Author’s note: This piece is a combination of known facts and conjecture based on the best available public information. Anyone with concrete facts related to these matters is welcome to submit those facts to me, with documentation, so any errors contained herein can be corrected.
One thing about legal maneuvers is that they always leave a paper trail… somewhere. Such was the case when the assets of the original Excapsa, the holding company for online site UltimateBet, were scheduled for liquidation as part of the plan for moving forward after the late 2006 passage of the United States’ Unlawful Internet Gambling Enforcement Act (UIGEA). While the question of whether Internet poker is or is not legal remains legally untested in the US, the people behind Excapsa decided that a restructuring and sale of the firm was in order, to better shield it from the potential threat of US prosecution or seizure. The signing of the UIGEA also meant that Excapsa had to abandon a public stock offering made just months earlier on the London Stock Exchange’s Alternative Investment Market (AIM). Excapsa itself would soon go away, at least in name.
The plan the owners came up with seems to have been two-pronged. Prong one was to sell the various portions of the business – already split into several international firms and holding companies – into a brand new holding company, picking up new investment and a new management structure that would further shield UB from the ominous threat of the US. The second prong involved getting rid of the “Excapsa” name entirely and drawing down some of the excess capital held by the firm, to be returned as a capital gains dividend to shareholders. For this purpose a Canadian legal firm, Mintz and Partners, was subsequently retained.
Moving operational control of UB farther from US reach was, of course, vital to UB’s interests moving forward. What was needed was a “white knight” to create plausible distance. This white knight, the new investment group, was named Blast-Off Limited, and was officially owned and operated by Tokwiro Enterprises, the firm created by Joseph Tokwiro Norton. More on Norton and the Kahnawake Gaming Commission in a future post, but for this tale Norton’s interest in Blast-Off is the topic. Norton has been represented in Blast-Off Ltd. press releases as the sole owner of the firm, though numbers associated with the public sale of Excapsa’s “sale” to Blast-Off suggest that the “sole ownership” claim made by Norton is highly debatable. Instead it seems likely that Tokwiro purchased a minority share in the entity responsible for distributing dividends, along with operational control, with the original Excapsa owners set up with some form of irrevocable “consultant” status tied in percentage terms to the previous Excapsa shareholdings. After all, it matters not who owns something on paper; instead, it matters wholly who gets paid what.
The sale, announced on October 14, 2006, stated that the total purchase price was $130 million, with only $10 million of that paid at the time of purchase, and the rest of the purchase price to be made in deferred payment installments. In fact, that press release was partially a lie: court documents later showed that the initial cash payment made by Tokwiro’s Blast-Off firm was for only $5 million, not $10 million, with the figure perhaps doubled to at least make it sound a little bit less than the panic move most onlookers thought it was. The real remainder of the purchase, $125 million, was subject to be paid mostly through monthly installments of $1 million, to be accelerated to $2 million monthly one year later, and to be paid off in its entirety by December 31, 2012. The sale itself was decried by British stock market onlookers as being illegal, in part because of the deferred payments.
Illegal or not, the sale went into effect, and as part of the sale itself, Excapsa “went away”. Even though the folks behind Excapsa were still in line to be paid, Excapsa’s name was changed to the far more anonymous “6356095 Canada, Ltd.” Phone number? Canadian government-assigned, sequential incorporation number? Who knows?
As the dust settled following the passage of the UIGEA, operations continued to move forward at UB and sister firm Absolute Poker. The two firms had grown ever closer through the years, and one of three major merger rumors floating when the UIGEA became law was that UB would be purchased by Absolute. This rumor can now be seen as being partly true. According to letters later made public, the management team from Absolute was brought in to oversee operations at UB following the official sale, and two years later the firms were joined together into the CEREUS Network.
Meanwhile, there was the matter of cashing out that $47 million in liquid assets. Mintz and Partners was brought on in early 2007, and one of the liquidator’s first moves was to shift $40 million of relatively fluid investments from funds in Canadian and US dollars over to British pounds. As this occurred roughly in the timeframe of the massive US seizure of roughly $150 million from online payment processor NETeller, it seems plausible that these transfers were done to move the assets away from any possible US seizure. $27 million was soon distributed to 6356095 Canada (formerly Excapsa) shareholders in the first part of 2007, but trouble was brewing; there would be no dividends in 2008.
