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Author: TMFAgewone Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 111  
Subject: Re: NTLRF Date: 3/26/2007 12:53 PM
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Netteller has been suspended for a few months now and I am wondering how you see this company now. I want to know if the two that have been arrested are let go with no charges and the stock price still opens lower, is this a good buy. I haven't followed the financials much and don't know what the company will be like without the U.S.

Laf74,

The net effect will be a company verging on unprofitable for the very immediate future. As Bill said, this doesn't worry us, and in fact, we expected it. Even sans U.S. biz, NTLRF possesses a highly scalable platform and very strong growth prospects given its pre-existing infrastracture, placing it in a strong position to service an ever-growing gambling populous.

The loss of Canadian business will also deal a blow, but I'm still inclined to think they'll keep on, and daresay, do well. The larger concern here are the legal ramifications, if any. At current, it doesn't seem that any meaningful financial consequence will befall Neteller the company. But there are a few pernicious statutes within the Patriot Act, and international law, which permit U.S. prosecution of Neteller. If this outcome were to manifest--the potential ramifications range from slap-on-the-wrist to disastrous. The worst-case scenario: Neteller is prosecuted, U.S. precedents a la Paypal are applied, and Neteller is forced to disgorge profits from its U.S. ops.

Thereafter, Neteller would likely cease to exist. I find this to be a remote possibility, as prosecution requires cooperation from foreign authorities. To be sure, Neteller facilitates online gambling in a very large way, which has very important knock-on effects when you look at tax revenue. So in fairness, it's hard to see the U.K.'s interest in playing ball here.

I'm not sure when these shares'll trade again, but I can unequivocally say they'll be much lower. Notwithstanding future legal developments and/or business model changes, I believe that risk-tolerant (read: very risk tolerant) investors will find themselves handsomely rewarded once 5-10 years have come to pass. Bear in mind though, this is an extremely risky proposition right now--it's not for the weak of heart and probably shouldn't occupy a large part of your portfolio. Bottom line: this company may appreciate 5x the price it opens at (when/if it does), but I'd also be prepared to lose whatever money you put there.

-Mike
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