NETeller quits U.S. after illegal gambling arrests

LONDON (Reuters) - British money transfer firm NETeller Plc <NLR.L> closed its U.S. Internet gambling services on Thursday, wiping out over 65 percent of its business, after two of the group's founders were arrested there this week.

NETeller is the latest victim in a U.S. crackdown on online gaming, which began with the arrest of BETonSPORTS <BSS.L> chief executive David Carruthers in Texas last July.

NETeller's two founders, Canadians Stephen Lawrence, 46, and John Lefebvre, 55, have been charged with handling billions of dollars in illegal gambling proceeds.

Both face a maximum sentence of 20 years in prison.

"The operations linked to U.S. gambling account for about 65 to 70 percent of sales," said a source close to the company.

NETeller said that after the United States effectively banned online gaming in November, it had experienced slowing fourth quarter growth.

Online gaming giants such as PartyGaming <PRTY.L> and Sportingbet <SBT.L> pulled out immediately, but privately-owned rivals like Pokerstars, Full Tilt Poker and Bodog carried on taking wagers illegally, often using NETeller to process their payments.

NETeller has always said it was waiting to see the detail of the regulations before making a decision. It had its shares suspended on Tuesday after the two founders were arrested on Monday -- Lawrence in the U.S. Virgin Islands and Lefebvre in Malibu, California.

"Today's withdrawal from the U.S. market by NETeller is the culmination of months of careful planning," NETeller said in its statement on Thursday.

NEW FOCUS

Online gaming companies have been doing business for many years in the United States, where the law was discouraging but ambiguous until a ban in November. They were usually listed in London and located in offshore jurisdictions like Antigua and Costa Rica.

Money transfer companies like NETeller, based in the Isle of Man and traded publicly in Britain, allow gambling companies to transfer money collected from U.S. gamblers to bank accounts outside the United States.

U.S. prosecutors said NETeller processed more than $7.3 billion in transactions in 2005 and more than 95 percent of its revenue from transfers involved Internet gambling.

Most online gaming executives and founders have avoided traveling to the United States since the arrest of David Carruthers and since Sportingbet's chairman Peter Dicks was arrested in New York in September.

NETeller's Lawrence and Lefebvre, who founded the company in 1999, did not heed the warnings of other executives.

Lawrence resigned as a non-executive director in October 2006 after stepping down as non-executive chairman in May. Lefebvre resigned as a non-executive director in December 2005.

Lawrence holds a 5.91 percent stake of NETeller through his investment vehicle Corvina, while Lefebvre holds 5.54 percent of the company through Eagle Medallion Fortress.

NETeller said on Thursday: "These decisions will allow the group to focus on opportunities available in the growing markets of Europe, Asia and the Americas outside of the United States."