The trouble, of course, was the explosion of the online cheating scandals, first at Absolute Poker and then UltimateBet. Absolute Poker’s scandal will be another “future posts” topic, though it’s worth noting that the earlier insider cheating occurred at UltimateBet, even though Absolute’s scandal broke first.
While allegations of insider cheating had dogged both rooms for some time, it was in September of 2007 that the first insurmountable evidence in the Absolute scandal emerged, that being the notorious “Potripper” tournament spreadsheet, plus statistical analyses of high-end cash-game play that showed impossible profits.
Over at UltimateBet, the accusations began to heat up in November, 2007, but it wasn’t until January of 2008 that a similar impossible-results analysis showed that the UB account “NioNio” was almost certainly involved in insider cheating. And after a delay of a couple weeks, UltimateBet finally issued a release in February, 2008, admitting that the site had been affected – perhaps infected – by inside cheaters.
But here’s where it gets snaky: Blast-Off Limited suspended its monthly payments to 6356095 Canada, but not in February 2008, when the UB scandal was officially acknowledged. Instead, Blast-Off stopped its payments in September, 2007, when only the AP scandal was officially on the radar.
The AP scandal rocked the poker world, and blame was eventually assigned to a single anonymous “consultant,” whose identity has long since been widely distributed and who was likely only a “consultant” for legal and tax purposes, much as the consultant example conjectured above. But if the AP management was also responsible for UB day-to-day control during 2007, then why would Blast-Off have stopped making payments in September of 2007? One would think a firm exposed as having at least one rotten egg would be more than eager to keep its proverbial ducks in a row, but instead the opposite seems to have been true… with the likeliest reason being that the cheating at UB had also been uncovered at the same time, though it wasn’t publicly acknowledged until the poker world slapped irrefutable evidence at the company’s virtual feet over the next several months.
This is one of the reasons why it remains difficult to have any confidence in things stated by or on behalf of UltimateBet. The poker world has been told “new owners, new management,” though this and other obfuscations have been done under the aegis of at least some of that new management.
Meanwhile, negotiations were on. Blast-Off, which officially held Joe Norton’s newly acquired interest in UB, was exposed to fraud claims and refunds which might eventually reach tens of millions of dollars, and it had evidence that the fraud was enabled through software code long buried in the software it had purchased. Failing to issue refunds would result in the company going under and leave Blast-Off with nothing to show for its investments. Therefore, along with the original Excapsa ownership bloc, the two sides needed to hammer out a way to keep the company operational and restructure payments due to the “damaged” nature of the company, all while trying to manage the ongoing liquidation of the original Excapsa holding company. Blast-Off filed against Excapsa/6356095 Canada to protect its newly acquired interest, though court documents regarding the later dumping of liquidator Mintz and Partners show that the two sides also tried to work out a loan deal, wherein Excapsa reinvested some of their liquid assets back into Blast-Off to help get the company through the rough patch that 2008 promised to be.
But as far as I can tell from the available documents, while both the Blast-Off and Excapsa sides were fine with the proposed loan deal, it was the liquidation attorneys, Mintz and Partners, who refused to go along with it. Therefore, to reinvest some of the liquid assets back into the firm and prepare for the pending wave of refunds, the UB folks had to dump the liquidator. Mintz and Partners had also been acquired by North American accounting giant Deloitte and Touche by this time, which may have been an additional complication.
Replacing the liquidator required a majority vote of all original Excapsa shareholders, along with Canadian court approval, and it was in the paperwork and appendices for this removal, filed by then-CEO James Ryan (also an inspector in the liquidation process), that the rough details of these other agreements became part of the public record. Ryan himself was soon discharged as an inspector because of his move to PartyGaming, but in July of 2008, a majority bloc of 56.4% of the original Excapsa stock submitted signed forms voting for the removal of Mintz and Partners. That firm was replaced the following month with another, XMT Liquidations, Inc., which oversees the official liquidation of “6356095 Canada” (formerly Excapsa) to this day.
In the process, that 56.4% ownership share in Excapsa became publicly known, even if not all of the people behind the blind trusts and foreign registrations can be confirmed. In addition, other documents from the change in liquidators identified additional shareholders, if not necessarily the amount of shares held by those entities.
Next “Just Conjecturing’”: Inside the Excapsa Ownership Bloc
1 comment:
Very good work, Thanks, Skip
Post a Comment