United States Attorney Southern District of New York The Silvio J. Mollo Building One Saint Andrew's Plaza New York. New York 10007 March 26, 2007
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U.S.
Department of Justice
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United
States Attorney
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Southern
District of New York
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The
Xxxxxx X.
Xxxxx
Building
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One
Saint Andrew's Plaza
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New
York. New York 10007
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March
26, 2007
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Xxxxx
X.
Xxxx, Esq.
Pillsbury
Xxxxxxxx Xxxx Xxxxxxx
000
Xxxxx
Xxxxxxxx Xxxxxx, Xxxxx 0000
Los
Angeles, California 900
17
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Re:
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ECHO,
Inc -Non-Prosecution
Agreement
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Dear
Xx.
Xxxx:
On
the
understandings specified below, the Office of the United States Attorney for
the
Southern District of New York (the “Office”)
will not
criminally prosecute Electronic Clearing House, Inc., and its subsidiaries
(collectively, “ECHO”) for any crimes (except for criminal tax violations, as to
which this Office cannot and does not make any agreement) related to its
transfer of money through its electronic payment services, including the
automated clearinghouse (“ACH”) system and related collection activities, on
behalf of, or for the benefit of, any company providing payment services to
any
internet gambling operation servicing customers within the United States during
the period January 2001, through and including the date of the signing of this
Agreement. This conduct is described more fully in the Statement of Facts,
which
is attached hereto as Exhibit A, and incorporated by reference herein. This
Agreement is entered into by ECHO pursuant to authority conveyed by resolution
of the Executive Board of ECHO. A copy of the resolution is attached hereto
as
Exhibit B.
Moreover,
if ECHO fully complies with the understandings specified in this Agreement,
no
information given at the request of this Office by or on behalf of ECHO or
any
then- current employee (or any other information directly or indirectly derived
there from) will be used against ECHO in any criminal tax prosecution. This
Agreement does not provide any protection against prosecution for any crimes
except as set forth above, and applies only to ECHO and not to any other
entities or any individuals except as set forth herein. ECHO expressly
understands that the protections provided to ECHO by this Agreement shall not
apply to any successor entities, whether the successor’s interest
arises
through a merger or plan of reorganization, unless and until such successor
formally adopts and executes this Agreement. The protections arising from this
Agreement will not apply to any purchasers of all or substantially all of the
assets of ECHO, unless such purchaser enters into a written agreement, on terms
acceptable to this Office, agreeing in substance to undertake all obligations
set forth in the Continuing Obligation to Cooperate paragraph.
Xxxxx
X.
Xxxx, Esq.
March
26,
2007
Page
2
Continuing
Obligation To Cooperate
ECHO
acknowledges and understands that the cooperation it has provided to date in
connection with a criminal investigation by the Office, and its pledge of
continuing cooperation, are important and material factors underlying the
Office’s
decision to enter into this Agreement, and, therefore, ECHO agrees to cooperate
fully and actively with the Office, the Federal Bureau of Investigation (the
“FBI”), and with any other agency of the government designated by the Office
(“Designated Agencies”) regarding any matter relating to the Office's
investigation about which ECHO has knowledge or information.
In
this
regard, it is understood that, in connection with any matter relating to
ECHO’s
operations, finances, and corporate governance between 2001 and the date of
the
signing of this Agreement, ECHO: (a) shall truthfully and completely disclose
all information with respect to the activities of ECHO, its officers and
employees, and others concerning all such matters about which this Office
inquires, which information can be
used
for
any purpose, except as limited by the second paragraph of this Agreement; (b)
shall cooperate fully with this Office, the FBI, and any other law enforcement
agency designated by this Office; (c) shall, at the Office’s request,
use its
best efforts to assist this Office in any prosecution or investigation arising
out of the operation and/or financing of any internet gambling site conducting
business with customers in the United States, by providing logistical and
technical support for any meeting, interview, grand jury proceeding, or any
trial or other court proceeding; (d) shall at the Office's request, use its
best
efforts to promptly secure the attendance and truthful statements or testimony
of any officer, agent, employee, or former employee at any meeting or interview
or before the grand jury or at any trial or other court proceeding; (e) shall
use its best efforts to promptly provide to this Office, upon request, any
document, record, or other tangible evidence relating to matters concerning
any
automated clearinghouse services about which this Office or any designated
law
enforcement agency inquires, including assembling and organizing all documents,
records, information, and other evidence in ECHO’s possession,
custody, or control as may be requested by the Office or the FBI; and (f) shall
bring to this Office's attention all criminal conduct by, or criminal
investigations of, ECHO or its employees that comes to the attention of ECHO's
board of directors or senior management, as well as any administrative
proceeding or civil action brought by any governmental authority related to
the
operation of ECHO’s business.
