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
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 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.

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