The Rise and Fall of Neteller

[Dr. Jack]

The Rise and Fall of Neteller
The Neteller Timeline

In 1999 the Neteller group introduced an e-wallet that would quickly become the leading payment processor for almost all online gambling sites. The Neteller group had a very simple business plan which would be beneficial to both merchants and the online gambler by enabling online customers to load, withdraw and transfer funds instantly to any Neteller merchant or other Neteller members. Based on media reports and Neteller press releases we have placed a Neteller timeline of facts over the years as Neteller rose to the top but also quickly fell.

The first big online gambling sites to join forces with Neteller were two major European online merchants, Victor Chandler and BetonSports.co.uk. When David Carruthers introduced Neteller to the BetonSports customers it was a big hit instantly. At the time BetonSports took in about $33 million in bets and Neteller showed quickly they would have a grip on the handle. With BetonSports and Chandler who was always considered one of the more respected Bookmakers out of Europe, plugged the new Neteller it gave the new E-wallet an instant credibility and jump start.

Neteller quickly added more merchants and more members, and in April of 2004 became Neteller PLC and was listed as a public company traded on the London exchange (AIM).

In June of 2004 Neteller announced it had 868,000 signed-up members, an increase of 280,000 or 45 per cent since 1 January 2004 and an increase of 482,000 or 125 per cent since 30 June 2003. It was reported, since 1 January 2004, Neteller’s merchant base increased by 17.5 per cent to 1,469 while against the previous year the merchant base increased by 30 per cent. Results for the six month period ended 30 June 2004 will be announced on 2 September 2004."

Neteller founders John Lefebvre and Stephen Lawrence started buying shares of the Neteller stock through a company called Corvina which was owned 60.36 by Lawrence and 36.99 by Lefebvre. At 1.60 per share the Neteller founders quickly bought up Neteller stock according to a press release in July of 2004. "Corvina purchased 70,977,550 shares representing 59.24 per cent of the issued share capital of the Company. Corvina was owned 60.36 per cent by Stephen Lawrence and 36.99 per cent by John Lefebvre, both of whom were Directors of the Company. By virtue of their ownership in Corvina, Stephen Lawrence and John Lefebvre both owned 59.24 per cent of the issued share capital of the Company."

On September 6th, 2004 Neteller signed up its 1,000,000th member only four years after the Company’s inception. Neteller now had over 1,500 online merchants serving a million members in over 100 countries. Neteller was clearly headed towards the top of the world and considered the leading global money transfer service.

Neteller, PLC considered to grow and add more online sports books, casinos and poker rooms. Another big break came when Neteller UK Limited who is a subsidiary of Neteller, PLC, announced that it had received authorization from the Financial Services Authority (FSA) to operate as a regulated e-money issuer. This opened the way for Neteller to aggressively campaign in Europe, and gave Neteller a huge competitive edge over unregulated companies that already operated in the EU in the gambling market.

Early in 2005 Neteller made a big acquisition by acquiring Quick Access International Company Limited ("Quick Access"), which is a debit card payment processing company beneficially owned by CTM, a Macau telecom service provider that provides payment services to China. The maximum purchase price was 12.5 million USD.

In June of 2005 Neteller, PLC received another boost of credibility by announcing that Betfair who was the world's largest betting exchange and Expekt both became Neteller merchants. At the time, BetFair was attracting over 15,000 regular poker players per month.

A short while later Neteller PLC announced the acquisition of NetBanx for £12.36 million. Netbanx had relationships with all of the major UK acquiring banks, as well as MasterCard, Visa, American Express, Diners Club, Pago and Euroconex and currently was processing approximately £10 million of credit card payments each month.

In September of 2005, Neteller PLC signed up its 2,000,000 customer only a year after reaching one million.

On December 15th of 2005 Neteller announced some board changes effective January 1 of 2006. Ron Martin was appointed to the Board as a director and was appointed Chief Executive Officer. He succeeded CEO Gord Herman who became Executive Vice Chairman. The company also announced that John Lefebvre stepped down from the Board as a non-executive director.

In March of 2006 Neteller PLC expanded more in to Europe by launching German, French, Spanish and Italian versions of its service. At this time Neteller’s English-only website had built up a global user base of more than 2.6 million customers and 3,400 merchants across 160 countries. Around this time Neteller also announced the 1-Pay payments platform for the region.

