New York Taking a Close Look at PayPa

More details are coming to light concerning a subpoena handed down from the New York attorney general to PayPal.

The Wall Street Journal on Friday reported that the online payment service, which managed to dominate much of the online gaming market, received a request from New York Attorney General Eliot Spitzer to turn over all of its records relating to dealings with Internet casinos.

Christine Pritchard, a spokeswoman for Spitzer's office, told IGN on Monday that the attorney general has a policy against confirming or denying any ongoing investigations. But she did say that the interactive gaming industry is one area that Spitzer has a close eye on.

"I can say that there is an ongoing investigation into illegal online gambling activity in New York state," she said.

A PayPal spokesman, Vince Sollitto, also had little to say on the record regarding the case or any impending investigation. But SEC filings that were released on Monday show that Spitzer has requested that PayPal turn over all records of Internet operators who conducted business in New York.

Sollitto said he "declined to speculate" on why the information was requested, but many in the gaming industry feel that Spitzer might be gearing up for a heavier case against operators. His office is targeting companies that are directly involved in Internet gambling or whose services facilitate it.

Just last month, he reached an out-of-court agreement with Citibank, the nation's largest credit card issuer, that prevents its cards from being used in conjunction with gambling on the Internet.

The subpoena, disclosed by PayPal in a regulatory filing, asks for documents detailing transactions made between PayPal's customers and gambling Web sites. The subpoena seeks the production of documents on or before July 22, 2002, that are related to PayPal's transactions with merchants involved in online gambling activities. The stated purpose of the subpoena is to assist the attorney general in determining whether action should be taken.

Sollitto did confirm that PayPal would cooperate fully with the attorney general.

Last week, online auctioneer eBay, based in San Jose, said it planned to acquire PayPal for $1.5 billion in stock. Once the deal is complete, eBay said it will no longer allow PayPal customers to use their accounts for online gambling due to legal uncertainties around the industry.

Online gambling accounts for 8 percent of PayPal's business, or $117 million of the $1.46 billion it processed during the first quarter this year. It remains unclear, though, how big PayPal's market share is in the online gaming sector.

The company, which has 15.4 million customer accounts, is used by 1,022 businesses it classifies as higher risk, most of which are online casinos, according to a regulatory filing.

To read the SEC filing, click here.