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Anne Lindner
 

Gaming Factory Under Fire

11 June 2002

An online casino company that donated its ad space after Sept. 11 to raise money for relief organizations is now the subject of a civil lawsuit filed by the U.S. Securities and Exchange Commission.

The SEC's case alleges that The Gaming Factory and two of its employees, Richard Onorato, president, and Victor L. Selenow, a sales representative, committed fraud in connection with an unregistered securities offering.

The Gaming Factory, prior to the suit, operated Internet gambling sites at www.playersgalaxy.com and www.mrsportsbook.com.

The suit was filed April 15. Since then, Judge Donald M. Middlebrooks of the U.S. District Court for Southern Florida has issued a temporary restraining order to stop the company from selling stock and freeze the company's assets. Middlebrooks also appointed a receiver preserve as many assets of the company as possible so they can be returned to investors.

In all, about 75 investors in the United States gave The Gaming Factory more than $1.9 million in a 16-month span. The SEC is alleging that the company's sales representatives lied about stock availability to make investors believe they needed to invest right away. The company, which has a West Palm Beach office and lists Costa Rica as its headquarters, also told investors that it had an online gambling license as well as a land-based gambling license from Panama when in fact it didn't, the SEC alleges.

The agency's suit states that The Gaming Factory "operates in a typical boiler room manner by soliciting investors through a group of approximately 5-10 in-house sales representatives working from lead lists to 'cold call' prospects."

In addition, the SEC alleges The Gaming Factory told its investors that its sales representatives did not receive commission when in fact they were paid between 15 and 18 percent in commission. The agency also alleges that Onorato was presented to investors as an expert businessman, when really he had been told in 1999 by the Pennsylvania Securities Commission to cease and desist acting as an unregistered broker.

The agency's suit also alleges that Shannon Diem, the company's marketing director, told investors that he had been accepted into the Wharton School of Business at the University of Pennsylvania in the fall of 200, when really he never even applied to the school.

Kerrie Zinn, an SEC lawyer who is serving as senior trial counsel for the case, said the preliminary injunctions against The Gaming Factory will stand until the case is heard. The hearing is scheduled for Feb. 5, 2003.

"Ultimately, if we prevail, we'll be entitled to a permanent injunction," Zinn said.

She said it is possible that the company could settle the suit, although since the SEC represents the interests of the people of the United States, The Gaming Factory would have to agree to return all of the money it received from investors to achieve a settlement.

"We're not like a normal civil litigant," she said. "We do discuss settlement, however it basically requires a defendant to turn over the full amount in disgorgement that they received from the fraud. If they don't have the full amount, sometimes we do a financial waiver if they prove to us they simply don't have the money to pay it. But we don't negotiate or barter like a normal civil litigant would do."

The company is no longer in operation, Zinn said. Phone calls to the court-appointed receiver, Michael Tien, and The Gaming Factory's lawyer, Kenneth Dunn, were not returned, nor were calls to the company's former office.

Zinn said she could not reveal how the SEC decided to investigate The Gaming Factory, although she did say that in general, the SEC relies on a variety of sources to bring potential cases to its attention, including referrals from other government agencies, investor complaints and insiders.

On Sept. 19, 2001, IGN reported that Onorato and Diem had decided to donate ad space they had purchased for The Gaming Factory to the Sept. 11 relief efforts. The space, which they said was worth between $20,000 and $40,000 on sites like Excite Canada and VegasLobby.com, was intended to be used to promote the company's sites. However, Onorato and Diem told IGN they both knew victims of the terrorist attacks and wanted to do something to help.

Onorato said the ads would encourage people to donate money to the New York Fire Department, the Red Cross and the United Way.

"This is not just a cry out to gamblers around the world," he said. "There's a lot of money within this industry, and there's no reason some of that money shouldn't go out, in a situation like this, to help those in need."

To read the SEC's lawsuit, click here.

Gaming Factory Under Fire is republished from iGamingNews.com.
Anne Lindner
Anne Lindner