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Starnet Cleared on Porn Allegations

The company said Canadian authorities filed an affidavit in a British Columbia court Monday, stating that, "No pornographic images of children were found within the computer system operated by Starnet, and no charges will be recommended . . . ."

Starnet complained that the Royal Canadian Mounted Police did not officially inform the company of this result, or publicize it. The RCMP and local police conducted a widely publicized raid in August 1999 at the headquarters of Starnet, which was then in Vancouver, and at the homes of six company executives.

The authorities said at the time that Starnet was the subject of a long-running investigation into allegations of illegal pornography and illegal gambling. The investigation of the gambling allegations continues, although neither the company nor its executives have been charged with any crimes.

After the raid, Starnet moved its headquarters to St. John's, Antigua, changed most of its top management and restructured the operations of the company. Early this year, it sold its Internet porn site business.

Starnet got its start in that business, which generated the cash to develop its online gaming software and e-cash services. It had been trying to sell the porn business, long before the raid, to concentrate on online gaming. The company is a major licensor of gaming software.

"Starnet is pleased to achieve closure on this issue for Starnet, our licensees, business partners and shareholders," Starnet said in a statement. "The company is continuing to pursue all opportunities to bring an end to the investigation of its online gaming operations."

Starnet is also still trying to lift a freeze on two of its bank accounts that British Columbia implemented shortly after last year's raid. In a recent court filing, the company said that the biggest chunk of the frozen assets - US$5.6 million - is the proceeds from the exercise of warrants in Starnet stock.

That money could never be properly forfeited as proceeds of criminal activity, the company's lawyers argue, even if Starnet were convicted of a crime in the future. The Starnet brief asks the court to revoke the order freezing the accounts.

Commenting on the conclusion of the investigation of illegal pornography, Starnet Chief Executive Meldon Ellis said, "Results of the investigation by Canadian legal authorities confirm what we have maintained since the beginning of this investigation: we are not, and have never been, involved in distributing illegal pornography.

"In fact, we have always had policies in place that prohibited such illegal commerce to take place. One non-management employee of the company, in violation of company policy, was discovered to be in possession of illegal child pornography.

"He was immediately dismissed with cause from Starnet, and subsequently charged by Canadian authorities. Since that time, we have divested our adult entertainment division and are no longer involved in the adult entertainment industry."

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