Mounting iBill Problems Sinking Penthouse

Rhett Pardon
NEW YORK – Could it be that Penthouse International Inc. has been sunk by its iBill acquisition?

XBiz learned late Friday that Penthouse public shares would no longer be traded on the Over-the-Counter Bulletin Board and that its stock has been relegated to the Pink Sheets, a stock quotation service that handles high-risk ventures and isn't regulated by the Securities and Exchange Commission.

Penthouse stock lost 22 percent of its value on Friday, trading at 14 cents a share on the Pink Sheets.

Penthouse made an announcement Friday evening after markets closed, saying the move to the Pink Sheets was due to a late filing with the SEC. The company said that was caused by "a number of factors," including the company's acquisition this year of Internet Billing Company, also known as iBill.

The Justice Department is investigating iBill in an antitrust probe, company spokeswoman Catherine Beardsley told XBiz earlier this month.

Beardsley said that iBill, which processes credit-card transactions for the online adult industry, is being investigated with two other large adult processors.

She also told XBiz that Penthouse believes potential legal claims relating to iBill are in the tens of millions of dollars.

Deerfield Beach, Fla.-based iBill was acquired by Penthouse in March from InterCept Inc. through its Media Billing LLC division. The company said it learned of the investigation after closing the deal.

The probe by regulators is seeking to determine whether the two competing online adult payment providers, as well as iBill, collaborated to set fees and if so, whether practices are anti-competitive.

The names of the competing payment providers were not disclosed to XBiz by the Justice Department or Penthouse, but Beardsley told XBiz the processors are the No. 2 and No. 3 companies in the business.

Beardsley said iBill must provide the Justice Department with data regarding certain one-time fees charged to merchants in 2003.

She also said it received a letter from attorneys of a former iBill client to be reimbursed for “certain third-party costs, including Mastercard fines.” The letter sets forth an intention of a class action suit unless payment is made.

When public companies move over to the 100-year-old Pink Sheets, they are typically forced onto that exchange by dire financial circumstances, or because a firm is closely held by one or two investors with very few shares outstanding.

Penthouse said that it plans to file papers with the SEC in the next week to apply to relist on the Over-the-Counter Bulletin Board “on an expedited basis.”

The adult entertainment giant said that other factors came into play with the delisting. It indicated that reorganization plans, creditor agreements and four transactions also made it impossible for company executives to file papers with the SEC.

With the announcement, Penthouse said that it has moved a bankruptcy confirmation hearing to mid July. The court hearing was scheduled for June 10.

Penthouse said the plan hinges on nearly $61 million in financing.