by Frank Angst

As part of an investigation involving Youbet.com’s offshore rebate shop International Racing Group, federal authorities have seized $1.5-million held in IRG bank accounts.

Youbet.com has released details of an investigation the company claims centers on IRG customers and a former owner of the Curacao-based account deposit wagering provider. The company said federal authorities in Nevada used civil asset forfeiture in claiming the $1.5-million.

Youbet.com has scheduled a Thursday conference call with investors to address the investigation.

In an October 4 filing with the Securities and Exchange Commission, Youbet.com reported that officials from the United States Immigration and Customs Enforcement reviewed the wagering activities of several IRG customers. Federal agents acted on a search warrant issued by the United States District Court for the Central District of California and the United States Attorney’s Office in Las Vegas is conducting the investigation.

In a follow-up release, Youbet.com said authorities are investigating a potentially wide net of activities of a small number of individuals who may have used telephone rebate wagering services, including those offered by IRG, in an illegal manner. Youbet.com, which on September 13 replaced IRG General Manager Lou Tavano with Michael Knapp, said it is not aware of any illegal activity in any of its organizations.

The other North American licensed offshore rebate shop is Racing and Gaming Services. A phone call to RGS Chief Executive Officer Kirk Brooks to find out about any investigation of players there was not returned.

Youbet.com is exploring all avenues to recover the seized funds, including working with the government to resolve legal and factual questions. The company said the seizure will not impair its ability to pay all amounts due to bettors, tracks, and others, keeping it in compliance with the Oregon Racing Commission.

While investigators refuse to discuss an ongoing case, recent investigations of rebate shop players have centered on tax evasion, bookmaking, and money laundering or a combination of those issues.

In January 2005, IRG was one of the rebate shops listed in an indictment of 17 people involved in a gambling ring. One of the group’s leaders, Gerald Uvari, eventually pleaded guilty to operating an illegal gambling business. Officials said Uvari and others booked wagers and then forwarded the action to outlets like IRG, where they benefited from the rebates afforded to high-volume players. IRG was not owned by Youbet.com at that time.

At a 2006 Racing Commissioners International meeting, RGS official Dick Powell assured regulators that the St. Kitts ADW goes to great lengths to verify bettors’ identities. Many regulators believe some of the “whales” who bet through the rebate shops are betting for a group of people, essentially making them bookmakers and allowing players to avoid tax penalties.

Money laundering issues have been investigated this year in Europe. On July 12, RCI President Ed Martin sent an e-mail to North American regulators reminding them of the potential for terrorists to use pari-mutuel pools to launder money. The e-mail followed a Washington Post story of three British residents who used stolen credit cards to launder money through Internet gambling sites, including Betfair, which handles horse racing wagers. Betfair asserted that attempts were made to launder money through its site but failed and Betfair assisted authorities in the investigation.

As of Tuesday morning, Youbet.com had not announced an agreement to offer wagering on this year’s Breeders’ Cup World Championship races through IRG or its Youbet.com platform. The status of those negotiations is not listed as a topic for Thursday’s conference call.

On the investigation date of October 4, Youbet.com stock closed at $2.14 a share. On Tuesday, it opened at just $1.41.

Frank Angst is a Thoroughbred Times senior writer