Neteller continued to dominate the online gambling global e-wallet through much of 2006 until that ugly September when the United States Congress passed the Safe Port Act of 2006 which included provisions to prohibit the transfer of money from banks and online gambling companies. Neteller explained in a release that "there will be a period of up to 270 days beginning on the date of the enactment for a board including the US Federal Reserve and the US Attorney General to prescribe regulations requiring each designated payment system and all participants therein to identify and block or otherwise prevent or prohibit restricted transactions. The Company, in conjunction with its advisers, is considering the potential impact of the Act at this time. The Board believes that the Act may have a material adverse effect on NETELLER’s US facing business. Once the Company has more information about what the regulations will stipulate, it will have a clearer view of which companies are affected, how those companies will be expected to comply, and any possible resulting impact on the Company. In the meantime, the Company will continue to monitor the progress of this legislation and to energetically plan and adapt NETELLER’s business to minimize any potential adverse impact."

On October 13th, 2006 the UIGEA was signed in to law by President George Bush.

On October 16th 2006 Neteller PLC announced that Steve Lawrence resigned as a non-executive director of the Board.

Neteller PLC offered up another press release on the 19th of October which stated Neteller will comply with the Act and its related regulations as if it were subject to the Act’s jurisdiction even though Neteller is located and regulated outside the United States. Neteller stated the action was intended to ensure that the Company is able to continue to operate with the support of its principal commercial partners and to protect its shareholders, business partners, employees and reputation. Neteller stated it would accelerate its review of the Act and all other relevant laws and pertinent developments while continuing to closely monitor the regulatory situation and to determine what actions to take well before the conclusion of the 270-day rulemaking period. One important note and one of the biggest mistakes was to announce that US-resident customers are still able to use the Neteller service as normal. They always mentioned that the funds of US-resident customers were held in trust accounts and will be available for withdrawal, on demand. The ability to withdraw funds will exist regardless of the customer’s location or ability to transfer to any site, Neteller stated.

In an October 31st update to the Neteller board of directors, Neteller announced they have surpassed three million customers in August and closed the 3rd quarter with 3,188,650 customers. Neteller again would mention they were monitoring the US situation but that all funds were in trust, safe and available for withdrawal on demand.

Neteller continued to operate and continued to get stronger. United States account holders continued with Neteller and nothing seemed to be any different but on January 16th, 2007, this whole saga had a new twist when the United States DOJ arrested two of the founders of Neteller. A release from Neteller stated the following, "While travelling separately in the US, both Mr Lawrence and Mr Lefebvre, who were both former directors of the Company, were detained by US authorities on Monday, 15 January 2007. Other than as shareholders, neither Mr Lawrence nor Mr Lefebvre has any current position with or connection to NETELLER. The Group has not received any communication or correspondence from any US authority regarding this or any related matter. Pending clarification of the situation the Board has sought immediate temporary suspension of NETELLER's shares."

On January 18th, 2006 things went from bad to worse with regards to Neteller and the company decided to withdraw from the US market. Neteller had voluntarily ceased processing funds transfers between Neteller e-wallets and online gambling merchants on behalf of all US residents. Neteller withdrew but always maintained the following and included this line in all communication, "In line with the Group's standard business practices for all customers, the funds of US resident customers are held in segregated trust accounts and are fully secure and will be available for withdrawal by customers, on demand. The ability to withdraw funds will exist regardless of the customer's location or ability to transfer to any site. All US resident customers will continue to be able to use their Neteller e-wallet accounts to safely transfer funds to and from non-gambling merchants and are not required to close their accounts or withdraw their funds."

From January 16th to January 20th is when things really began to get scary and confusing when it came to funds that were being held by Neteller on behalf of US residents. Customers who had requested withdrawals began to realize this was not reaching their bank account although it was showing up in Neteller as a pending transaction which was usually a 1-2 business day timeline for them to process EFT's. Netellers customer service continued to advise US residents that money was safe and available for immediate withdrawal. The Neteller debit card did continue to work for a short while so some lucky US customers were able to withdraw about a max of $800 per day (most ATM's) and Neteller had a $1000 max daily limit on the debit card as well. But checks were not being received by customers and EFT's were now starting to get stuck in Neteller as "still pending". The message boards and chat rooms were filled with panic and confusion. Customers were asking if anyone had their EFT processed or received a check from Neteller. It was soon beginning to be clear that US members were not getting their funds and Neteller got quiet and remained very quiet until February of 2007.

