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By DAVID MCKEE
November 2, 2005 (LVBusinessPress.com) – A parent company ostensibly headquartered in Las Vegas, offering Internet gambling through its British subsidiary, may exist only on paper. Neither it nor its chief executive officer is listed in the Las Vegas telephone directory and its corporate filing with the Nevada Secretary of State's office shows a defunct set of company officers.
In both its press releases and its Securities & Exchange Commission filings, Fortuna Gaming specifies 3199 E. Warm Springs Road, Suite 200, as its Las Vegas address. Business Press staffers visiting that suite found only empty offices, devoid of personnel and furniture, the only identification being a sheet of paper on the front door, saying "Suite 200."
Fortuna Gaming's most recent quarterly filing, signed Sept. 15, 2005, states on page 15, "Our principal offices are located at 3199 East Warm Springs Road, Ste. 200, Las Vegas, Nevada." On the final page of the filing, over the signature of company CEO Douglas Waugh, it reads: "Based on my knowledge, this report does not contain any untrue statement of a material fact ..." Waugh is the sole corporate officer listed for Fortuna and apparently its lone stateside member.
According to Cane Clark LLP, the law firm that is Fortuna's resident agent in Nevada, the 3199 E. Warm Springs location was Cane Clark's own office, as of two years ago. The firm was unable to disclose anything further about Fortuna, on grounds of attorney-client privilege (phone and e-mail messages to Waugh were not returned).
Fortuna, which was known as MoneyFlow Capital Corp. until June 28, is on its third business plan and fifth president in a year. Initially a mineral resource exploration-and-development firm, a lack of revenue forced MoneyFlow out of that business on Nov. 11, 2004.
According to an item posted by American Banker on May 5 of this year, MoneyFlow was now "a Las Vegas firm that makes short-term consumer loans in Canada."
Although the company was registered in Nevada, its officers listed personal addresses in British Columbia and New Zealand. MoneyFlow, the American Banker bulletin continued, "plans to start installing kiosks in Hispanic-owned travel agencies in Southern California in July."
Three changes of president followed that announcement, culminating with Douglas Waugh taking the helm on August 9. By mid-month, Waugh had inked a pact with Vancouver-based Mobile Gaming Now (MGN, formerly Ignition Technologies) to purchase a license for the latter's online-poker software.
Shortly afterward, the two remaining MoneyFlow executives -- Jane Clark and John Briner -- resigned from the board and Fortuna informed the SEC that "We have no employees ... other than our directors. We conduct our business largely through agreements with consultants and arms-length third parties."
On Oct. 11, Fortuna -- through its British subsidiary, Fortuna Gaming Ltd. -- announced its intention to roll out Internet-based, free Texas Hold 'em tourneys "and use this as a gateway to offer a play for pay version."
These poker games are to be played on cell phones that can access the Internet, using gambling software leased from MGN. They would be piggybacked onto the latter's interactive gaming license, which comes courtesy of the Kahnawake Gaming Commission, in Canada.
This means the gambling will be run off servers located on the Mohawk Territory of Kahnawake, Quebec. Fortuna said it "anticipates being the first licensee and operator in this exciting sector of mobile gaming."
"They can pretty much operate everywhere under a Kanawahke license," comments Mark Balestra, vice president of publishing for the River City Group, organizers of the upcoming I-Gaming In Depth: Online Poker Conference, to be held in early December in the Bahamas. "The sovereignty experienced by the Indian nations in Canada is pretty strong," the River City executive adds. "They just don't mess with it much."
"Kanawahke is an interesting jurisdiction because the governments of Canada and the United States do not respect that licensing authority," elaborates I. Nelson Rose, co-author of Internet Gaming Law, "particularly the federal government of Canada. But they do license very big operators." He cites the example of PartyPoker.com, which was based out of Kahnawake until the Canadian government deemed it an illegal operation. It then relocated to Gibraltar.
The erstwhile MoneyFlow is one of many companies looking to capitalize on the exploding popularity of online gambling. PokerPulse analyst Dennis Boyko told MSN Money that 1.88 million people played online last February. Internet poker wagering has been estimated at $200 million per day. "You're looking at what's at least a $2 billion industry," says Balestra, "probably approaching more like a $3 billion industry."
"Mobile gaming on cell phones is going to be difficult unless you make compliances with U.S. law," counters attorney and Internet gambling expert Anthony Cabot, of the firm of Lewis & Roca. Mobile-service providers, he added, may be loath to run afoul of the authorities and might not allow online gaming to be carried on their data channels.
The stated position of the U.S. government is that all for-money Internet wagering other than for horse racing is prohibited under the federal Wire Act.
Although both MGN and Fortuna are Nevada-registered companies, neither has been licensed by the Nevada Gaming Control Board, nor has MGN's software been approved for use in the Silver State. Although Fortuna Gaming Ltd. is described as a subsidiary of Nevada-registered Fortuna, its operational offices are in the United Kingdom, according to company spokesman Len Braumberger.
Its executive team also outnumbers its American counterpart four to one. Written enquiries to the investor relations department are routed to a post office box in Bellingham, Wash., while telephone queries are handled by Equity Research Corp., in Vancouver. Follow-up calls to Braumberger went unreturned.
"People use shells," Rose shrugs. "Resorts International (subsequently absorbed by Colony Capital) started life as Mary Carter Paint Company and changed from a paint company to a casino company, so it does happen and it can be legit. But it certainly is a little questionable."
Fortuna came to Rose's attention by way of a "Special Publisher Issue" of Superstock Investor subsidized by Calculus Holdings. Publisher Jay London writes that Fortuna "is poised to dominate a niche of online poker that the established giants haven't touched." He goes on to project 400 percent growth for the company, which lists losses to date of over $290,000 and $76,209 in cash on hand. London states that the MGN software was acquired "for pennies on the dollar," although terms of the sale are not disclosed in Fortuna's SEC filings. London adds that Fortuna "represents an attractive take-over [sic] target for one of the larger casino or gaming companies."
London's bullish prognostications are accompanied by a plethora of charts. One predicts $11 million in revenues in Fortuna's first full year of operations, escalating to $94 million (850 percent growth) in Year Five. Another shows a business model in which Fortuna's marketing and player-acquisition costs remain flat -- or decline, if London is using inflation-adjusted dollars -- over a five-year period while the player base grows by 150,000 per year.
The language that caught Rose's eye fell under "8 Reasons to Own Fortuna Gaming Corp. Today": "Many government jurisdictions have ruled that online poker is a game of skill, not chance, and therefore not subject to the same rules as other forms of gambling."
"Oh yeah? Which (jurisdictions) are those," Rose rejoins. "Are any of them in North America? 'Cause I don't know of any."
Although Fortuna (OTC: FGAM.OB) stock was trading over the counter at $1.50 at the time of Superstock Investor's tout sheet, it had fallen to 79 cents a share by press time. FGAM, which had enjoyed a 52-week high of $7.80 per share last January 19, hit a year-to-date low the day after the MGN announcement, bottoming out at 62 cents on October 20.
Fortuna recently closed a stock offering that raised $1.7 million and has opened another, to raise an additional $10 million, to "acquire gaming software for its mobile and wireless gaming platform, set up the gaming and corporate web sites, set up its UK-based operating subsidiary ... secure investor relations and PR services, cover initial marketing costs and provide working capital for the Company."
Shares are being sold for $1 apiece, each accompanied by a warrant to buy an additional share over the next two years at $2.
Attempts by the Business Press to reach Jay London, MGN and the Kahnawake Gaming Commission were unsuccessful. |
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