Internet Porn Gets A New Banker

[R. A. Hettinga]

<http://www.forbes.com/2004/09/27/cz_sl_0927ibill_print.html>

Forbes



Financial
Internet Porn Gets A New Banker
Seth Lubove,   09.27.04, 2:00 PM ET

South Jordan, Utah, just south of Salt Lake City, is an otherwise
forgettable suburb. Other than the fact that it's the home of the Jordan
River Utah Temple, which boasts the largest capacity of any Mormon church
in the world, there isn't much else going on.


 South Jordan has another claim to fame the Chamber of Commerce is probably
less eager to boast about: It's the hometown of what has likely become the
largest U.S. processor of credit cards used to purchase Internet porn.

 That dubious distinction comes courtesy of a little-noticed lawsuit filed
Sept. 17 by Internet Billing against First Data (nyse:  FDC -  news  -
people  ). IBill acts as a middleman between 4,000 small, mostly porn,
sites and the banks that are critical to any credit card transaction. In
iBill's case, the bank was an obscure unit of First Data, a financial
services giant that expects 2004 sales of $10 billion. But apparently fed
up with the connection to the controversial business, First Data finally
got out of porn on Sept. 15 when its contract with iBill expired, leaving
iBill in the lurch (but still holding $14.5 million of iBill's deposits).

 For now, at least. iBill has another bank lined up to process its $300
million or so in annual credit card purchases. But the name of the bank may
raise eyebrows amongst the tee totaling, clean-cut Mormons of South Jordan,
as well as the heathens on Wall Street: Merrick Bank, a $500 million-asset
bank whose parent company, credit card-servicer CardWorks, is partly owned
by a fund controlled by Lewis Ranieri, the bond trading legend immortalized
by Michael Lewis' Liar's Poker who is now chairman of Computer Associates
(nyse:  CA -  news  -  people  ).

 It turns out Merrick, which says it "believes in bettering the community
in which it operates," knows a thing or two about porn. The company is
already processing credit cards for CCBill, a big aggregator like iBill of
credit card purchases for Internet porn. CCBill handles sites that include
Soundpunishment.com, GothicSluts.com, and Threepillows.com.

 Not surprisingly, the bankers who handle porn don't advertise the fact.
First Data, for instance, managed to avoid any connection with porn until
it was revealed in public filings as the company that owned the bank that
handled iBill's porn processing. Merrick's name popped up for the first
time in iBill's lawsuit against First Data, in which iBill blamed First
Data for reneging on a deal to process its credit card accounts until it
gets set up at Merrick in November. The court denied iBill's request for a
preliminary injunction on Wednesday, Sept. 22.

 "We have determined that processing payments of the adult entertainment
marketplace is inconsistent with our core values," sniffs a First Data
spokesman. He adds that the company warned iBill with "multiple notices"
that its contract would not be extended after its expiration.

 In a written statement, Merrick would not comment on whether it also
processes credit cards for CCBill, and claims it is "not now processing
credit card transactions for iBill," and "has no signed agreement to
process credit card transactions for iBill." But in iBill's lawsuit against
First Data, iBill claims Merrick sent a "commitment letter" to First Data
on Sept. 15 in which Merrick states that its board of directors has
"approved" iBill as a "merchant" account.

 Christopher Steele, the attorney for Ranieri & Co., would only say that
Merrick's affairs are "handled much more from CardWorks perspective. I
can't give you a comment on that."

 iBill still managed to find other ways to handle its accounts in the
interim. But news of the lawsuit, and the apocalyptic language of
"catastrophic consequences" iBill used to argue for a temporary restraining
order, has set the gossipy porn industry into a full lather.

 "Industry Watching iBill, Hoping For The Best," trumpeted industry trade
Adult Video News. "This would be devastating," wailed a poster on a porn
business bulletin board.

 Adding insult to injury, the closing of a deal for iBill to be sold to
Care Concepts I (amex:  IBD -  news  -  people  ) in exchange for 20% of
Care's stock was rescinded Friday. The company said the American Stock
Exchange threatened to delist its stock, in part because the acquisition of
iBill "raises public interest concerns." The statement is a cryptic
reference to a section of the exchange's policies that allows it to delist
a company if it does anything that is "contrary to the public interest."

 Care said it will work with the Amex to resolve the exchange's issues and
acquire iBill after that. But perhaps proving that the temptations of the
flesh are hard to resist, Care said it will go ahead with the deal even if
the Amex disapproves, and take its stock elsewhere.




-- 
-----------------
R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'