On February 8th, 2007 Neteller shocked US residents by announcing in a press release that the funds had actually been frozen and seized by the United States DOJ. Neteller announced they had met with representatives of the United States Attorney’s Office for the Southern District of New York (“USAO”) on January 19th and pledged to cooperate with the USAO. They told us that immediately following January 16th banks in the US began declining to permit transactions involving one or more automated clearinghouses in the United States that Neteller used. Neteller was advised that the USAO had seized funds up to around 55 million USD. The funds were in process of being transferred from Neteller to its US customers or vice versa. As a result of the restrictions, court-ordered seizures, and related legal concerns, Neteller is currently unable to make payments to US customers. This was in fact the nightmare that people feared would never happen.

For about 6 weeks Neteller was very quiet and continued to stall US customers and provided no updates or information to US customers about getting their funds. There was outrage from sports bettors, affiliates and poker players all across the United States. The message boards were flooded. There was speculation everywhere and some gamblers started groups to plan what recourse they were able to take up with Neteller. Many people used Neteller as a form of payment from advertising and other forms of transactions that were not gambling winnings. You had members who feared losing hundred, thousands and millions of dollars.

Finally on March 21st, 2007 Neteller issued a release stating they had signed agreements with the USAO and among other things, outlined terms and a timeline under which NETELLER will work toward the orderly distribution of funds to its US customers. Neteller announced they would announce a plan within 75 days on how the funds will be distributed to US customers.

April 3rd Executive Director Dale Johnson retired from his position.

United States customers continued to wait for the 75 days to get closer so they would hear how they would receive their funds back from Neteller. The outrage, confusion and impatience continued across the message boards. We would not hear anything until June 8th, 2007 when Neteller announced a plan to allow US customers to get their funds and hoped to have it completed by July 13th. "The agreed distribution plan detailed the process and mechanisms for the return of funds to US customers. US customers will be able to access their NETELLER accounts online for a certain time and make a request for their funds. In accordance with NETELLER’s Terms of Use, no interest on account balances will be paid. NETELLER will not charge fees to customers to process requests for funds. Funds will be distributed either by electronic transfer to the bank account on record with NETELLER or by a cheque to be sent to a mailing address as confirmed by the customer. If a US customer has a bank account already registered with NETELLER, funds transfer will be by electronic transfer subject to confirmation by the customer that the registered bank account remains valid. US customers will receive the entire balance of funds in their account; no requests for partial payments will be processed. US customers cannot use their accounts for any transaction other than to request the funds."

The news surrounding Neteller was finally coming to a conclusion. In the beginning of July the online gambling industry learned that both the founders of Neteller, Lefebvre and Lawrence were accepting a plea bargain in which they would plead guilty to a charge of conspiracy in connection with their role in prior involvement in handling financial transactions between gambling customers in the United States and offshore internet gambling businesses. In relation to this charge, both founders also admitted to allegations requiring them to forfeit at least US$ 100 million. Some in the online gambling industry were dissapointed that the neither Lefebvre or Lawrence fought the charges until the end. One posted from a popular message board said, "those guys are a bunch of sellouts. They made millions of dollars and now they make a deal and screw the industry" Others were more sympathetic, "Until you are in those shoes facing prison you can't realize the cost of the fight". Both Lawrence and Lefebvre will be sentenced at a later date.

July 13th came and went and Neteller issued another release with more of the same talking how they continue to work on a resolution with the USDO and the guilty plea by the former directors of the company could have some impact on the speed of resolution.

On July 18th, 2007 Neteller announced they entered into a Deferred Prosecution Agreement (“DPA”) with the United States Attorney's Office for the Southern District of New York (“USAO”). "Pursuant to the DPA, the Company has consented to the filing of a criminal information relating to transactions between Internet gambling merchants and persons located in the United States. The USAO has agreed to defer the prosecution of any federal charges and, as a consequence, the Company will not be convicted of any federal crime, as long as the Company fulfils the set conditions of the DPA during the two year term of the agreement. At the conclusion of the two year term, the criminal information will be dismissed. The key terms of the DPA are set out in more detail later in this announcement. The United States District Court for the Southern District of New York has approved the deferral of the prosecution. As part of the DPA, the Company has also agreed to forfeit US$ 136 million to the United States. This amount includes the approximately US$ 60 million that the USAO has previously seized."

