The CEO of Montreal-based online gaming company Amaya Gaming Group Inc. now known as Amaya Inc., David Baazov is now facing five penal charges from Quebec’s Autorité des marchés financiers (AMF) primarily for insider-trading. The AMF confirmed on Wednesday morning, March 23, 2016, that they have laid 23 charges against three executives at Amaya and three other companies. The news comes after an investigation that lasted over a year, the charges involving “manipulating stock prices” from December 2013 to December 2014 when the AMF raided the online gambling company’s Pointe-Claire, Quebec offices.
Amaya CEO Baazov is facing “five charges of insider trading, communicating privileged information.” Associate and “childhood friend” Benjamin Ahdoot is facing “four charges of insider trading and manipulating stock prices,” while financier and adviser Yoel Altman is facing six similar charges. Three other companies were also implicated, Diocles Capital Inc, which is facing “five charges of insider trading.” Two other companies, Sababa Consulting Inc., and 2374879 Ontario Inc. also facing three charges of insider trading.
According to the Globe and Mail in addition to the 23 charges the AMF obtained “freeze and cease-trade orders” for 13 other associates, including Baazov’s brother Josh Baazov. Since December 2015, the AMF also “executed search warrants” in the case. The AMF is accusing the 13 of “trading on inside information about potential mergers and acquisitions involving Amaya.” The AMF believes each issued orders “made a profit of about $1.5-million on the trades between 2011 and 2016.” The AMF is still investigating, and there is the possibility of more charges.
As the AMF notes in their press release, the charges revolve “aiding with trades while in possession of privileged information, influencing or attempting to influence the market price of the securities of Amaya inc., and communicating privileged information.” AMF President and CEO Louis Morisset commented, “We have made suppressing illegal insider trading and market manipulation a top priority, as this type of conduct profoundly affects public confidence and the integrity of our markets.” While AMF spokesman Sylvain Théberge said these charges are “very serious.” According to provisions of the Securities Act (Québec) “offenders are liable to stiff fines as well as prison terms,” the fines can go up to $5 million and prison terms up to five years.
Baazov issued a statement Wednesday morning staunching denying any wrongdoing. The Amaya CEO expressed, “These allegations are false and I intend to vigorously contest these accusations. While I am deeply disappointed with the AMF’s decision, I am highly confident I will be found innocent of all charges.” The embattled CEO still has the support of the company’s board of directors. Dave Gadhia, Amaya’s “lead director and an independent board member” issued a statement, saying, “David Baazov has the full support of the independent members of the board.”
The investigation and now the charges revolve around the company’s trading activities surrounding their takeover Oldford Group, Ltd. in June 2014 the parent company which owned PokerStars. The Globe and Mail called the investigation “the biggest in Canadian history.” In December 2014, the Royal Canadian Mounted Police (RCMP) and AMF raided the company’s Pointe-Claire offices. Additionally, the RCMP and AMP raided companies affiliated with the takeover; Canaccord Genuity, a bank and securities company, and Manulife Financial, an insurance company based in Vancouver.
Amaya was formed in 2004. Baazov built the company up from the bottom up. Previously in computer sales, in 2006 Baazov became the fledgling company’s CEO. He currently functions as its Chairman of the Board, President, Chief Executive Officer, Treasurer, and Secretary. In the past few years, the online gambling company has grown mostly from acquisitions transforming it from a service, software, and product provider to online gaming power player. The company operates gambling sites “PokerStars and Full Tilt Poker” and is considered as CTV News notes, “the world’s largest online gambling company.”
The small operation exploded into an industry giant in June 2014 when they announced their intention to buy Oldford Group Ltd. that owns Rational Group Ltd. and PokerStars, “the world’s biggest online poker company,” and Full Tilt Poker that had a combined 85 million users. Amaya bought Oldford for $4.9 billion US in cash, without Baazov investing a penny of his capital, Blackstone Group, the world’s largest equity firm providing the significant portion of the funding and is the company’s largest investor.
In a December 2014 Forbes profile, Baazov had boasted that he based his credit on buying Oldford on the fact he would be taking his company’s stock from $7 USD a share to $21USD a share. Baazov’s remarks to the magazine were akin to an admission of guilt. As Forbes noted it would be an unheard of feat, writing, “If a CEO in the history of capitalism had ever managed to sell equity for such a sky-high premium, the top minds at Blackstone’s credit group had never heard of it.” After the acquisition, the stock skyrocketed to $39.25 a share surpassing Baazov’s expectations, 340 percent this year alone, giving Baazov’s 12.5 percent of company shares a value of approximately $800,000 million.
Even before the takeover announcement, stocks prices started to increase in May 2014, and suspicion mounted that the company was going to make a big move. Forbes indicated part of the way Baazov was able to complete the buyout by August 2014 was by selling Amaya company shares. At that point, the shares were at $18 USD, and preferred shares at $21 USD, amassing a total of $1.7 billion, while Blackstone, GSO provided $1 billion “biggest-ever financial commitment in a single deal.”
Since the announcement, Amaya stocks have been plummeting on the Toronto Stock Exchange with midmorning trading going down 21.3 percent to $14.61. The investigation has been putting Amaya’s stock on a downward trend the only increased in the later part of 2015 when lower than expected earnings prompted stocks to plunge from over $30. With the prices tumbling Baazov announced in February his plans to take the company private with him and his close associates buying out the shares supposedly for $21 each share, which is 20 percent more than the $18 it was trading at before the AMF laid charges against the company’s executives.
As the Financial Post notes in 2015 the company had a “was $15.8 million net or 7 cents per share “loss from continuing operations.” In comparison in 2014, Amaya had “net earnings of $35.6 million, or 17 cents per share.” The post also pointed out, in the last quarter of 2015, they had “revenues of $389.5 million… compared to $339.4 million in 2014.” For the entire 2015, the company “earned $372.2 million, or $1.76 per share” in 2014 they made “$314.9 million, or $1.53 per share,” while “revenues were up 8.3 percent to $1.37 billion.”
By March, Baazov was supposed to present his buyout proposal to the board, but he has not yet done so. The company expanded on March 21 with PokerStars and Full Tilt Power going live. The company wants to extend the online gambling sites to California, Pennsylvania, and Florida. The company is also facing legal challenges from the state of Kentucky.
Despite the charges, Baazov vowed to continue at the top of company’s helm and present his takeover offer. Baazov said in his statement, “While I have no further comment on the bid process at this time, I am still committed to working with my investor group and the board to consummate a successful transaction, which I believe is in the best interests of shareholders.”