It is
further understood that ECHO shall commit no crimes whatsoever. Moreover, any
assistance that ECHO may provide to federal criminal investigators shall be
pursuant to the specific instructions and control of this Office and designated
investigators. ECHO'S obligations under this paragraph shall continue until
the
later of (1)
a
period
of one
year
from
the date of the signing of this Agreement or (2) the date upon which all
prosecutions arising out of the conduct described in the opening paragraph
of
this Agreement are final.
2
Xxxxx
X.
Xxxx, Esq.
March
26,
2007
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Disgorgement
Obligations
In
order
to eliminate any benefit that ECHO received that may have related to the online
gaming business, XXXX agrees that it will pay a total of $2,300,000 (the
“Property”) to the United States as part of this Agreement. XXXX agrees to pay
this money to the United States at the time of the execution of this Agreement.
Such payment shall be made by a certified check payable to the United States
Marshals Service or wire transfer to an account designated by the United States
Marshal for the Southern District of New York. XXXX agrees that it will not
file
a claim with the Court or otherwise contest any civil forfeiture action and
will
not assist a third party in asserting any claim against the Property, except
as
required by lawful process. It is further understood that ECHO will not file
or
assist anyone in filing a petition for remission or mitigation with the
Department of Justice concerning the Property.
Additional
Obligations
It
is
understood that, should ECHO commit any crimes subsequent to the date of the
signing of this Agreement, or should it be determined that ECHO or any of its
representatives have given false, incomplete, or misleading testimony or
information, or has otherwise violated any provision of this Agreement, (a)
ECHO
shall thereafter be subject to prosecution for any federal violation of which
this Office has knowledge, including perjury and obstruction of justice; (b)
all
statements made by ECHO'S representatives to this Office, the FBI, or other
designated law enforcement agents, including but not limited to the Statement
of
Facts, and any testimony given by ECHO'S representatives before a grand jury
subsequent to the signing of this Agreement, and any leads from such statements
or testimony shall be admissible in evidence in any criminal proceeding brought
against ECHO and relied upon as evidence to support any civil penalty imposed
on
ECHO; and (c) ECHO shall assert no claim under the United States Constitution,
any statute, Rule 410
of
the
Federal Rules of Evidence, or any other federal rule that such statements or
any
leads therefrom should be suppressed. In addition, any such prosecution that
is
not
time-barred by the applicable statute of limitations on the date of the
execution of this Agreement may be commenced against ECHO, notwithstanding
the
expiration of the statute of limitations between the signing of this Agreement
and the commencement of such prosecution or the imposition of such civil
penalties. It is the intent of this Agreement to waive all defenses based on
the
statute of limitations with respect to any prosecution that is not time-barred
on the date that this Agreement is signed.
It
is
understood that ECHO accepts and acknowledges as true the facts as set forth
in
the Statement of Facts attached as Exhibit A, which is incorporated by reference
herein. Pursuant to this Agreement, ECHO agrees to maintain, with respect to
its
operations, a permanent restriction upon illegally providing automated
clearinghouse services of any kind to any business entity providing internet
gambling services to customers in the United States in violation of the law
in
the United States.
It
is
understood that this Agreement does not bind any federal, state, or local
agencies, any licensing authorities, or any regulatory authorities. This Office
will, however, bring the cooperation Xxxxx X. Xxxx, Esq. March 26,2007
Page
4
and
remedial actions of ECHO to the attention of other prosecuting and other
investigative offices, if requested by ECHO.
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Xxxxx
X.
Xxxx, Esq.
March
26,2007
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With
respect to this matter, this Agreement supersedes all prior understandings,
promises and/or conditions between this Office and ECHO. No additional promises,
agreements, and conditions have been entered into other than those set forth
in
this letter and none will be entered into unless in
writing
and signed by all parties.
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Very
truly yours,
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XXXXXXX
X.
