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New York AG Takes Aim at PayPal

The New York State attorney general has subpoenaed online payments outfit PayPal, seeking information related to gambling payments that are funneled through the service by some of its users.

The timing of the move is somewhat ironic, given that auction giant eBay said this week that it plans to shed the gaming side of PayPal's customer list once it completes its $1.5 billion acquisition of the Mountain View, Calif.-based company.

But a spokesman for PayPal confirmed in published reports that the company did indeed receive a subpoena from the office of Eliot Spitzer, the New York attorney general, which has been conducting a wide-ranging look-see into online gambling.

In fact, the AG's office has an Internet Bureau that it calls the first of its kind in the United States.

And Spitzer has had some success in pressuring companies to stay away from online gambling transactions -- in June his office pressured Citibank into blocking its credit card holders from making online gambling transactions. As part of its settlement, Citibank paid $100,000 to the state of New York and donated money to groups that fight compulsive gambling.

"With this agreement, we will cut off an enormous line of credit that was a jackpot for illegal offshore casinos," he said at the time.

San Jose, Calif.-based eBay made it clear earlier this week that it wants nothing to do with PayPal's gaming side, saying that: "In view of the uncertain regulatory environment surrounding online gaming, eBay plans to phase out PayPal's gaming business after the transaction closes."

Vince Sollitto, a PayPal spokesman, was quoted by the Wall Street Journal, which broke the story, as confirming receipt of the subpoena and saying that the company "...will, of course, fully cooperate."

Sollitto earlier had told internetnews.com that about 8 percent of PayPal's first quarter business was related to gaming -- that would amount to about $117 million in transactions. That's a small part of the $1.46 billion in payments it handled last quarter, 60 percent of which came from eBay users.

The company gets a piece of each transaction and reported first-quarter revenue of $48.8 million, up from $14 million in the year-earlier period.

Meanwhile, as if eBay and PayPal didn't have enough to worry about, several shareholder lawsuits seeking class action status have been filed in Delaware to block the acquisition. The suits claim that PayPal executives violated their fiduciary duties.

The suits also claim that the per-share price is inadequate, even though eBay is paying a premium of about 18 percent a share for the stock. The deal valued PayPal stock at about $23.61; it had traded as high as $30-plus since going public at $13 a share.

eBay and PayPal both said they would contest the suits, adding that such actions are common followingthe announcement of a big takeover.