Party Stock Rises on U.S. Settlement Rumor

May 31 2008, Amy Calistri

On Friday, shares of PartyGaming Plc., owner/operators of PartyPoker, rose ten percent on speculations that the online company had reached a settlement with the Department of Justice (DOJ). Although no charges have ever been filed against the company, PartyGaming acknowledged in June 2007 that they were in talks with the U.S. government. PartyGaming's goal in the negotiations has been to reach an agreement that would preclude the U.S. from pursuing them for accepting online bets from Americans prior to the company's exit from the U.S. in late 2006.

The potential settlement would represent the first penalties levied against an online casino site (one that began with online poker) by the U.S. government. To date, all DOJ penalties and charges have involved online sports betting enterprises, whose illegality is specifically spelled out in the 1961 Federal Wire Act. Although the DOJ continues to claim that all online gambling is illegal under the act, the Fifth Circuit Court of Appeals ruled in 2001 that the Federal Wire Act only applied to sports betting. The Supreme Court has never ruled on whether the act pertains to other forms of online gambling. And if the Party settlement rumor is true, it suggests that any legal test of the Wire Act may happen later, rather than sooner.

Shares of 888 Holdings, home of Pacific Poker, rose 3.5%; 888 Holdings has also reported to be in talks with the DOJ. Investment analysts feel that by eliminating the threat of future DOJ action, both sites would be more likely to become attractive takeover or merger candidates.

When asked by Bloomberg about the settlement speculation, PartyGaming spokesman John Shepherd declined to comment.

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