Neteller also stated they hope to allow withdrawal requests as soon as possible and US customers will be able to sign in to their Neteller account to request the withdrawal of their funds by no later than 30 July 2007.

So July 30th is the next date that United States customers sit, wait and hope for a resolution.

Neteller went from a startup company to the king of online gambling sites in just a few short years. Neteller was sitting on top of the world for several years until things came crashing down around them. Neteller has continued to act as if they will be able to move on and be successful in the future (at least publicly) but the reality is without the United States, Neteller has little chance of being successful or fully recovering. It was a quick rise to the top and a quicker fall.

Several quotes from Neteller press releases were used in the above timeline.

Dr. Jack
CappersMall.com
2007-07-23

[p1zza_man]

so sad, so very very sad

[jim1701]

Just like I lived it Dr. Jack..nice timeline.

[jaypasco]

Originally Posted by p1zza_man

so sad, so very very sad

you never even had money in there lol

[xxxFTWxxx]

Originally Posted by jaypasco

you never even had money in there lol

lol

[Chicago RED]

This was a good read.

[p1zza_man]

Originally Posted by jaypasco

you never even had money in there lol

yes i did .. i used to use it all the time to switch money back and forth to poker sites ... and who the fawk are you to tell me what i had?

[CecilBrown]

Originally Posted by jaypasco

you never even had money in there lol

you never had... money.

[The Judge]

Neteller Shares Resume Trading on AIM
25 July 2007

Shares of the online payment processor Neteller Plc. were today returned to trading on the Alternative Investment Market (AIM) following resolution of the company’s legal situation in the United States and the publication of their 2006 annual audited accounts.

Neteller’s shares had been suspended from trading since 16th January following the arrest of the company’s two founders and former directors, John Lefebvre and Stephen Lawrence. Neteller’s shares were due to have been de-listed from AIM following their suspension which lasted for six months, the maximum length of time that shares may remain suspended under AIM rules.

Following the restoration of Neteller’s shares, Daniel Stewart & Co. Plc has been appointed as the company’s nominated adviser and broker.

Ron Martin, President and CEO said: “The restoration of trading in the Company’s shares marks the first step in a new chapter for the Neteller Group following our resolution with the US authorities announced last week.”

“With our vision to provide innovative payment solutions for e-commerce communities, our initial focus will be to dominate payments in our chosen online gaming markets.”

“Online payments in many market sectors are growing rapidly and we believe that the e-wallet will continue to grow in popularity. While there is much work to do and many challenges lie ahead, we believe that the Company is well positioned to benefit from these trends.”

The company also confirmed that it continues to progress its plans to implement the Distribution Plan for the return of approximately $94 million of US customers’ funds by 30 July 2007.

[BigdaddyQH]

And the beat goes on. Another chapter in the rise and fall of on line gaming, or "off shore" wagering, take your choice. Hopefully this will all come to a conclusion acceptable to everyone soon, but with this particular congress, who knows. Talk about your "do nothing" congresses. They must know the eventual outcome of all of this. I just do not see the reason for the delay.

[CecilBrown]

I am beginning to suspect that the Neteller saga had very little to do with "online gaming" in general. From comments I have read I get that the U.S. Gov't felt that Neteller was flaunting the fact that they were operating outside the law and the DOJ used the excuse that it was a terrorist tool to chop them down. The fact remains that had the 2 idiots never set foot on U.S. territorial soil none of this would have been possible! Also important to note is the fact that in a recent interview the Neteller's VP admitted that the U.S. authorities were EAGER to have ALL the U.S. customers funds returned as quickly as possible!!! Guess the DOJ had our back afterall...

[Dr. Jack]

Originally Posted by CecilBrown

I am beginning to suspect that the Neteller saga had very little to do with "online gaming" in general. From comments I have read I get that the U.S. Gov't felt that Neteller was flaunting the fact that they were operating outside the law and the DOJ used the excuse that it was a terrorist tool to chop them down. The fact remains that had the 2 idiots never set foot on U.S. territorial soil none of this would have been possible! Also important to note is the fact that in a recent interview the Neteller's VP admitted that the U.S. authorities were EAGER to have ALL the U.S. customers funds returned as quickly as possible!!! Guess the DOJ had our back afterall...

Flaunting what some have flaunted definitely had something to do with all of this. Hopefully Monday we'll start to get some good news and our funds