A two-year investigation into Amaya Inc.’s .9 million acquisition of PokerStars has resulted in 23 total charges of insider trading charge against three companies and three individuals by Quebec regulators including five against CEO David Baazov.
The charges stem from a surge in Amaya’s share price ahead of the acquisition.
The charges are “very serious” Sylvain Théberge, spokesman for the Quebec regulator the Autorité des Marchés Financiers, told CBC news and could carry fines of up to $5 million and five years in prison.
Baazov quickly released a statement denying the charges and saying he will “vigorously contest them.”
The AMF also announced it had executed search warrants and obtained freeze and cease-trade orders in regards to 13 other individuals tied to mergers and acquisitions involving Amaya.
Théberge said the investigation began in June 2014, after Amaya acquired the privately held Rational Group—or Oldford Group—the parent company of online poker websites PokerStars and Full Tilt Poker. The acquisition made Amaya the largest online gambling company in the world. A raid of Amaya’s offices in Pointe-Claire was conducted in December 2014.
According to CBC, also facing charges are the following companies and individuals: Diocles Capital Inc., Sababa Consulting Inc., 2374879 Ontario Inc., Amaya staffer Benjamin Ahdoot and Yoel Altman, who formerly served as a financial advisor to the firm.
The AMF charged that they had traded Amaya shares using privileged information between December 2013 and June 2014, the month the Rational Group acquisition was announced
Baazov’s charges include aiding with trades while in possession of privileged information, influencing or attempting to influence Amaya’s market price and communicating privileged information.
Ahdoot and Altman have been charged with trading while in possession of privileged information and influencing or attempting to influence Amaya’s share price.
“We’re talking about insider trading,” Théberge said.
Baazov denied the charges.
“While I am deeply disappointed with the AMF’s decision, I am highly confident I will be found innocent of all these charges,” he said in a press statement. “I have always been proud of my reputation for personal integrity and ethical business conduct.”
Amaya also released a statement saying the charges were without merit and saying the charges involve allegations relating to a former financial advisor to the company and an employee.
“Amaya does not anticipate the charges will have any impact on the management or day-to-day affairs of the operating business,” the statement read.
“David Baazov has the full support of the independent members of the board,” Dave Gadhia, Amaya’s lead director and independent board member, said in the statement.
Amaya has also conducted an external internal review, supervised by its independent board members, which thoroughly reviewed the relevant internal activities surrounding the acquisition.
“This review found no evidence of any violations of Canadian securities laws or regulations. The independent members of the board received and reviewed the information and concluded that no action should be taken. We have not been provided with any new information,” the company’s statement said.
The companies and individuals charged have 30 days to respond to the charges and file pleas, according to CBC.
The news hurt the company’s stock value—which reportedly plunged as much as 26 percent—and comes just as PokerStars has gone online in New Jersey, its first return to the U.S. market since 2011. PokerStars went fully live in New Jersey after a five-day test period on March 21 and the charges were announced two days later.
Convictions on the charges against Baazov or the company could obviously put the site’s New Jersey license at risk and be used to block the site expanding into new U.S. markets. Analysts point out that while New Jersey regulators were aware of the AMF investigation and still gave Amaya a license in the state, it is only a temporary waiver until a full review is completed.
The charges could also invigorate forces pushing for “bad actor” clauses in other state considering approving online gambling. Most notable is California, where PokerStars already drew controversy for its past battles with the U.S. Department of Justice.
Baazov also announced in February that he wanted to buy out shareholders and take the company private. His initial offer valued the company at $2.8 billion.
In his statement released Wednesday, Baazov said he wanted to proceed with the deal.
“I am still committed to working with my investor group and the board to consummate a successful transaction,” the statement read.
The AMF separately announced that it had executed search warrants and issued freeze and cease trade orders on 13 other individuals connected with the case. The 13 are alleged to have improperly earned C$1.5m in profits between 2011 and 2016 by communicating privileged information regarding Amaya acquisitions.
The 13 names include Baazov’s older brother Josh aka Ofer Baazov and Craig Levett. Josh/Ofer and Levett were allegedly former partners in online sportsbook BetonUSA prior to Amaya’s formation, according to CalvinAyre.com.
And in another case of bad timing, PokerStars recently announced it will raise its “rake” or percentage of poker pots going to the site, on several types of poker games. The company still maintains it has the lowest rakes in the industry even with the increases.
