Canadian developer Pong to pay California $3.5M over illegal gambling

California has won a $3.5 million payoff in an illegal gambling lawsuit against entertainment and software company Pong Game Studios Corp. On top of paying the millionaire sum, the business is set to permanently cease its operations under a court settlement announced Thursday.

“Under the guise of lawful sweepstakes, Pong knowingly used casino-style games to prey upon vulnerable Californians,” said California Attorney General Rob Bonta. “Today’s judgment puts a halt to these unlawful activities.”

Canada-based Pong provided software to sweepstakes cafes throughout California, which operate as mini-casinos, predominantly marketed to vulnerable, low-income consumers, stated the Attorney General press office.

According to the American Gaming Association, this illegal industry earns more than $10 billion a year through unlawful gambling operations in storefronts, strip malls and commercial districts of cities and towns across the US.

Under California law, the gambling software offered on these sweepstakes systems constitutes unlawful slot machines or gambling devices. Despite a ruling by the California Supreme Court in 2015, which expressly declared the use of sweepstakes gambling systems as unlawful, Pong continued its gambling operations.

Pong Game Studios has now agreed to settle the lawsuit, which alleged the company violated laws on unfair competition and false advertising. A Solano County Superior Court judge approved the agreement, in which the company acknowledged that some of its operations were “unlawful, unfair or fraudulent.”

California filed its suit against Pong in 2016, seeking to permanently halt Pong’s illegal activities in the state, and for civil penalties to be paid on the basis of manufacturing, distribution and use of illegal gambling devices, as well as deceptive acts and practices. The Los Angeles city attorney's office and district attorney's offices in nine counties also sued the company.

As part of the resolution of the case, Pong may also be held liable for as much as $15 million should it fail to comply with the terms set out in the final judgment. Additionally, the company is required to relinquish all rights to seized assets described in the complaint. The California Department of Justice is also authorized by law to destroy all seized equipment.

“Pong’s illegal devices and software have bred unregulated pop-up casinos that have been magnets for criminal activity wherever they have arisen, and today’s judgment will get Pong’s illegal gambling software out of our state and send a clear message to other makers of illegal gambling software: take your business elsewhere,” said Kern County District Attorney Cynthia J. Zimmer.