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Online gambling industry in trouble

The warning signs for the online casinos industry were there. Laws against online casinos were already in place and loopholes were being closed; Wall Street lawyers were advising clients not to get involved with online casinos; and listing prospectuses spelt out the risks in the online casinos industry. So if you didn't know that online casinos in the US were at best a grey area and at worst outright illegal, you didn't really have much excuse.
But still, the arrest of a chief executive at one of the top online casinos sent shock waves through the online casinos industry. "We're not saying anything officially, for the obvious reasons," says a source close to one of the rival online casinos. "But it has not been a great week."
En route from London to Costa Rica, David Carruthers was sitting in a transit lounge in Dallas Fort Worth airport when the FBI arrested him last Sunday on charges of racketeering conspiracy. After spending the week in custody, he was transferred to Missouri, where the case will be heard. An application for bail is expected to be made later this week. An arrest warrant still remains for founder Gary Kaplan.
There have already been dire consequences for the online casinos company. When the news broke, its market value slumped by 20 per cent. On Tuesday, at the firm’s request, the shares were suspended. And on Thursday it announced it had complied with a US restraining order and closed around 85 per cent of its online casinos, leaving only its Asian websites.
The only glimmer of hope came from reports that a deal had been struck with the US Department of Justice (DoJ), but the rumors were firmly rebutted by the online casinos company.
"It's going to be immensely difficult for (the firm) to recover from this," says one online casinos analyst at a leading investment bank, who asked not to be named. "People are going to continue gambling, and so in the medium term they are going to use other sites. Whether they will reopen accounts with (that firm) when all this is over, I don't know."
But the shock has been felt not only by that one firm, which is listed on the London market but based in Costa Rica, with subsidiaries and staff in the US.
Shares across the online casinos and gambling sector have dived and companies are becoming twitchy. A big industry conference, due to be held in America, has been postponed and will now be held outside the US. No one wants to speak openly for fear of fanning the flames in the already controversial online casinos industry.
"Is this just about (the firm) or are we all going to be tarred by the same brush?" asks the gaming industry insider. "What are the ramifications?"
Other online operators have tried to distance themselves from the crisis. But many others do take these bets. The US is a huge market for gaming and gambling.




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