Nevada bankruptcy trustees sue Australian gaming firm

Trustees of the bankrupt Sona group of gaming companies in Las Vegas are suing Australian gaming company eBet Ltd., claiming it failed to provide promised financing and that eBet’s CEO had a conflict of interest in rejecting the financing.

Sona Mobile Holdings Corp. and subsidiaries Sona Innovations Inc. and Sona Mobile Inc. filed for bankruptcy in March 2009. They’re still in Chapter 7 liquidation in U.S. Bankruptcy Court for Nevada.

In a 2008 filing with the Securities and Exchange Commission, Sona Mobile Holdings said that as of Sept. 30, 2008, it had assets of $2 million against liabilities of $6.2 million and had accumulated $26.4 million in losses since 2003 as it developed software for gaming and mobile devices.

This software enabled gambling and transactions over wired, cellular and Wi-Fi networks.

Based in New York with operations at times in Toronto; Boulder, Colo.; and Las Vegas, the company developed the Sona Gaming System involving casino games that were wired and wireless.

The filing said this offered “real-time, multiplayer games that accommodate an unlimited number of players.”

The system also provided “games on a play-for-free or wagering basis” on cell phones or any carrier, the filing said.

The filing said the system also involved horse and sports wagering applications for race and sports books, as well as on-track and off-track wagering, including live streaming video of horse races and other sports events.

One use of the system was for patrons in a designated sports book area to make race and sports wagers or play roulette, video poker, slots and table games between races or at halftime, court records say.

Remote-betting systems developed in a strategic alliance with Shuffle Master Inc. of Las Vegas were called mCasino and mWager.

The bankruptcy court trustees of the three bankrupt Sona entities filed an adversary complaint in U.S. Bankruptcy Court in Las Vegas on April 15 in hopes of recovering funds for the benefit of the bankruptcy estates and their creditors.

Besides eBet Ltd. of Macquarie Park, Australia, the defendants are eBet Services Pty. Ltd. and eBet CEO Anthony P. Toohey.

The complaint says that in August 2008, Sona Holdings entered into a licensing and distribution agreement with eBet, that eBet agreed to a “master services agreement” (MSA) with Sona Holdings and eBet committed to pay a license fee to Sona Holdings of $2.5 million.

As part of this deal, eBet Services Pty. would provide advisory services and software development and maintenance services, and Sona Holdings would pay for those services, the complaint says. However, eBet agreed to reimburse Sona Holdings for these costs through a chargeback arrangement, the complaint says.

The complaint says that under the companies’ arrangement, eBet was allowed to designate the CEO of Sona Holdings and that after Aug. 25, 2008, Toohey served as both CEO of Sona Holdings and eBet Ltd.

In February 2009, a Sona Holdings vice president advised Toohey that unspecified amounts were due from eBet to reimburse Sona Holdings for certain costs, including costs for equipment leases and costs for employees whom Sona had anticipated would transition to the employment of eBet, the complaint says.

“Sona Holdings expected that eBet would employ most of Sona’s technical staff — including the Canadian technical developers, and thereby reduce Sona’s cash outlay obligations,” the complaint says. “eBet did not transition Sona employees to eBet but instead agreed to compensate Sona for its employee and personnel costs relating to software development and software maintenance including the costs to employ the Canadian technical developers.”

“It was Toohey, as CEO and managing director of eBet Ltd., who failed to authorize and direct eBet’s reimbursement of Sona’s chargeback costs under the MSA and failed to authorize reimbursement to Sona for its employee costs resulting from eBet’s refusal to assume and transition Sona’s technical employees,” the complaint says.

The complaint alleges breach of contract, breach of the implied covenant of good faith and fair dealing and breach of fiduciary duty by Toohey and seeks damages of at least $1.2 million — not counting unspecified punitive damages.

“Toohey, as president and CEO of Sona Holdings, owed a fiduciary duty to Sona Holdings and its shareholders, including a duty of impartiality,” the complaint says. “Toohey had a conflict of interest by simultaneously serving as both president and CEO of Sona Holdings and CEO and managing director of eBet Ltd.

“Toohey breached his duties to Sona when his decision that eBet not pay Sona Holdings under the MSA benefited eBet and harmed Sona,” the complaint says.

Toohey, reached by e-mail, said he and eBet had no comment on the complaint.

It’s unclear from the complaint whether Sona could have survived, even if eBet had continued to fund it, as Sona had warned investors in 2008 it was reliant on continued investments to survive.

“Since its inception in November 2003, the company has generated minimal revenue, has incurred substantial losses and has not generated any positive cash flow from operations. The company has relied upon the sale of shares of equity securities and convertible debt to fund its operations in addition to the recent licensing agreement with eBet Ltd., which closed in September 2008. These conditions raise substantial doubt as to the company’s ability to continue as a going concern,” Sona said in a September 2008 SEC filing.

Sona Mobile Holdings lost $4.7 million on revenue of $312,000 in the nine months ended Sept. 30, 2008, the filing said.

Legal

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