A legal and regulatory debacle involving Evolution, a provider of online gaming products, has culminated with the New Jersey Division of Gaming Enforcement (NJDGE) concluding their investigation without taking any punitive action against the company. The case, which arose in November 2021, initially centered around accusations stating that Evolution’s offerings were accessible in countries under US trade sanctions, notably Syria, Iran, and Sudan.
These serious concerns were raised to the state regulator by Calcagni & Kanefsky LLP, a law firm that pointed out the possible misconduct. In reaction to the allegations, Evolution’s share value experienced a significant downturn, wiping billions from the company’s market value in a stark display of the financial markets’ tendency to react swiftly to any hint of regulatory mishaps.
Evolution was quick to counter these claims, stating they originated from an anonymous entity attempting to undermine their integrity. Evolution maintained that it utilizes comprehensive tools to block access from sanctioned areas, cooperating assiduously with both regulators and operating partners to ensure compliance.
As per Evolution’s assertion, individuals within the proscribed countries could only have gained access to its content through “sophisticated technical manipulation.” More specifically, this involved the use of virtual private networks (VPNs), advanced methods to override geographic IP blocks, and repeated direct connection attempts from the original IP address. Evolution describes these attempts as purposeful actions intended to traverse well-established location verification methods, undermining their credibility.
In the intricate ecosystem of online gaming, Evolution operates as a supplier and therefore mandates that its operator partners manage direct interactions with the players, which includes performing necessary Know Your Customer (KYC) due diligence and deciding on player eligibility. Evolution’s stance underscores its role as a supplier which does not directly handle players or their financial transactions, thereby shifting certain responsibilities to its operator partners.
Throughout the investigation, Evolution not only defended its business practices but also chose to scrutinize its internal processes. This introspection resulted in enhancements to its due diligence and compliance mechanisms, although Evolution emphasizes these improvements were not indicative of any past regulatory infringements. This proactive stance seems to have been well-received by the NJDGE, which has openly supported the improvements made by Evolution to their systems.
After exhaustive scrutiny, the NJDGE has explicitly stated that there is no evidence suggesting that Evolution promoted, permitted, or benefited materially from its content being offered unlawfully in any of the jurisdictions deemed to be prohibited. The regulator’s decision effectively puts an end to the allegations, allowing Evolution to move forward without the shadow of this particular inquiry looming over its business practices.
Evolution’s compliance and adherence to strict licensing requirements further demonstrate its commitment to legal and ethical operations. The company asserts that its partners are also under obligation to comply with jurisdictional licensing, ensuring a regulated environment where their offerings are active.
Despite this important vindication, the gaming provider faces separate legal challenges. A class action lawsuit filed last month alleges that Evolution misled investors regarding its growth trajectory and compliance with regulations. The lawsuit, which represents parties who purchased Evolution shares between February 14, 2019 and October 25, 2023, accuses the company of furnishing inaccurate statements regarding its prospects, customer and company compliance issues, and the potential revenue impacts stemming from non-compliance. Named in the case are Martin Carlesund, the CEO, and Jacob Kaplan, the CFO, both of whom will need to address these separate allegations in court.
For Evolution, the verdict from NJDGE comes as a significant respite, although the company remains under scrutiny as it continues to navigate complex regulatory environments and investor expectations.
