CA Supreme Court Halts Illegal Gambling Operations by Canadian Company

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A Canadian gaming company agreed to pay $3.5 million to the state of California and halt all operations statewide after it was found to have conducted illegal gambling through casino-style “sweepstakes cafes.”

Pong Game Studios Corp. has for years provided software to these cafes, which are run out of gas stations, convenience stores, and other establishments in over a dozen states, including California. The games they provided, namely internet-based slot machine and poker variants, offered prizes for winning, including cash, after the user paid to play. Under Californian law, sweepstakes cafes are illegal, with the gambling software offered on the sweepstakes systems constituting unlawful gambling.

A 2015 California Supreme Court ruling made sweepstakes gaming illegal by naming it as unlawful gambling, but they continued to exist in California by games manufacturers  saying that they were selling a product, such as prepaid phone cards or cell phones, in stores that simply included sweepstakes entries allowing customers to play the casino-style games and win prizes. Pong was among the companies continuing to selling the systems against the law, contributing to what the American Gaming Association lists as a $10 billion a year industry.

In 2016, the California Department of Justice, along with 9 County District Attorney’s offices and the Los Angeles City Attorney’s office, joined together and filed a lawsuit, known as People of the State of California v. Pong Marketing and Promotions Inc., for violating the California Unfair Competition Law and False Advertising Law.

On Thursday, California finally won the long fought-for suit in Solano County Superior Court. In addition to Pong having to stop all state operations and paying California $3.5 million for civil penalties, costs, and attorney fees, the company has to give up all rights to seized assets listed in the suit, with the California Department of Justice being authorized to destroy all such equipment.

Pong is also still not off the hook completely, as the company may also have to pay up to $15 million in additional fines if it does not comply with the state in time.

While the company has not commented on the case after the ruling on Thursday, Pong did admit to some of their California operations as being “unlawful, unfair or fraudulent” in the settlement.

A major illegal gambling ruling in California

Attorney General Rob Bonta, whose office was the main force behind the lawsuit, noted on Thursday in a statement that the suit was a severe blow to illegal gambling in California.

“Under the guise of lawful sweepstakes, Pong knowingly used casino-style games to prey upon vulnerable Californians,” said Attorney General Bonta on Thursday. “Today’s judgment puts a halt to these unlawful activities. It protects consumers and it protects the safety of our communities. I’m grateful to our task force partners across the state for their work in securing this important win. Together, we can continue to dismantle illegal gambling operations and make a difference for the people of our state.”

Other city and county leaders following the rulings announcement.

“I’m proud of my office’s role in securing this important result. Illegal gambling has an especially corrosive impact on low-income communities and undermines public safety in many neighborhoods,” noted Los Angeles City Attorney Mike Feuer on Thursday. “Our work to combat this broad problem continues. Just this month my Office filed criminal charges against the operators of an alleged illegal casino in Hollywood.”

“For years, Pong has flouted California law and flooded our state with illegal gambling devices, profiting off of the harm done to some of our most vulnerable communities,” added Kern County District Attorney Cynthia J. Zimmer. “Pong’s illegal devices and software have bred unregulated pop-up casinos that have been magnets for criminal activity wherever they have arisen, and today’s judgment will get Pong’s illegal gambling software out of our state and send a clear message to other makers of illegal gambling software: take your business elsewhere.”

Legal experts noted that the successful action against Pong may inspire more cases against similar companies and operations in the near future.

“It’s hard to argue too much against what California did here,” said lawyer Matt Holcomb, a lawyer in California who has been in cases involving gambling issues, to the Globe on Friday. “It was illegal, the company said as much in the settlement, and it wound up costing the taxpayers nothing due to the company paying millions in costs. And more illegal gambling places are gone.

“Any other places doing this are now essentially on notice. California took them down, and persisted to do so for over half a decade. They aren’t giving up easily on this, and other similar gaming companies and sweepstakes cafe operators have to be nervous now.”