Slaughters, A&O wash hands of online gaming

The turmoil surrounding online gaming is continuing to split the legal community in two, with Slaughter and May and Allen & Overy (A&O) becoming the latest firms to shun the sector.

The two have joined the growing list of firms steering clear of the sector. As first reported by The Lawyer (14 August), Herbert Smith pulled out of 888.com's IPO last autumn after its client, underwriter Credit Suisse, withdrew from the deal. And Skadden Arps Slate Meagher & Flom has warned investment banks to avoid underwriting online gaming IPOs due to concerns that internet betting may be illegal in the US.

Freshfields Bruckhaus Deringer and Linklaters are now also reconsidering their more liberal stance after a new US federal law was passed by the US congress prohibiting banks and credit card companies from processing online gaming payments from states where it is illegal. Online gaming is explicitly illegal in eight US states.

Freshfields and Linklaters handled the PartyGaming and 888.com IPOs - the largest London Stock Exchange flotations in the online gaming sector. The firms were also understood to be advising on the PokerStars IPO, which is reported to have been abandoned.

One corporate partner said of the new US legislation: "The position has got a bit clearer: the grey area has got darker."

At the time of the IPOs, Partygaming and 888.com had no physical presence in the US, but did accept bets from US punters. However, the storm created by the new US laws has forced both companies to pull out of the jurisdiction altogether. It is understood that Freshfields has remained loyal to PartyGaming and 888.com and continues to act for both companies.

Freshfields declined to comment. However, sources at the firm admitted that it would have to think carefully about accepting an instruction from a company that accepts online bets from US residents in the future. Similarly, one Linklaters partner conceded: "Anyone taking instructions from [online gaming companies] would need to look at it very carefully."