U.S. Brokerage Firms under Class-Action Fire

Two brokerage firms in the United States have been sued by shareholders who claim that investor funds were illegally appropriated and invested in illegal online gambling.

Deanna McBrearty of New York, N.Y., and Marylynn Hartsel of Boca Raton, Fla., on Friday filed a class-action lawsuit in Federal District Court against Vanguard Group Inc., the Pennsylvania-based investment management firm.

The suit accuses several of Vanguard's advisors, under the federal Racketeer Influenced and Corrupt Organizations Act -- or RICO -- of illegally investing funds in offshore Internet gambling considered illegal in the United States.

Ms. McBrearty has been an investor in Vanguard European, a division of the Vanguard Group, since May 2005 and Ms. Hartsel since before July 1, 2006, according to court documents.

According to the suit, filed in Federal District Court in New York, the plaintiffs began losing significant capital in the investments when the United States government began to crack down on offshore Internet gambling companies in July 2006.

It was then that David Carruthers, the ex-chief executive of BetonSports, was arrested; however, no particular company is named in the suit.

Congress in September 2006 passed the Unlawful Internet Gambling Enforcement Act, making it illegal for banks, credit card companies and other financial institutions to process online gambling transactions. It was signed into law by President George W. Bush on Oct. 13, 2006.

When the law was enacted, many publicly traded offshore Internet gambling companies made the decision to cease trading in the United States market, resulting in substantial losses for the industry.

Ms. McBrearty and Ms. Hartsel have filed the suit on behalf of other investors in Vanguard who purchased one or more shares in the Vanguard funds prior to July 17, 2006, and who held shares after that date.

The two women are asking for compensatory damages for the lost value of their investment as well as the lost value in Vanguard funds.

Additionally, the plaintiffs are requesting punitive damages, treble damages -- or triple damages -- recovery of all suit-related fees with interest, and any other damages deemed appropriate by the judge.

Ms. McBrearty and Ms. Hartsel have asked for a jury trial.

A similar suit was filed on Thursday in Federal District Court in San Francisco against American Century Companies Inc.

Laura Seidl, a New York resident and investor in the American Century Ultra Fund, claims that the fund repeatedly invested her money, over a significant amount of time, in illegal gambling businesses. As a result of the federal crackdown on Internet gambling, Ms. Seidl argues, she lost money.

Ms. Seidl has asked for the same compensation and for a jury trial.

IGamingNews will have more on this story as it develops.

Click here to view the complaint against the Vanguard Group.

Click here to view the complaint against American Century Companies Inc.