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

Posted by: Spencer Ante on December 16, 2008

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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Reader Comments

Sally in Chicago

December 17, 2008 06:08 AM

I'm not a gambler, don't believe in it, but this was a raw deal. Just because people want to gamble online shouldn't cause different treatment than somebody who actually physically goes to the casino. You know the land casinos had a say in this anti-online gambling move. Nobody can make money with these powerful lobbyists stopping you.

Steve

December 17, 2008 07:15 AM

Sally, you are missing the point. It is all about taxes. The transfer of funding to off-shore based casinos that do not properly report taxes in the US does not help the US economy.

Mike

December 17, 2008 08:36 AM

"...The transfer of funding to off-shore based casinos that do not properly report taxes in the US does not help the US economy."""
To Steve: And allowing automakers that account for tens of thousands of jobs to fail benefits the US economy? Yes, it is a completely unrelated issue, but what Sally says is right, and it does not miss the point. This issue has nothing to do with taxes, and everything to do with powerful business groups protecting their interests. For your reference, why don't you look at the UK case? They had exactly the same dispute between physical and online casinos, but they took the opposite route...

Matt

December 17, 2008 08:52 AM

The U.S. government should do exactly what Steve is talking about - tax and regulate these industries. Poker players around the country have welcomed and specifically asked for the U.S. government to do so instead of pass laws like the UIGEA. People shouldn't be punished because they don't live next to a casino. Even more interesting is how the UIGEA law was passed by riding the coattails of another law in a late night move by the Bush administration.

Jason

December 17, 2008 08:55 AM

Unfortunately the issue is only partly about tax. The UIGEA was completely agenda driven by Bill Frist and a majority of the southern republicans. They had it attached to a SAFE Port Act in department meetings after it had been voted on. There have been many attempts in the last eight years to have online gaming regulated within the US, but all were turned away. Currently, Barney Frank is working to have such a bill passed. It potentially could generate upwards of $5 billion a year in tax revenue. Please contact your local congresspersons, and urge them to vote for this when the time comes.

Johnny

December 17, 2008 09:37 AM

Exactly, Steve, which shows how ignorant our gov't is. Make this stuff legal, make them host the sites in the US which would create jobs, and then tax these companies. Instead we ban it. Why not Uncle Sam getting his big piece of that $602 million dollar profit? Because we are controlling idiots.

Dave

December 17, 2008 11:37 AM

Why exactly should the casinos pay taxes in the US? How is this any different from when I purchase any other good or service from a foreign country? The taxation comes in the form of a duty that the consumer is responsible for paying. Pretty sad that the government would rather destroy this cash machine than using it to stimulate job growth and long term tax revenue. I guess the govt needs cash now to pay for all the bailouts of the industries that aren't making any money. What kind of bizarro capitalism is going on in the US?

Day

December 17, 2008 11:46 AM

So wait though. His name is Dikshit? It's really Dikshit? Dikshit, Anurag???? Prison is not a friendly place for this guy.

chris

December 17, 2008 02:05 PM

What is this guys name? Dikshit or Diskhit.
I mean... come on. Does anybody edit this stuff?

Tom Cooper

December 18, 2008 12:25 AM

His real name is Dikshit. Chris you should try Googling before accusing editors of doing their job.

jack roberts

December 22, 2008 03:43 PM

It is when you're in a minimum security blue collar prison. We're not talking maximum security Penitintuary here.

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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