MULTI-BILLION-DOLLAR CHARGES FOR B.C. MAN
Saltspring man alleged to have promoted illegal gambling through his Internet company
Saltspring Island resident John Lefebvre hit the jackpot in November 2005 when he cashed in $123 million worth of shares of his offshore company, NETeller Inc., which handles billions of dollars of money transfers for Internet gamblers.
The bonanza enabled him to pursue a life of luxury, including a beach house in Malibu (which actress Jennifer Aniston was also eyeing), and to support various a c a d e m i c , p h i l a n t h ro p i c a n d political endeavours, including a $170,000 donation aimed at helpi n g V i s i o n Va n c o u v e r ’ s Jim Green win the mayor’s chair in the last civic election.
But in a sudden reversal of fortune Monday, Lefebvre, 55, was arrested by FBI agents at his Mal- ibu home and charged with conspiring to promote illegal gambling by transferring billions of dollars of cyberspace bets placed by U.S. citizens with offshore gaming companies.
He was jailed at the Metropolitan Center, the federal holding facility in downtown Los Angeles, and appeared in Los Angeles Court Tuesday afternoon. Bail was set at $5 million US. At press time Tuesday, it was not clear whether he posted that bail.
NETeller co-founder Stephen Eric Lawrence, 46, formerly of Calgary, was also arrested in the U.S. Virgin Islands and similarly charged with transferring funds with the intent to promote illegal gambling. He was to appear in federal court in St. Thomas today.
If convicted, both men face a maximum sentence of 20 years in prison.
Based in the Isle of Man, NETeller describes itself as “the largest independent online money transfer business in the world” with more than three million customers in 160 countries, 3, 500 merchants and more than $7 billion US in annual transactions. The company’s shares are listed on the London Stock Exchange’s AIM market.
In a release Tuesday, the U.S. Justice Department said 95 per cent of NETeller’s revenues are derived from Internet gaming, and the majority of those revenues come from U.S. residents.
Mark Mershon, FBI assistant director in New York, said the billions of dollars wagered by U.S. citizens with offshore gaming companies, and funnelled through companies like NETeller, “amounts to a colossal criminal enterprise masquerading as legitimate business. . . . The FBI is adamant about shutting off the flow of illegal cash.”
Michael Garcia, U.S. attorney for the southern district of New York, said that when the two men took their company public in London in 1999 (in a deal brok e r e d b y Va n c o u v e r - b a s e d Canaccord Capital Corp.), they acknowledged in offering documents that Internet gaming, and t ra n s fe r r i n g t h e p ro ce e d s of Internet gaming, were illegal and therefore represented an investment risk.
“Blatant violations of U.S. law are not a mere ‘risk’ to be disclosed to prospective investors,” Garcia said. “Criminal prosecutions related to online gambling will be pursued in cases where assets and defendants are posit i o n e d o ut s i d e of t h e Un i te d States.”
The NETeller arrests are the latest in a series of U.S. federal initiatives to combat illegal Internet gaming:
In July 2003, PayPal (an ecommerce company similar to NETeller) settled charges that it aided illegal offshore gaming by forfeiting $10 million US of illgotten gains.
In May 2006, the U.S. Justice Department unsealed an indictment against Antig ua-based Wo r l d w i d e Te l e s p o r t s I n c . , owned by Betcorp, a company l i s t e d o n t h e Au s t ra l i a St o c k Exchange.
I n Ju ly 20 0 6 , t h e Ju s t i ce Department unsealed an indictm e n t a ga i n s t L o n d o n - ba s e d BetonSports PLC. Shockwaves rippled through the Internet gaming community when one of the company’s executives, David Carruthers, was arrested by FBI agents at the Fort Worth, Tex., airport en route to Costa Rica, where the company has betting operations, and thrown in jail.
In September 2006, the U.S. Cong ress passed legislation specif ically prohibiting credit card companies and e-commerce c o m p a n i e s s u c h a s N E Te l l e r f ro m t ra n s fe r r i n g m o n ey fo r Internet gaming purposes.
This initiative sent the share price of publicly trading companies involved in Internet gaming, including NETeller, reeling.
But by this time, Lefebvre and Lawrence had severed most of their ties with the company and had cashed in most of their shares. Their timing appeared impeccable, until Monday’s arrests.
Continuing U.S. pressure on offshore gaming operators is causi n g m a ny o t h e r Internet gaming companies to change t h e way they do business.
One of those companies is Bodog.com, one of the biggest Internet gaming companies in the world. In 2005, it took in $7.3 billion US in wagers, 95 per cent from U.S. residents.
Bodog is owned
by part-time Vancouver resident Calvin Ayre, who owns some expensive real estate in the Lower Mainland, including two penthouse apartments in Yaletown.
He also owns Riptown Media, a Vancouver company that provides marketing, advertising and promotion support for Bodog, and Triple Crown Customer Service, a Burnaby call centre for customers who want to set up betting accounts or to ask questions about their accounts.
A f te r Ca r r ut h e rs ’ a r re s t in Texas, Ayre cancelled an Internet gaming conference Bodog had planned to hold in Las Vegas. He also stopped travelling to the United States.
In December, he announced he would pull all Bodog’s U.S. gaming-related advertising and move t h e f i r m’s h e ad q u a r te rs f ro m Costa Rica to Antigua, which he v i ews a s a “ sa fe, re l i a b l e a n d well-regulated jurisdiction.”
Ayre is now looking to Europe and Asia, rather than the United States, for future gaming growth, and is diversifying into music, film production and other nongaming pursuits such as mixed martial arts.
However, his firm continues to take bets from U.S. residents, raising the question as to whether he will be the U.S. Just i ce D e pa r t m e n t ’s n ex t target.