A deputy district attorney for Los Angeles county last Friday led a raid on the headquarters of Youbet.com by the district attorney's High Technology Analysis and Litigation team, the Los Angeles police department's vice squad, agents of the LAPD financial crimes unit, and the Orange county sheriff's office.
The raid was conducted on the strength of a search warrant issued by a state court judge who determined "there was probable cause that evidence of criminal activity would be found", according to
Loren Michael Naiman, the deputy D.A., but Youbet.com's chairman and chief executive Robert Fell said that the company "is and always has been in compliance with the applicable state, federal and international laws."
Fell said Youbet.com was cooperating with law enforcement officials and had provided records to them.
Naiman, speaking for the district attorney's office, said the issue was "whether attempts by companies like Youbet to skirt the law do successfully get around state and federal legislation against gambling", to which Fell responded that that interstate wagering on pari-mutuel horse racing has been legal for more than 20 years and the investigation would show "that we are operating very much within the law."
While the raid itself might have been a surprise, the opposition of local authorities was not. In a recent registration filed with the SEC, Fell had warned investors that regulators might challenge the legality of its
business, noting "It is possible that Youbet.com may be alleged to be in violation of an applicable statute based on interpretation of the statute that differs from Youbet.com's."
Naiman, in an interview with Bloomberg News' CNET Investor, said the issue of telephone and online wagering "is a cutting-edge area of the law."
Youbet.com had 12,000 subscribers to its PC service as of Sept. 30. Its stock, which had reached a high of 23 1/4 on May 21, fell 1 13/32 to 5 3/32 in midday trading Friday.