Bill Reynolds - Life Real Loud - John Lefebvre, Neteller and the Revolution in Online Gambling

So, yes, I preferred to think Lefebvre’s gesture to hand over $25,000 to a magazine that critiqued the practice of journalism in Canada was impulsive and generous. I preferred to think that for him it seemed like a perfectly acceptable way to spend twenty-five grand, and was a routine demonstration of the kind of guy he was. He always got excited when talking about the things his money could do, and he liked to think he really could change the world for the better.

C’mon, what else would you do with $150 million except help people and do some good?

Omens

Michael Lipton, a Toronto lawyer who specializes in gambling law, agreed to see me in his Bay Street office, on the twenty-second floor, to dicuss Neteller, Lawrence and Lefebvre, and the legal climate online gambling was facing. He gave me a mouthful about the DOJ’s aggressiveness regarding online gambling all the way back to its infancy in 1997. He summed it up this way: “The DOJ has a really clear record in which it has said, ‘We think internet gaming is illegal. It’s illegal in all forms — sports betting, casino-style games, poker.’” Lipton said the DOJ will prosecute even if state laws aren’t broken. “We don’t recognize those laws” was its rejoinder.

The DOJ had been acting aggressively against online gambling well before the Unlawful Internet Gambling Enforcement Act (UIGEA) came into effect in October 2006. On July 17 of that year, a federal grand jury, through the Eastern District of Missouri, announced a multiple account indictment against BetonSports PLC founder Gary Kaplan, BetonSports.com CEO David Carruthers, and nine others associated with the U.K.-based firm. Three years earlier, it had used the 1961 Wire Act and money laundering statutes to chase down William Paul Scott of WorldWide Telesports Inc., based in Antigua, and ordered a $6,976,924 civil forfeiture. That was the same year PayPal and its owner, eBay, forfeited $10 million in a civil suit. And two years before that, in 2001, Jay Cohen had been arrested even though his company, WSEX, was based in Antigua. The DOJ didn’t care. It said most of its customers were U.S.-based, so this was a U.S. business as well as an Antiguan business, and it charged him under the Wire Act. Cohen was sentenced to twenty-one months in prison.

And there were other, passive players. Many major banks, such as the aforementioned Citibank and Chase Manhattan, and major credit card companies, such as Visa and MasterCard, accepted transactions from American customers directed toward offshore gambling casinos. The feeling was: if I sit in Cleveland and wager money at an online casino in Antigua, I’m gambling in Antigua, not in the U.S. This apparent loophole, which of course was not explicitly covered in existing gambling legislation, the Wire Act, allowed these large businesses to look the other way and accept the processing fee revenue, which would have been somewhere in the one-to-two-percent range. But the DOJ was moving to close that aperture.

Through this time, Neteller Inc. developed a strategy to rechristen the company Neteller PLC and relocate the business to the Isle of Man as of October 1, 2003, as Company Acts registered number 109535C, a private company limited by shares. Three months later, on January 1, 2004, Neteller Ltd. began carrying on business as a public limited company. This was advance preparation for a “Placing of 17,500,000 Ordinary Shares of 0.01 pence each of the Company at a price of 200 pence per share and Admission to trading on the Alternative Investment Market,” one of the subtitles of the final prospectus document that was issued April 8, 2004. The public offering of 15,000,000 shares (2,500,000 additional shares were for the principals) was set to go live on April 14, 2004, and ownership of the new concern was divided into two camps, the Corvina group (Lawrence, Lefebvre, and Natland, the original trio), with 69.35 percent, and the Alberta group (Choy, Edmunds, Glavine, and Ramsay), with 26.07 percent. Three months later, the changeover became official. On April 1, 2004, Neteller Ltd. was officially re-registered as Neteller PLC and started trading publicly on AIM.

Investors decided the risk was manageable. Neteller’s stock grew like dandelions in a pesticide-free park, reaching — at its zenith in 2006—about £9 per share. By the time UIGEA was signed into law, October 13, 2006, Neteller’s market capitalization was over $3 billion. The new law was designed to shut down access to these seemingly untouchable offshore businesses. Through international treaties with various departments of justice, the DOJ was given official status to move on companies and directors of companies it perceived to be breaking U.S. laws, whether or not those companies were actually located in the U.S. — not that it hadn’t been doing so already, but the new law gave it more ammunition.

The gambling bill was tucked at the tail end, pages 213–244, of a much larger Homeland Security bill focusing on mariner safety, something called the “Security and Accountability for Every Port Act of 2006,” or SAFE Port Act. The bill was passed during the waning days of the Republican Party’s hold on the House of Representatives in the U.S. Congress, just prior to the 2006 midterm elections, the results of which snuffed out the GOP’s House majority. The new legislation targeted electronic wallet companies that focused on the gambling business, but it wasn’t what ultimately tripped up Lefebvre. That aggression came out of New York.

University of Calgary Dean Ann Calvert and Lefebvre regularly talked on the phone about how best to use his generous donation to the Faculty of Arts at U of C. In the fall of 2006, she took one such call from him. He sounded worried, which was out of character, and it was the first time he had ever alluded to Neteller in a negative way. “He wasn’t specific,” she says. “‘It’s kind of weird in the States right now,’ was all he said, and ‘I might not be spending a lot of time down there.’”

Lefebvre told her he thought he might become a government target because of the business he used to run. Later, she was surprised to learn that Lefebvre was even going down to his house in Malibu.

And for a while he wasn’t. After the BetonSports bust on July 17, both Lawrence and Lefebvre became wary of U.S. travel. They began to think the DOJ might be adjusting its thinking and coming after the money transferers — that is, people like them. Then, a few months later, Lawrence decided to sneak back into the U.S. for a golf tournament. Gordon Herman talked to him on the phone while he was in the U.S., and he later told Lefebvre that Lawrence had been back. Lefebvre was surprised. And then Lawrence went again.

Lefebvre explains, “The second time, Steve asked me if he could use my plane to go down. He thought it would be better than to get his name registered on an airliner. I didn’t really understand his thinking because everybody knows who owns my plane. So he went down and I asked Gord if he’d heard from Steve. Gord told me Steve said, ‘Come on in, the water’s fine!’”

That’s when Lefebvre decided to start going down again, not long after he had expressed concerns to Calvert. One of those trips was to see producer Brian Ahern in California to talk about recording an album. “I was probably in and out three or four times,” he says. “Nothing.”

If the DOJ wanted to come after Neteller’s cofounders, logically it would want to pick them up at the same time. But nobody was thinking along those lines. In any case, that wouldn’t be easy. Lefebvre hardly ever saw Lawrence that autumn or any other time. By this point, they weren’t working together. “He was on the East Coast,” Lefebvre says. “I was on the West Coast.”