As we all now know, two former directors and founding shareholders of NETELLER have been charged in the United States with laundering billions of dollars in illegal gambling proceeds.
The federal government is taking a fascinating position. The government purports that these gentlemen knew that operating NETELLER was illegal because of what was written in their prospectus when they went public. Allow me to digress.
When a company goes public, a privately held company issues shares of stock to the public. An initial public offering (IPO) is the process through which the privately held company issues these shares of stock.
To go public, the business must first apply to the Securities and Exchange Commission (SEC) for permission to sell its stock to the public. The SEC registration process is complicated and requires the company to disclose a ton of information to potential investors.
Once a small business has decided to go public, it selects an underwriter who acts as a sort of financial backer. A team of lawyers, independent accountants, and a financial printer are assembled.
The attorneys for the underwriter draft the agreements; the attorneys for the company advise the company how to satisfy SEC regulations. The accountants issue opinions about the company's financial statements to reassure potential investors. The financial printer prepares a booklet that contains all the pertinent information about the company, which will be distributed to potential investors. That booklet is a called a prospectus.
Everyone involved in an IPO knows the drill. The prospectus contains a risk section in which potential investors are advised about potential risks. The lawyers for all sides require the company to overstate the risks so that no one can be sued in the future for not properly stating the risks accurately.
For example, when a gaming site goes public, it routinely states that online gambling is or may be illegal in the U.S. The fact is that the companies don't know this to be true, but the attorneys hired to take the company public, strongly advise the company to include such overstatements to protect everyone involved.
In the NETELLER situation, Canadians Stephen Lawrence, 46, and John Lefebvre, 55, helped take the company public in 2004.
U.S. Attorney Michael Garcia has come up with a creative argument that will eventually fail. He says that when Lawrence and Lefebvre took the company public, they "conceded that they were risking prosecution by the government of the United States under existing or future federal laws."
They never conceded that Internet gambling was illegal in the U.S. Rather, they put into the prospectus what their lawyers advised them to disclose to potential stockholders.
That still begs the question. Let's say I "concede" it is illegal to walk on the sidewalk singing and then I do so. Have I committed a crime? Of course not, because there must be a crime on the books to have violated. This brings us back to the same old question of what law has been broken.
To be engaged in money laundering, money must go from or to an illegal activity. That brings us right back to the same situation we have been discussing for the last 10 years. What law is being broken? Since the gaming sites are located offshore and they follow the laws where they reside, no law is being broken unless there is a specific U.S. law on the point.
The federal government is still asserting that the 1961 Wire Act forbids online poker. The government is just wrong and I have written extensively on this subject. When the case finally comes to court, the Attorney General will have to prove beyond a reasonable doubt that these gentlemen violated the law. Other courts have already ruled that the 1961 Wire Act applies only to sports betting. That being the case, the former NETELLER owners have violated no law unless they conducted substantial business within the borders of the U.S.
Remember, it is legally permissible to have an online site offshore or to invest in such; it is not permissible to run that business while sitting in the jurisdiction of the U.S.
