New York subpoenas PayPal for online gambling activity

The Associated Press
Saturday July 13, 2002

Company is collecting fees for sending bets through its e-mail service 


MOUNTAIN VIEW — Online payment provider PayPal Inc. said the New York state attorney general’s office has issued a subpoena seeking information about the company’s involvement in Internet gambling. 

Mountain View-based PayPal received the subpoena earlier this week and plans to “cooperate fully” with the request, company spokesman Vince Sollito said Friday. 

A spokeswoman for the office of New York state Attorney General Eliot Spitzer declined to comment on the request. 

Spitzer, who has attracted headlines recently for cracking down on alleged conflicts of interest at investment banks, has been scrutinizing an online gambling market industry expected to hit $4 billion in revenue this year. 

PayPal has been getting a piece of the action by collecting fees for sending bets through its e-mail service. Online gambling accounted for about 8 percent, or $117 million, of the $1.46 billion processed through PayPal during the first three months of this year. 

The rapidly growing payment service will stop handling online gambling transactions later this year if San Jose-based eBay’s proposed acquisition of PayPal is completed. Citing legal concerns, eBay disclosed the plan to withdraw from the online gambling business Monday when it announced its proposed $1.5 billion acquisition of PayPal. 

Gambling outside authorized sites, such as horse racing tracks, is illegal in New York and many other states. Online casinos have skirted U.S. authorities by establishing headquarters in offshore locations. 

Critics of online gambling, including Spitzer, have been trying to curb the industry’s growth by pressuring credit card issuers and other payment services to stop dealing with Internet casinos. 

PayPal’s shares rose 3 cents to close at $23.08 Friday on the Nasdaq Stock Market.