Excapsa Ordered to Pay $15M in Ultimate Bet Cheating Scandal

Betting firm told to repay cheated

Excapsa Software tied to US$15M online scandal

Graeme Hamilton, National Post Published: Tuesday, November 04, 2008

MONTREAL - With a former Ontario premier and a onetime RCMP commissioner on its board, Toronto-based Excapsa Software Inc. tried to put a respectable face on the murky business of online gambling.

But now Excapsa, which sold its assets in 2006 and is undergoing liquidation proceedings in Ontario Superior Court, has been tied to a multi-million- dollar cheating scandal involving a popular poker site, UltimateBet.com.The site is run out of the Mohawk reserve of Kahnawake, on the outskirts of Montreal, and was bought from Excapsa in 2006 by former Kahnawake grand chief Joe Norton.

An Ontario Superior Court judge yesterday approved a settlement that will see Excapsa shareholders pay US$15-million to Blast Off Ltd., the company owned by Mr. Norton that runs Ultimate Bet. Blast Off says it desperately needs the cash to refund players cheated while playing online poker between 2004 and 2008.

The Kahnawake Gaming Commission, which regulates online gambling run out of the reserve, reported in September that it had found "clear and convincing evidence" of "multiple cheating incidents" on Ultimate Bet between May, 2004, and January, 2008. A "tool" that allowed insiders to see opponents' hidden cards had been inserted into the site's software. The commission identified U. S. professional poker player Russell Hamilton, a former consultant to Ultimate Bet, as "the main person responsible" for the cheating. Mr. Hamilton has not been charged with any criminal wrongdoing, and he has not responded publicly to the commission's allegations.

It gave Ultimate Bet until yesterday to resume refunding players. The site has already paid out US$6-million but has calculated that it owes at least another US$9-millon to people who were cheated through the software tool.

David Peterson, the former Liberal premier of Ontario who served as non-executive chairman of Excapsa in 2006, said in an interview that the board of directors had no idea that one of the company's most valuable assets had been rigged to allow cheating. The board was "absolutely scrupulous in every way," he said. He is no longer involved with the company and said he is not sure whether he continues to hold shares.

Mr. Peterson pointed to the presence on the Excapsa board of Norman Inkster, former commissioner of the RCMP, as evidence of its seriousness. In its public materials in 2006, Excapsa highlighted the bona fides of Mr. Peterson and Mr. Inkster.

Mr. Inkster could not be reached last week or yesterday, but in an interview in June he said he was confident that Excapsa had acted correctly. "We were a pretty serious board," he said. "We wouldn't have stood for any nonsense."

Sheldon Krakower, the court-appointed liquidator, said yesterday's decision by Justice Sarah Pepall will allow Ultimate Bet to stay in business and refund all cheated players. According to documents filed by the liquidator, Mr. Norton initially sought US$81.4-million in damages for being sold corrupted software. That figure included US$5-million for harm to Mr. Norton's reputation and US$49-million for damage done to the company's value as a result of the cheating controversy, which has become a hot topic in the online gambling world.

Blast Off alleged that Excapsa "had knowledge of the [cheating] tool" before the 2006 sale but failed to disclose its existence. Excapsa officials have denied any knowledge of the fraudulent software. The cheating was uncovered this year when online sleuths found that certain Ultimate Bet accounts were enjoying astronomically high success rates.

The Excapsa sale followed a September, 2006, crackdown on online gambling by the U. S. Congress. Blast Off agreed to pay US$130-million, with US$10-million paid up front and the remainder in installments through 2012. Blast Off stopped making payments last December.

Mr. Krakower said his investigation persuaded him that Blast Off had a "valid claim" against Excapsa because the cheating tool was in place when the company was sold. He advised shareholders that fighting Blast Off in court would likely mean an end to payments of the US$109-million still owed from the original sale and could wipe out Excapsa's cash funds of US$36-million.

Mr. Krakower acknowledged that the incident leaves "a bad taste" with online gamblers.

"How many of these situations might exist that people are not finding?" he said in an interview. "The good message, and the message that Ultimate Bet wants to send, is that it not only cleaned up and took out the tool, but it's refunding players, many of whom probably don't even know that they were cheated and probably don't have the proof."

A detailed analysis was conducted on millions of poker hands to identify who lost money while playing against the cheaters. Ultimate Bet says their accounts will be refunded.

This is the second cheating scandal to hit gambling sites owned by Mr. Norton. In January, Absolute Poker was fined $500,000 by the Kahnawake Gaming Commission after another case in which insiders tampered with software to allow them to cheat. The commission never named the cheaters in that case but said they were not part of the current management. The Ultimate Bet cheating landed Mr. Norton's company a $1.5-million fine.

The incidents have damaged Kahnawake's reputation as a hub for online gambling. In January, the British government announced that it had refused to add Kahnawake to a "white list" of jurisdictions permitted to advertise online gambling in the lucrative U. K. market.

Mr. Norton declined comment yesterday, and the Kahnawake Gaming Commission did not return phone calls.

ghamilton@nationalpost.com

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