Youbet 'Resolves' Part in IRG Inquiry
Youbet.com said March 18 it had resolved its part in a federal investigation into its former International Racing Group subsidiary and will not be charged in return for continued cooperation with officials.
The company also reported it would be late in filing its annual report and fourth-quarter results with the U.S. Securities and Exchange Commission, in part because of complications with a lender resulting from fallout with the IRG situation.
An SEC filing and subsequent news release said Youbet.com had reached an agreement with the U.S. Attorney’s Office in Las Vegas over its part of the investigation into certain aspects of IRG, which was an offshore telephone wagering entity based in the Netherlands Antilles island of Curacao.
As part of the investigation believed to involve certain IRG customers and employees, Youbet.com last October reported federal officials had seized $1.5 million in three IRG Nevada bank accounts and had conducted a search of the company's California headquarters. Youbet.com reported March 18 it would no longer contest the $1.5-million seizure and intended to “reimburse customer funds where it is legal and appropriate to do so.”
"We are pleased to come to an agreement with the U.S. Attorney's Office, and we continue to pledge our cooperation in this very serious matter," interim chief executive officer Gary W. Sproule said in the release.
Youbet.com said it also expects to incur ongoing costs associated with the investigation, but the "precise amount or timing cannot be predicted at this time.”
A spokeswoman with the U.S. Attorney’s Office in Las Vegas said she could not comment on any investigation the agency might be conducting, nor if a grand jury had been convened in connection with an investigation.
“We can neither confirm nor deny that an investigation is under way,” public information officer Natalie Collins said.
In previous filings with the SEC, Youbet.com said the U.S. Attorney's Office in Las Vegas is investigating whether certain customers of IRG violated federal or Nevada gambling laws and whether employees of IRG were aware of the allegedly illegal wagering activity.
Separately, Youbet.com filed a late notice with the SEC stating it would miss deadlines for filing its 2007 annual report. The company said it was negotiating with its primary lender, Wells Fargo Foothill, over an amendment or waiver to its credit agreement.
“Until the amendment is in place or we otherwise determine that we are unable to obtain such amendment or, at a minimum, a waiver, we will not be able to finalize the presentation of our consolidated balance sheet as of December 31, 2007,” the filing said.
Without an amendment or waiver, Youbet.com said it would be in default of certain financial covenants in the agreement with Wells Fargo Foothill. On Feb. 13, Youbet.com said its credit line with Wells Fargo Foothill had been reduced from $4 million to $1 million, and that the lender agreed to fund up to $500,000 in legal fees associated with the investigation.
A spokesman with ICR, an investors' relations firm working with Youbet.com, said the deadline for filing the annual report was March 17, and the company had received an automatic extension of 15 calendar days. William Schmitt said Youbet.com wanted to get both its involvement in the federal investigation completed and issues with its credit agreement resolved before filing the annual report.
“We would like to have it all wrapped up so that we will be able to speak about it on the conference call,” Schmitt said.
Youbet.com closed IRG Feb. 15, and at the time said it would record a $9.9-million impairment charge to its books related to its former business operation. Included in the figure was a $3.2-million “earn-out payment” due Aug. 31 that is related to the 2005 purchase of IRG.
In late March 18 trading, Youbet.com's share price was up nearly 4% to 83 cents. At the time the IRG investigation was announced last October, the stock price was about $2.
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