through further product launches in response to customer and merchant demand, in particular in Europe and Asia.
- Realignment of Group’s cost base commenced in Q4 2006.

Voluntary withdrawal from US

The Board today confirms that the Group has voluntarily ceased processing funds transfers between NETELLER e-wallets and online gambling merchants on behalf of US residents. This decision represents the culmination of a series of deliberations over recent months by the Board which, in light of impending regulations related to the Act, believed that NETELLER’s position in the US market was no longer sustainable. Since the passing of the Act, the Company has been working diligently on a programme of operational and technical planning measures and procedures to allow implementation of any such decision at the earliest opportunity. NETELLER has committed to an orderly withdrawal for the benefit of its customers and will endeavour to maintain a high degree of service throughout the process.

With immediate effect, as of today Thursday 18 January 2007, at 12:01AM GMT, US resident customers were no longer able to transfer funds using their NETELLER e-wallets to or from any online gambling site.

In line with the Group’s standard business practices for all customers, the funds of US resident customers are held in segregated trust accounts and are fully secure and will be available for withdrawal by customers, on demand. The ability to withdraw funds will exist regardless of the customer’s location or ability to transfer to any site. All US resident customers will continue to be able to use their NETELLER e-wallet accounts to safely transfer funds to and from non-gambling merchants and are not required to close their accounts or withdraw their funds.

NETELLER customers not resident in the US are not affected at all by this withdrawal from the US market. The Group will continue to operate its non-US business as normal, maintaining existing customer and merchant support across all the markets it currently serves.

In order to be able to support this US withdrawal, NETELLER has dedicated the last few months to developing product enhancements to its software platform in order to be able to block automatically transfers to online gambling merchants from US residents. These features are now fully deployed and integrated into the Group’s core platform.

Today’s updated position with respect to the US market leaves the Group able to focus on its continuing business and the opportunities available in the growing markets of Europe, Asia and the Americas outside of the United States. NETELLER remains focused on developing its business in line with its stated strategic objectives, including geographical and product diversification for all markets. The Group will continue to launch localised services within the global market and a number of new product launches are scheduled for early this year.

[...]

Does all this mean that TradeSports-InTrade is dead meat?

The American authorities have swooped on the founding shareholders of NETeller, the company which specialises in money transfers between online gambling sites and players.

Stephen Lawrence and John Lefebvre, both former directors of the firm, were detained in the US yesterday, while travelling separately.

It’s probably not a good idea for TEN CEO to go to the crappy, phone-booth prediction market conference, in the U.S.

It’s probably not a good time for U.S.-based service providers (including conference organizers) to have any relationship with TradeSports.

All this is unfortunate, of course.