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Tuesday, July 18, 2006

Cryptologic Getting Creeped Out

The reason that Cryptologic Inc. (CRYP) is getting hit so hard this morning is actually from yesterday's news. It isn't news about the company, but it is in the sector and directly impacts all of the company's customers. The stock is now under $20 at $19.90 (down $1.93 on the day), and that is toward the lower 1/3 of the $14.84 to $29.20 52-week trading band.

The US sent a message to online gambling companies by arresting the chief executive of BetOnSports at DFW Airport on Sunday evening. David Carruthers was arrested while he was transferring to a connecting flight to BetOnSports' headquarters in Costa Rica. He was charged with conspiracy to offer bets to US citizens.

BetOnSports shares were suspended in London yesterday following the arrest, but the company is still accepting new accounts and bets from the US. The court also filed charges against company founder Gary Kaplan, media director Peter Wilson and nine other employees. PartyGaming, the Party Poker commercial company, is down another 18% on London trading.

So why Cryptologic?

CryptoLogic develops online gaming software, which is licensed through its wholly owned subsidiary, WagerLogic. In 1996, the software was licensed to the first Internet casino and now WagerLogic's licensees represent some of the world's best known, blue-chip, internationally-recognized customers in the global Internet gaming industry. The company is based in Toronto, Canada.

While this is not a direct attack on the company, the US is showing that it is going after its customers. If the customers are going to be arrested when they pass through the US, then there are probably going to be fewer new entrants and therefore fewer clients.

What is hard to understand is why the shares are doing this today. I was discussing this with a friend and colleague yesterday morning. It was pretty evident that CEO wasn't arrested for terrorism or other charges, or it at least so it seemed.

Jon C. Ogg
July 18, 2006
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