Saturday, February 10, 2007

FBI Flippantly Flaunts Financial Force, NETeller News Not Nice

It wasn't the worst news, either, but a lot of folks were resigned to the late-week missive from NETeller (reprinted in its entirety below), that ackowledged what had been claimed by an FBI agent in a USA Today story a couple of days prior: Some funds in transit between NETeller and U.S. customers had been seized in conjunction with the ongoing investigation regarding the arrests three weeks back of NETeller's founders, Steve Lawrence and Jihn Lefebvre.

NETeller probably couldn't wait any longer before acknowledging the seizure, bound as they are by Isle of Man regulations in such financial-transaction matters. What was surprising to many was the size of the total seizure, some $55 million, though exactly at what point in the multi-step process the funds were seized remains a bit unclear.

Worst-case scenario is that the FBI keeps all the money seized under some liberal and aggressive extension of RICO / money-laundering statutes, but even that might be more bad will than the FBI cares to engender. However, NETeller has indicated that they now plan on cooperating fully with the FBI and the New York U.S. Attorney's Office involved in the case, and there are rumors (unsubstantiated) that a few high-stakes sports bettors and erstwhile bookies will now have hundreds of thousands and possible millions in unreported transactions to try to explain. Canada's population might pop up a body or two, one could surmise...

But there are a whole lot of people whose use of NETeller's service was either on a much smaller scale or entirely innocent. Like a lot of writers, much of my income went through NETeller, and yes, I have some still money tied up in there as well. NETeller also serves the other type of online-gaming network, meaning Internet-based role-playing games and the like, and all that stuff is wholly legitimate as well. So the FBI still has to step carefully, despite the bullying and posturing of recent weeks. NETeller's willingness to open its books to the ongoing FBI investigation doesn't really change things much from the NETeller perspective, and NETeller still has a fiduciary responsibility concerning the sum of the deposits they hold on behalf of U.S. customers that they still must find a way to honor.

So, while no one's money is going anywhere soon, it's not yet the type of situation where you know for sure you'll never see it again. Do what Amy Calistri does, and that's to log on and visit it every day.

Alright, enough of my meandering. Here's the NETeller release, in its entirety:

On 19 January 2007, at the request of the Group, the Group's legal advisers met with representatives of the United States Attorney's Office for the Southern District of New York ("USAO") to clarify the Group's position with respect to the complaints brought on 16 January 2007 against two of the Group's founders, Mr. Stephen Lawrence and Mr. John Lefebvre; neither of whom are current employees or directors of the company.

In that meeting, the Group pledged to cooperate with the USAO, indicated it was prepared to begin document production promptly and discussed a potential mechanism for arranging an orderly repayment of funds to US customers.

The discussions between the Group's legal advisers and the USAO are ongoing. The Group is, under advice of its legal advisers, commencing production of documents and intends to cooperate with the USAO in its investigation.

Following upon the complaints dated 16 January 2007, banks in the US began declining to permit transactions involving the Group through accounts maintained at one or more automated clearinghouses in the United States. Additionally, the Group has been advised that the USAO has obtained court-ordered seizure warrants seizing funds pertaining to the Group's transactions. To the best of the Group's knowledge, it believes that the amount of funds seized by the USAO or otherwise restricted by third parties does not exceed US $55 million. These funds were largely in the process of being transferred from the Group to its US customers or vice versa.

As a result of the restrictions placed by third parties, court-ordered seizures, and related legal concerns, the Group is currently unable to make payments to US customers.

Nevertheless, the Group is in discussions with the USAO to manage an orderly return of funds to US customers. As part of these discussions, it is contemplated that the USAO will engage a forensic accounting firm, at the Group's expense, to assist in this process and to examine the Group's financial position. "The return of funds to our US customers is a top priority for NETELLER" said Ron Martin, Group President and CEO. US customers wishing to withdraw funds from their NETELLER e-wallet accounts will experience ongoing delays while these discussions continue, and a further update will be provided by the Group once effective repayment mechanisms are determined.

To the Group's knowledge, no criminal action or proceeding has been brought against the Group, its current officers or directors by the USAO. Nevertheless, there can be no assurance that the Group will not be charged in a criminal action at some subsequent time.

The Group intends to work with the USAO to seek a negotiated resolution of any allegations relating to its US activities. Any resolution of this matter may lead to potential sanctions against the Group including material financial penalties, fines and forfeitures.

It is emphasized that in line with the Group's standard business practices for all customers, funds held by the Group for US customers are held in segregated trust accounts. The Group's own cash position remains strong and the Group currently has sufficient working capital to fund all its customers' balances as well as ongoing requirements of the business.

The company remains committed to developing its business in line with its stated strategic objectives including geographical and product diversification for all markets. The Group will focus on its continuing business and the opportunities available in the growing markets of Europe, Asia and the Americas outside of the United States.

Since the Group's withdrawal from the US market on 18 January 2007, average daily new account sign-ups of new customers from non-US markets has been around 1,400. This compares to average daily sign ups of 3,303 for the year to 31 December 2006. Daily fee revenue since 18 January 2007 has averaged over US$ 200,000 per day (excluding any revenues from Netbanx, 1-Pay and interest income). These metrics demonstrate the resilience of the Group's ongoing business. NETELLER customers not resident in the US continue to be minimally affected by this withdrawal from the US market.

In view of the continuing uncertainty, the Group's shares will continue to be suspended from trading on AIM for the time being. Further announcements will be made as appropriate.

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