The two founding directors of NETeller, Stephen Lawrence and John Lefebvre, were travelling separately in US when detained by authorities on Monday, 15 January.
In a brief statement, the company says that other than as shareholders, neither of them have 'any current position with, or connection to, NETeller'.
Lawrence resigned as a non-executive director of the company on 13 October, having stepped down as non-executive chairman last May. Lefebvre resigned as a non-executive director on 15 December 2005.
Lawrence holds 5.91% of NETeller, while Lefebvre has a 5.54% stake.
The company adds in its statement that it has 'not received any communication or correspondence from any US authority regarding this or any related matter'.
Pending clarification of the situation, it has decided to suspend its shares.
With over 3m customers in 160 countries and over $7bn in annual transactions, NETeller claims to operate the largest independent online money transfer business in the world. It specialises in providing instant payment services where money transfer is difficult or risky due to issues of identity, trust, currency exchange, or distance.
While the exact reasons for the arrest of Lawrence and Lefebvre are unknown at present, it seems reasonable to speculate that it may have something to do with its past handling of funds for online gamblers in the US.
In October the US passed into law a ban on internet gambling. The move followed months of uncertainty for the online gambling sector, triggered by the arrest in July of David Carruthers, chief executive of BETonSPORTS, for alleged infringement of US gambling laws.
Carruthers' arrest was followed in September by the arrest of Peter Dicks, non-executive chairman of Sportingbet, on similar grounds.
The arrest of the two directors sorely undermined sentiment towards the online gambling sector as a whole, with shares in other players with heavy exposure to the US, where the world's biggest online gamblers reside, also suffering badly.
NETeller has also been feeling the heat. Two thirds of its customers are in the US and in October, as it revealed strong quarterly numbers, chief executive Ron Martin warned: ‘The impact of the recently passed Unlawful Internet Gambling Enforcement Act in the US is likely to change the future direction and nature of our business fundamentally.’
At the time the group said trading since the end of September had continued to show ‘positive growth trends’ in sign ups and average daily receipts. Martin cautioned, however, that it was difficult to predict trends or the outcome for the remainder of the year ‘given the current uncertainty regarding the company's principal market’.
The uncertainty and fallout from the banning of internet gambling in the US meant that over calendar 2006, NETeller shares lost almost four fifths of their value.
Numis analyst Richard Carter says today’s news will dent sector sentiment but, given that NETeller was the only directly affected company continuing to carry out transactions in the US, he thinks any sell off in Playtech or 888.com shares (both have no assets and both take no bets from the US) could offer an 'excellent' buying opportunity.
As for NETeller, Carter notes that despite today's news, its financial position remains strong. At the end of 2006, after accounting for $5m of cash exceptionals, he estimates the group will have $224.6m in net cash.
For 2007, Carter forecasts the group will generate $47.5m of net operating cash despite taking a further cash exceptional of $3m. He is targeting 2007-year end net cash of $263.7m.
Ahead of more developments, Numis is continuing to rate the stock as a 'buy' assuming that the shares are relisted..
NETeller plans to update the market on its fourth quarter 2006 and first quarter 2007 this Thursday.
By the time NETeller shares were suspended early this morning, they had fallen nearly 7% or 12.25p to 163.75p, valuing the company at £196m.
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