PartyGaming’s Billionaire Founder Pleads Guilty and Forfeits $300 Million but Web Site Continues

U.S. officials today bagged one of the biggest fish in the online gambling industry.

On Tuesday December 16, in U.S. District Court in lower Manhattan, Anurag Dikshit, the reclusive billionaire co-founder of the Gibraltar-based online gambling Web site PartyGaming, pleaded guilty to one count of using communications wires to transmit bets and wagering information in interstate commerce. Dikshit, 37, faces a maximum sentence of two years in prison, and a fine of $250,000.

In addition, Dikshit agreed to forfeit a staggering $300 million, in what appears to be the biggest forfeiture in the brief history of prosecuting online gambling executives. Dikshit has already paid the first $100 million installment. On June 29, 2007, the U.S. Attorney for the Southern District of New York announced that Stephen Lawrence, a founder and chairman of NETeller, an online payments service, pled guilty to conspiring to promote illegal Internet gambling and agreed to forfeit $100 million.

It is not clear when or how U.S. officials nabbed Dikshit, but the Indian software engineer appeared in court today at 500 Pearl Street, says U.S. Department of Justice spokeswoman Rebekah Carmichael. Diskhit is scheduled to be sentenced before U.S. District Judge Jed S. Rakoff on December 16, 2010.

Apparently, U.S. officials don’t believe Dikshit is a flight risk. Today, Dikshit posted bailed on a $15 million personal recognizance bond, signed solely by himself. His travel is limited to the southern district of New York and Gibraltar (his principal residence), except he may travel to India and the European Union provided he acquires permission from the government, according to a source familiar with the case.

The Federal Bureau of Investigation appears to have been involved in the investigation. In Dikshit’s plea agreement, acting U.S. Attorney for the Southern District Lev L. Dassin praised the work of the FBI.

The forfeiture apparently will not bankrupt Dikshit, a graduate of the Indian Institute of Technology (IIT) who helped the company develop its software and owned 32% of the company when it sold shares to the public. In March of 2008, Forbes Web site listed Dikshit as the 743rd richest person in the world, worth an estimated $1.6 billion.

Before U.S. officials began a crackdown on online gambling in 2005, PartyGaming was a veritable cash machine. In 2004, the Gibraltar company earned $350 million in profits on $602 million in revenues by taking a small commission from online poker, bingo, and other games. In June of 2005, the company listed on the London Stock Exchange.

Then U.S. officials turned up the heat. On October 13, 2006, President George W. Bush signed into law the Unlawful Internet Gambling Enforcement Act of 2006. Essentially, the UIGEA sought to cut off the flow of funds from U.S. gamblers to e-casinos. To that end, it targeted e-casinos and financial institutions, criminalizing the act of betting online and accepting money in connection with online gambling. The UIGEA’s unexpected enactment created industry hysteria. Stock prices of publicly-traded e-casinos plummeted, wiping out billions of dollars of market value.

As a result of the law and efforts by U.S. officials to go after online gambling officials, many big gaming sites began to not accept bets by U.S. citizens. PartyGaming was one of those sites.

Today, however, PartyGaming is on the comeback trail. The company still exists and trades on the London exchange under the ticker PRTY. On June 30, 2008, PartyGaming hired a new chief executive, Jim Ryan, who quickly began a strategic review of the business.

An experienced gaming executive, Ryan was previously CEO of St. Minver Limited, the largest operator of European gaming networks. Ryan was also President and CEO of Excapsa Software, a leading internet gaming software developer whose licensees included UltimateBet, and CFO of CryptoLogic, Inc., an internet gaming software developer.

Despite the convulsions to its business model and founders, the company still churns out impressive profits. In the six months ended June 30, 2008, PartyGaming reported a $26.7 million profit on $255 million in revenue. Revenues increased 17% in that period, while earnings before interest, taxes, depreciation and amortization soared 76% to $64.9 million, up from $36.9 million.

PartyGaming has even managed to strike deals with Hollywood studios. At the end of 2007, it established an alliance with Paramount Pictures in which the company was able to license the brands of blockbuster films such as Mission: Impossible, The Godfather and Saturday Night Fever, and apply them to online slot machines.

“PartyGaming is a company that has transformed itself into a truly international business,” wrote CEO Ryan in the company’s most recent financial report. “The Group’s performance over the first six months of 2008 is a testament to that transition.”

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