It Didn’t Stay Here: Texas regulators allege ‘illegal gambling scheme’ in Las Vegas

'illegal gambling scheme' in Las VegasThe Texas State Securities Board yesterday issued an emergency cease-and-desist order against a Las Vegas operation. The claim: It allegedly solicited Houston residents via social media for $10,000 investments by touting eye-popping returns from backing skilled but anonymous gamblers in Sin City casinos.

Texas Securities Commissioner Travis J. Iles said that Christopher Dino Paganelli, Paganelli Enterprises LLC and the public-facing investment vehicle AP Hedge (the AP apparently stands for “advanced player”) told investors there would be an average return of $1,000 per day, or $30,000 a month, on that $10,000 investment. The regulator in his order said the pitch was fraudulent and deceptive, failed to disclose material information, and amounted to an offering of unregistered securities in Texas. The order demanded that the parties stop dealing with Texans.

According to an official press release, which called the operation an “illegal gambling scheme,” Paganelli has 30 days under Texas law to challenge the order. I sent a request for comment to an email address listed on the AP Hedge website, which at this writing is still functioning. I helpfully attached a copy of the emergency order. I’ll update this post if I hear back.

The order specifies no total dollar amount that investors forked over, making me think this scheme may have been nipped in the bud. Also, according to Nevada state records, Paganelli Enterprises LLC only filed as a Nevada business entity on August 8, less than three months ago. And according to Internet domain records, the website APHedge.org was registered only on September 8, less than two months ago.

Plus this: Are there really that many foolhardy Houstonians out there who would believe claims of a 3,500% annualized return? Prior to becoming New To Las Vegas, I lived in Houston for seven years and did not find the population to be quite that financially un-astute.

At this point, nothing alleged has been proved. But the issuance of the emergency C&D is more than enough to make Paganelli a candidate for my list, It Didn’t Stay Here. It’s a roster of folks in trouble elsewhere for something that happened in Las Vegas. The list, which can be found elsewhere on this page, is a partial rebuttal to “What Happens Here, Stays Here,” the famous marketing slogan pushed by the Las Vegas Convention and Visitors Authority. In fact, the slogan is so famous that the subject line of the email with the Texas press release is: “What Happens in Las Vegas Stays in Las Vegas … Unless It’s a Fraudulent Gambling Investment Scheme Targeting Texans.”

Among the colorful allegations by Texas is the suggestion that AP Hedge falsely suggested it was located in the middle of the Downtown Las Vegas gambling district by including on the website a Google Map of that area labeled “AP Hedge Flagship Headquarters.” The order implies that AP Hedge actually is run out of a private residence in a gated subdivision 14 miles away in northwest Las Vegas and calls the lack of accurate location disclosure “materially misleading or otherwise likely to deceive.”

According to the order, AP Hedge, also known as APHedge and Advantage Players Hedge, solicited for investments tied to gambling through ads in the “financial services section of craigslist.org for residents of Houston, Texas,” and also via Instagram and YouTube. From the order:

[The pitches] are collectively claiming investors are ‘fed up’ with earning passive income through traditional investments, such as stocks, bonds, cryptocurrencies, forex and other ‘basic investment products.’ The solicitations are also explaining that basic investment products do not perform fast enough, rarely pay up, and are not worth the hassle, headache and stress required to invest with traditional firms. Respondents [Paganelli, Paganelli Enterprises LLC, and AP Hedge] are offering an alternative investment that permits investors to invest $10,000 in a gambling program that purportedly provides an average return of $1,000 per day, or $30,000 per month.

As Texas describes it, the money is then sent to “verified’ advanced players” chosen “based on proven track records and ROW (Rate of Wins).” These AP “exploit innate characteristics of a particular game–typically through gambling–to give the AP an advantage relative to the house and other players.”

Winnings are then split 50-50 between the APs and the investors. AP Hedge claims it doesn’t profit immediately, but “will monetize the scheme by partnering with advertisers at a later date.” The names of these skilled players are kept secret, AP Hedge is quoted as pitching, “for practical reasons relating to the risk of casinos banning APs.” Texas calls that non-disclosure another example of fraud and deceit.

Texas regulator Iles sees all kinds of problems, starting with the fact that the investment opportunity wasn’t registered with Texas. AP Hedge claims it is “100% legal” because it is raising capital pursuant to a private placement exemption from registration. Hogwash, the regulator says: The money was being solicited via social media, which definitely is not private.

For the quarter ending September 30, Nevada reported a record $3.7 billion in gaming winnings–the amount bettors lose to casinos. That’s 59% higher than a year ago. That makes sustained betting against the house–which essentially is what AP Hedge is pitching to Houston investors–an even riskier proposition. When it comes to the proceeds of gambling, what happens here really does stay here.

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