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Canadian Police Raid Starnet Headquarters, Executives' Homes

The Internet gaming world was rocked Friday by a police raid in Vancouver, British Columbia. The Royal Canadian Mounted Police and three local police agencies raided the headquarters of Starnet Communications International Inc., and the homes of six of the company's top executives.

Starnet is one of the leading players in the online gaming industry. Through its Softec Systems Caribbean Inc., Starnet provides interactive gaming software for numerous Internet casinos. It also provides its casino licensees with e-cash financial services.

The company has several online casinos of its own, focusing mainly on the Asian market. Its executives have often said that neither Starnet's own casinos nor those of its licensees knowingly accept bets from North America.

Anywhere from 30 to 100 police officers, armed with search warrants, were reported to be involved in the raids, which began at 6:30 a.m. Vancouver time. No one was arrested or charged.

The police said they're in the midst of a long investigation into illegal gaming activity and Internet distribution of pornography.

As of late Friday afternoon, police were still searching Starnet's headquarters, which is in a rundown section of Vancouver. Employees were not allowed in the building. Starnet uses three floors for its staff and massive amounts of computer equipment.

The effect on the operations of Starnet's licensed casinos and their customers could not be determined. But disruption seemed inevitable.

"There have been some interruptions here and in Antigua,'' said Jason King, Starnet's chief operating officer, in a brief interview with RGTOnLine late Friday afternoon. The company's Internet servers are in Antigua.

He said the company hopes to get operations back to normal "in the next 48 hours.'' King and Starnet corporate counsel Chris Zacharias were two of the executives whose homes were searched.

King said the RCMP were polite, and that "we're cooperating fully. "We'll help them out any way we can.''

The police did not say when they would return the documents they seized, King said.

"They said we can call if we need anything in particular,'' he said.

The scope of the investigation is wide-ranging, judging from a statement issued Friday by CLEU, the Coordinated Law Enforcement Unit of British Columbia:

"The offences being investigated include illegal betting and bookmaking, making agreements for the purchase or sale of betting or gaming privileges, providing information intended for use in connection with bookmaking, possession and distribution of pornographic material, and possession of the proceeds of crime.

"Starnet Communications and its subsidiaries have been under investigation by CLEU investigators for over eighteen months in regard to illegal gaming and the distribution of prohibited pornographic materials over the Internet. Investigators have determined that millions of dollars flowed through Starnet controlled bank accounts each month as the result of its Internet based gaming system.''

Starnet's original business was the operation of pornographic Internet sites. It still has that business, which its executives have said they will sell in order to concentrate on online gaming.

In an interview earlier this month, Mark Dohlen, Starnet's chief executive, said cash flow from the adult Internet sites financed the development phase of the company's gaming software.

But there's a "bigger opportunity in gaming,'' he said. Also, he said, "we want to attract institutional investors.'' Some of the larger buyers of stock won't buy shares in a company that's involved in the sale of adult materials, he said.

Starnet is incorporated in the U.S., in Delaware, and its stock is publicly traded on the OTC Bulletin Board, under the symbol SNMM. Like stock in many Internet companies, its shares have risen dramatically this year.

But as word spread of Friday's raids, Starnet's stock plunged 69 percent, closing at $4.06. It's all-time high of $29 was reached July 6.

Whatever problems the company has with the police won't go away soon. A report on Vancouver radio station CKNW/98 said investigators will be at Starnet's headquarters all weekend.

RCMP spokesman Frank Henley told RGTOnLine Friday afternoon that the investigation "will continue for quite some time.''

In a statement late Friday, Dohlen said, "We are dismayed by this disruption of our three-year-old operations, have retained legal counsel and will vigorously defend our rights.

"It is regrettable that we were not given an opportunity to cooperate with authorities regarding their concerns. Cutting edge companies at the forefront of online services like Starnet are often misunderstood, but we are a fully reporting U.S. public company and our international operations comply with the laws of their respective jurisdictions.''

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