O.C. Online Gambling Firm Raided

State and federal investigators on Wednesday raided an online gambling company in Garden Grove suspected of cheating hundreds of investors out of as much as $20 million.

The Orange County raid is part of a broader crackdown by state authorities on dozens of suspected “boiler room” operations in Southern California that allegedly prey on unsophisticated investors by persuading them to pour money into dubious Internet enterprises.

Touting the potential of online gambling--which is illegal in the United States--is one of the most popular ploys, according to officials from the Department of Corporations, which oversees stock offerings in California.

Just three days ago, federal agents arrested six people in Orange County accused of taking part in an Internet gaming scam that netted almost $5 million. State investigators said they are tracking as many as five similar operations in Los Angeles, Orange and San Diego counties.

“The Internet is now the marketing vehicle of choice for con artists,” said Bill McDonald, enforcement director for the Department of Corporations. He said the department is in the midst of a series of Internet-related sweeps, and that online gaming is just one of several business categories being targeted.

During Wednesday’s raid, authorities seized six computers and about 50 boxes of records from World Wide Web Casinos Inc., a Garden Grove company connected with the Web site https://www.netpirates.com.

Peter Michaels, the company’s chief executive, said the allegations are unfounded.

“I don’t think we’ve broken any laws,” said Michaels, 35, who founded the company in 1996. “We have a viable business, and this [investigation] is silly.”

Michaels said the company is not in violation of federal laws against online gambling because it merely leases software to an Internet casino company in the Solomon Islands. He said companies using the software have handled thousands of bets and have annual revenue of several million dollars.

But state investigators said the company’s main enterprise is selling stock to the public in violation of securities laws. McDonald said there may be hundreds of violations, and that each carries a possible fine of up to $10 million and a prison term of as long as five years.

McDonald said that the company lied to investors about its financial performance and that Michaels misused proceeds by spending money lavishly on cars and other personal items. He also said World Wide Web Casinos illegally solicited the general public--through telephone calls and Internet advertisements--for what were supposed to be private stock offerings.

Michaels’ company was “telemarketing to anybody and everybody across the country,” said one person familiar with the investigation, who asked not to be identified. “They’re just boiler room salesmen taking people’s life savings and telling them they’re going to own an online casino.”

Much of that money is believed to have come from the elderly and other inexperienced investors, who shelled out sums ranging from a few thousand dollars to as much as $300,000 for pieces of a company they were led to believe was poised for an initial public offering.