U.S. Company Shares Hit Hard By UIGEA

Published: Wednesday, March 28, 2007 Online-Casinos.com

SHARES IN U.S. COMPANY HIT HARD BY UIGEA ACTION

Electronic Clearing has to cope with a diving share price in addition to a DoJ payment

Shares in the US company Electronic Clearing House Inc. plunged the most in almost 15 years this week after the company revealed it is to hand over a substantial part of its profits following a US government probe into online gaming. This resulted in a withdrawal from purchase of the company by Intuit Inc. which apparently spooked investors.

Electronic Clearing will turn over $2.3 million in earnings to the U.S. government from its Internet e-wallet business, which collected payments to online gambling sites, the Camarillo, California-based company said in a statement. The penalty flows from the U.S. Unlawful Internet Gaming Enforcement Act enacted last October, which criminalises financial transactions with online gambling sites.

Late last year Intuit, maker of TurboTax software, had agreed to pay $142 million, or $18.75 a share for Electronic Clearing, a 25 percent premium to the share price that day. Intuit wanted the company in order to expand its online banking services to businesses.

Electronic Clearing Chief Executive Officer Joel Barry said the company is open to other acquisition talks.

"That's not a mess Intuit wants to get into,'' said John Kraft, an analyst at D.A. Davidson & Co. in Portland, Oregon. After the company in October said it would exit the Internet wallet business, "...my sense was these guys were on the up and up, squeaky clean.''

Electronic Clearing shares on the Nasdaq dropped $6.40, or 34 percent, to $12.21 this week in their biggest decline since July 1992. The stock has fallen 2.8 percent in the past 12 months.

Shares of Intuit, based in Mountain View, California, rose 18 cents to $27.55 in Nasdaq trading and have climbed 6 percent in the past year. Electronic Clearing is "fundamentally sound'' and will announce first-quarter results in May, Barry said.

Barry declined to comment on the federal investigation, which seems to have been settled by the payment, saying only that it was in the company's best interest to cooperate with the government. Near-term results will be hurt by the payment and by expected investigation-related expenses, the company said in the statement.

Intuit spokeswoman Holly Perez declined to comment.

Electronic Clearing and Intuit released each other from all claims related to the acquisition, according to separate statements. A non-prosecution agreement with authorities is expected soon, Electronic Clearing said in its statement.

Back in October, Electronic Clearing intimated that less than 10 percent of its sales were related to online gambling, which it would stop servicing as a result of the UIGEA.