11/21/2008 1:00AM

Youbet settles rebate-shop suit


Youbet.com has reached a settlement with the former owners of an offshore rebate shop the company closed earlier this year, according to documents filed with the Securities and Exchange Commission.

The settlement requires Youbet.com to pay the former owners – Louis Tavano, Richard Tavano, and James Scott – $2.52 million. In addition, the former owners have agreed to give up warrants entitling them to 55,554 shares of Youbet stock.

Youbet announced that it was closing the shop, International Racing Group, in February after it acknowledged that the U.S. Customs and Immigration office in Las Vegas had begun an investigation into the activities of several of the shop’s customers. Investigators from the agency seized records and $1.5 million in funds held by IRG on behalf of its customers, causing wagering at the shop to dry up rapidly.

Youbet purchased IRG in 2005 for $2 million in cash and the block of stock warrants, and the deal included $9.7 million in payouts to the former owners based on the shop’s performance. After IRG was closed, the former owners disputed Youbet’s offer of compensation based on those payout targets. The settlement is a dissolution of that dispute.

Also as part of the settlement, the former owners have agreed to a non-compete clause that will prevent them from doing business with 15 former clients of IRG. Youbet did not disclose the identity of those clients.