Online Gambling Shoots Down ECHO / Intuit Deal
28 March 2007
(March 27, 2007) Merchant processor Electronic Clearing House Inc. and accounting-software giant Intuit Inc. on Tuesday announced that their planned $142 million merger is off. ECHO chairman and chief executive Joel M. Barry laid much of the blame on a federal investigation into Internet gambling that will involve a $2.3 million settlement from ECHO…
In its own release and in a Securities and Exchange Commission filing, ECHO simultaneously announced the end of the merger and that it is a cooperating witness in a federal investigation into the activities of its so-called “Internet wallet” customers that provided services to Internet gambling sites. While admitting no wrongdoing, ECHO said it has entered into a non-prosecution agreement with the U.S. Attorney for the Southern District of New York in which it will pay the federal government—“disgorge” in the company’s terms—$2.3 million. That is the amount of ECHO’s estimated profits by providing U.S. processing and collection services through the Internet wallet business from 2001 until it ended all Web-gambling processing services this February.
Camarillo, Calif.-based ECHO also agreed not to provide automated clearing house processing services to any U.S. Internet gambling business as long as Web gambling is illegal in the U.S. The processor also said it will cooperate with investigators from the U.S. Attorney’s office, the Federal Bureau of Investigation, and other agencies for a year. U.S. authorities have long looked with suspicion on Internet gambling… “We felt like the time and the money spent to get into lengthy discussions and such with the government would have been much more harmful to the shareholders than getting this behind us at this time,” Barry said in explaining the settlement at an investor conference call Tuesday. At its peak, the Internet-wallet business provided less than 10% of ECHO’s revenues, according to Barry.
…in prepared remarks at the start of the investor call, Barry said, “The federal investigation was one of a few reasons that the Intuit transaction did not close….
ECHO said the $2.3 million payment along with other expenses related to the investigation, as well as the aborted merger, would have a negative impact on its near-term financial results…
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