Legal fears raised over gambling listings

One of Wall Street's leading law firms has warned investment banking clients not to back upcoming flotations in the lucrative online gambling sector.

Poker and gambling websites have rocketed in popularity in recent years and a number have listed on the London market, or are due to, with high valuations. PartyGaming, which floated this summer and closed on Friday with a market value of £4.3bn, will now join the FTSE 100.

But lawyers at New York's Skadden Arps Slate Meagher & Flom are understood to have warned clients to steer clear of the craze because of concerns about the legality of such sites in the US. The Department of Justice views online gambling as illegal. Companies such as PartyGaming, which garners 87 per cent of its revenues stateside, get round this by basing themselves offshore, but many commentators believe the US authorities will not allow the status quo to continue.

A partner at Skadden Arps, which advises leading investment banks including Merrill Lynch, said he was unable to comment on specific advice that the firm had given to clients. But he added: "The legal situation in the US is pretty clear."

According to trade magazine The Lawyer, other law firms are thought to be providing similar advice to clients.

Over the coming months, companies set to list include 32Red, which was set up by a former Ladbrokes partner, and Gibraltar-based 888.com, the world's largest online casino.

However, PartyGaming recently saw its shares dive after it warned that growth might not continue at the same rate. Meanwhile, it emerged last week that 888.com had cut its flotation valuation, from around £800m to a top price of £700m. The group had originally appointed CSFB to advise it on the flotation, but it is understood the bank quit over concerns about the situation in the US.

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