XXXXXX
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United
States Attorney
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Southern
District of New York
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By:
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/s/
Xxxxxxx Xxxxxxx
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Xxxxxxx
X. Xxxxxxx/Xxxxxxxxxxx X. Xxxxxxx
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Assistant
United States Attorneys
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/s/
Xxx Xxxxxx
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Xxx
X. Xxxxxx
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Chief,
Criminal Division
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AGREED
AND CONSENTED TO:
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| /s/ Xxxx X. Xxxxx, CEO | |||
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Pursuant
to Authority Conveyed By Date Resolution of the Executive Board of
ECHO
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Date
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APPROVED:
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/s/
Xxxxx X. Xxxx
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3/26/07
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Xxxxx
X. Xxxx, Esq.
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Date
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Pillsbury
Xxxxxxxx Xxxx Xxxxxxx for ECHO
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STATEMENT
OF FACTS
Electronic
Clearing House, Inc. (“ECHO”) is an electronic payment processor that provides
for the payment processing needs of merchants, banks, technology partners and
collection agencies. ECHO derives the majority of its revenue from two main
business segments: I) bankcard and transaction processing services (“bankcard
services”), whereby it provides solutions to merchants, banks and technology
partners to allow them to accept credit and debit card payments from consumers;
and 2) check-related products (“check services”), whereby it provides various
services to merchants, banks, technology partners, and collection agencies
to
allow them to accept and process check payments from consumers.
The
principal services offered within these two segments include, with respect
to
its bankcard services, debit and credit card processing, and with respect to
its
check services, check guarantee, check verification, electronic check
conversion, check re-presentment, and check collection. ECHO operates under
the
following brands:
s
MerchantAmerica, which
is the retail provider of all credit card, debit card and check payment
processing services to both the merchant and bank markets;
s
National Check Network
(“NCN”),
which is ECHO's proprietary database of negative and positive check writer
accounts, for check verification and check conversion capture services;
sXPRESSCHEX,
Inc. for check collection services; and
sECHO,
for
wholesale credit card and check processing services.
ECHO
was
incorporated in Nevada in December 1981. Its executive offices are located
at
000 Xxxxx Xxxxxxxxx, Xxxxxxxxx, Xxxxxxxxxx 930 10.ECHO's common stock is traded
on the NASDAQ Capital Market under the ticker symbol “ECHO.”
From
2001
until the beginning of 2007, ECHO provided payment processing and collection
services to several “internet wallet” or “e-wallet” companies. Those companies,
as ECHO has previously disclosed in its securities filings, authenticated
customers and acted as the online wallets for online merchants, including gaming
websites, and provided e-wallet and payment processing for those online
merchants. ECHO processed the transfer of finds between the consumer and such
e-wallets. After the individuals transferred money into their online wallets,
they could then use those funds to make online purchases, including placing
bets
on gaming websites.
In
late
2001, ECHO began processing payments for Optimal Payments, the parent of
e-wallet Firepay. Over the next five years, it began providing processing
services to several other e-wallets, including Citadel, Mediapay and Neteller.
Additionally, ECHO provided to some of these e-wallets collection services
with
respect to delinquent accounts. ECHO knew that these e-wallets were providing
such services to these gaming websites. Each of these e-wallets almost
exclusively handled illegal transactions with online gaming websites.
Beginning
in October 2006, ECHO initiated a progressive wind-down plan for all e-wallet
companies and began shutting down processing and collection services for
e-wallets. In
addition,
ECHO is cooperating with the Department of Justice’s ongoing
investigation relating to e-wallets. To that end, ECHO has frozen funds
belonging to the e-wallet companies totaling approximately $21
million.
In
order
to eliminate any benefit that ECHO received that may have related to online
gaming, ECHO has agreed that it will disgorge any profits it earned from
processing transactions or providing collection services to e-wallets. While
some of the e-wallets acted as online wallets for non-gaming merchants, ECHO
has
calculated its earnings by including all revenues from services provided to
e-wallets, rather than just those e-wallet revenues specifically attributable
to
gaming. ECHO'S gross revenues from providing processing and collection services
to e-wallets totaled approximately $17.7 million over five years. In determining
its profits from the e-wallet revenues, ECHO allocated its expenses based on
(I)
the proportion of revenues attributable to the e-wallets and (2)
the
higher margin on most e-wallet transactions. As a result, ECHO estimates that
$2.3million
(total e-wallet revenue less expenses allocated to e-wallet business) reasonably
represents its profits from its business with the e-wallets.
MINUTES
OF THE MEETING OF
THE
BOARD OF DIRECTORS
OF
ELECTRONIC
CLEARING HOUSE, INC.
a
Nevada
Corporation
A
duly
noticed meeting of the Board of Directors (the
“Board”)
of Electronic
Clearing House, Inc., a Nevada corporation (the
“Corporation”), was held on March 21, 2007, at
3:00
p.m.
