10/17/2007 12:00AM

U.S. seizes bet-shop funds

EmailInvestigators from U.S. Immigration and Customs Enforcement seized $1.5 million from three bank accounts in Nevada maintained by Youbet.com's offshore rebate shop International Racing Group as part of an ongoing investigation by the government agency, Youbet has acknowledged.

The acknowledgement, which said that the money was related to three customers of International Racing, was included in a filing with the Securities and Exchange Commission on Friday. In addition, Youbet.com released a statement earlier this week in which the company said that a "former IRG owner" is also under investigation.

According to the statement, "Authorities are investigating a potentially wide net of activities of a small number of individuals who may have used telephone rebate wagering services . . . in an allegedly illegal manner."

Youbet bought IRG in 2005 from co-founders Lou Tavano and James Scott. After the purchase - for $3 million in cash and approximately $10 million in future considerations, based on IRG's performance - Tavano was named general manager of the operation, but he was replaced in September of this year.

According to Youbet, federal investigators searched the company's Woodland Hills, Calif., headquarters on Oct. 4 and seized records related to IRG customers. Youbet has said that it is not a target of the investigation.

Youbet officials scheduled a conference call for Thursday to discuss the investigation, which has taken a heavy toll on the company's stock price. On Wednesday, Youbet's stock closed at $1.37, a 52-week low. The stock was trading at $2 on Oct. 9, when Youbet first acknowledged the investigation.

Youbet officials have declined to comment on any aspect of the investigation, but a Youbet spokesman, Hud Englehart, said Wednesday that to Youbet's knowledge the investigation does not involve any activity related to the manipulation of parimutuel pools.

"There's no evidence that we can discern that this is related to the pools," Englehart said. "This is customer-driven."

One year before Youbet's acquisition of IRG, federal prosecutors indicted 17 people for running an illegal gambling operation through IRG and other offshore rebate shops. The individuals all entered guilty pleas for a scheme that involved bundling bets through one account to avoid paying taxes and to qualify for larger rebates.

IRG offers rebates to its high-rolling customers, some of which use sophisticated computer betting programs. The size of the rebate increases with the amount of handle.