California wins $3.5 million payoff in illegal gambling lawsuit

OAKLAND — A company that made and operated casino-style games used for illegal gambling will pay $3.5 million and permanently stop its California operations under a court settlement announced Thursday.

Pong Game Studios Corp. agreed to settle a lawsuit that alleged it violated California laws on unfair competition and false advertising, the state attorney general's office announced. A Solano County Superior Court judge approved the agreement.

An email to the company seeking comment wasn’t immediately returned. But in the settlement, the company acknowledged that some of its operations were “unlawful, unfair or fraudulent” as alleged in the complaint, according to the indictment.

Based in Ontario, Canada, Pong Game Studios makes video lottery and other game terminals along with casino-style games for mobile phones.

The lawsuit said the company provided software to so-called “sweepstakes cafes" that offer Internet-based slot- and poker-style computer games with the possibility of getting cash prizes.

The cafes claim to avoid laws against illegal gambling by supposedly selling a product, such as prepaid telephone cards, that include sweepstake entries permitting customers to play the games. The cafes operate out of storefronts, gas stations and convenience stores in more than a dozen states and are estimated to take in more than $10 billion a year, according to a 2014 white paper by the American Gaming Association.

Some states, including California, have outlawed the cafes.

Pong's gaming system involved a private network of servers and computers in sweepstakes cafes up and down the state. The company continued operations even after the California Supreme Court in 2015 ruled that sweepstakes gaming systems were unlawful gambling, according to the lawsuit.

The company was sued by the state attorney general's office along with the Los Angeles city attorney's office and district attorney's offices in nine counties.

“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,” Kern County District Attorney Cynthia J. Zimmer said in a statement. “Pong’s illegal devices and software have bred unregulated pop-up casinos that have been magnets for criminal activity wherever they have arisen."

Under the settlement, Pong is barred in California from designing, manufacturing, providing or using any unlawful gambling device, software or computer system. It also may be held liable for as much as $15 million if the company fails to comply with the settlement terms.