(local time), at the Corporation’s offices
at
000
Xxxxx
Xxxxxxxxx, Xxxxxxxxx, Xxxxxxxxxx.
The
following persons, constituting a majority of the directors of the Corporation,
were present: Xxxxxxx Xxxxxx, a director and the President and Chief Operating
Officer of the Corporation, Xxxxxxxxx X. Xxxxxxxxxx, Xxxx X.
Xxxxxxx,
Xxxxxxx X. Xxxxx, X. Xxxxxx Xxxxxxxx and Xxxxxxx X. Xxxxx. Also present for
portions of the meeting were Xxxxx Xxxxxx, Chief Financial Officer of the
Corporation, and Xxxx Xxxxxx, and Xxxxxxxx Xxxx, of New Century Capital
Partners, LLC and
WedBush Xxxxxx Securities, Inc., respectively. X. Xxxxxx Xxxxxx, Xxxxx Xxxxx
and
Xxxxxxx Xxxxxxxx of Xxxxxx Xxxxxxxx &
Markiles,
LLP, outside counsel to the Corporation, were also present during the meeting.
Xxxxx Xxxx, of Xxxxxxxxx Xxxxxxxx, white collar criminal counsel to the Company,
was also present. Xxxx X.
Xxxxx,
the Chairman and Chief Executive Officer of the Corporation, was
not
present.
Xx.
Xxxxxx
acted as
Chairman
of
the
meeting and Xx. Xxxxxxxx acted as secretary of the meeting and kept these
minutes.
The
Chairman announced that a quorum was present and that the meeting, having been
duly convened, was ready to proceed with its business.
1.
Intuit
Transaction and Summary of Grand Juw Subpoena Matter
The
first
item of business was [DISCUSSION REDACTED]. Upon motion duly made and seconded,
the following recitals and resolutions were approved by the Board:
WHEREAS,
it has
been proposed that the Corporation enter into a Non- Prosecution Agreement
substantially in the form attached hereto as
Exhibit
A (“Non-Prosecution Agreement”); and
WHEREAS,
the
Board has determined that it is advisable and in the best interests of the
Corporation and its shareholders for the Corporation to enter into the
Non-Prosecution Agreement.
NOW,
THEREFORE,
BE IT RESOLVED,
that
the Corporation's entry into the Non-Prosecution Agreement is hereby adopted,
approved and ratified;
RESOLVED
FURTHER,
that
the form, terms and provisions of the Non- Prosecution Agreement, are hereby
adopted, approved and ratified;
RESOLVED
FURTHER,
that
the officers of the Corporation, and each of them, are hereby authorized and
directed to execute the Non-Prosecution Agreement
and to cause the Corporation to perform its obligations under the Non-
Prosecution Agreement and to consummate the actions contemplated thereby;
RESOLVED
FURTHER, that
the
officers of the Corporation, and each of them, are hereby authorized, for and
on
behalf of the Corporation, to modify, amend or revise the form, terms and
provisions of the Non-Prosecution Agreement, to execute, deliver and/or file
any
and all documents, certificates, instruments, agreements and notices, and to
perform or cause to be performed any and all acts as may, in their judgment,
be
necessary or desirable to accomplish the purposes of the foregoing resolutions
and the actions contemplated thereby and the Non-Prosecution Agreement therein
approved, the making of any such
modification, amendment or revision,
the taking of any such actions and/or the execution, delivery or filing of
any
such documents or instruments shall be conclusive evidence that the individual
making such modification, amendment or revision, taking such action and/or
executing, delivering or filing such document or instrument has deemed the
same
to be necessary or advisable; and
FINALLY
RESOLVED, that the actions of the officers and other agents of the
Corporation, and each of them,
previously
taken in
connection
with
the
negotiation and/or the preparation of the forms, terms and provisions of the
Non- Prosecution Agreement are hereby ratified, approved and adopted.
[REMAINDER
OF
MINUTES
REDACTED]
[Signature
Page Follows]
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There
being no further business to
come
before the meeting, upon motion duly
made,
seconded
and unanimously
approved,
the meeting was.
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/s/
Xxxxxxx Xxxxxxxx
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Xxxxxxx
Xxxxxxxx
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Secretary
of the Meeting
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Attest:
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/s/
Xxxxxxx Xxxxxx
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Xxxxxxx
Xxxxxx
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Director
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