|Ambitious attorneys general love to grandstand.|
<<New York Subpoenas PayPal
For Details on Web Gambling
By NICK WINGFIELD
Staff Reporter of THE WALL STREET JOURNAL
Internet payment provider PayPal Inc. said it received a subpoena from the New York state attorney general's office related to its activities in the Internet gambling market, the latest development in a broad investigation of online gambling activities.
Vince Sollitto, a PayPal spokesman, confirmed that earlier this week the Mountain View, Calif., company received a subpoena from the office of Eliot Spitzer, the New York attorney general, asking the company for information about online gambling payments that occur through the company's network. "We will, of course, fully cooperate," Mr. Sollitto said.
It is unclear how serious any legal action could be on PayPal. EBay Inc. on Monday said it would cease the business PayPal does with Internet gambling firms when eBay completes its proposed $1.5 billion acquisition of PayPal later this year.
EBay said it decided to close the gambling business, which accounts for 8% of payments on the PayPal network, because of uncertainty surrounding regulation of that market.
Christine Pritchard, a spokeswoman for the New York attorney general's office, declined to comment about PayPal or confirm that a subpoena had been sent to the company. The New York attorney general's office has been conducting an investigation into companies in the Internet gambling market.
Mr. Spitzer, who has recently led high-profile investigations of Wall Street analysts, has also actively sought to crack down on Internet gambling, a market that is expected to generate upward of $4 billion in revenue this year.
In June, following an inquiry into Citibank's business practices, Mr. Spitzer announced that Citigroup Inc.'s Citibank unit, the nation's largest credit-card issuer, agreed to block attempts to use its credit cards to pay for online gambling transactions. Citibank paid $100,000 to the state of New York and donated money to groups that fight compulsive gambling as part of the settlement.
Gambling and betting outside of authorized locations such as horse tracks and lotteries is illegal in New York and most other states, but Internet casinos often operate in offshore venues beyond the reach of U.S. authorities.
As a result, opponents of Internet gambling such as Mr. Spitzer have pressed financial firms that facilitate online bets to stop the practice. Credit-card issuers such as Bank of America, Fleet, MBNA and Chase Manhattan Bank currently block such transactions.
Until now, PayPal has found a thriving business in Internet gambling. While 60% of the $1.46 billion in payments it handled last quarter were related to eBay transactions, about 8%, or $117 million, stemmed from Internet gambling. Ebay executives had forecast that the gambling business would have accounted for between 10% and 15% of PayPal's business next year.
Some analysts and investors believe PayPal, as an independent company, would have had a difficult time walking away from the gambling business, though eBay, being larger, can absorb the impact. The gambling business is especially profitable for PayPal because it charges "high risk" merchants such as Internet casinos a higher transaction fee than other customers.
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