AllSportsMarket/SportsRiskIndex Stakeholder Update (Cover Letter) 2.20.10

February 20, 2010 in public

(This is the cover letter supplied to valid AllSportsMarket/SportsRiskIndex stakeholders. The documents referenced and additional materials will be provided to anyone following the instructions detailed in the November 2009 update on this page.)

The purpose of this narrative and explanatory material is to provide a detailed comprehensive understanding of the nearly 7 years of history behind this venture. It is my desire and intent to paint a complete and accurate picture and leave no major questions open and unanswered. I will stick to elements that are backed by evidence and can be validated with additional material. If I am offering an opinion or personal view, I will clearly state this.

With my personal experience as an Internet day-trader in the late 1990s and after some developmental work assisting a company that wrote sports betting software in the early 2000s, I had a brainstorm. Why was there no trading market for sports-based financial instruments? With the unbelievable appetite and soaring market for online “sports books”, why was there no regulated alternative to trade sports like stocks? In late 2001, I began sketching some notes and making drawings of what such a system would look like and how it would operate. During the years 2002-2003 with the programming help of Ace Underhill, a prototype of the trading environment was built and testing began. We hired a hosting provider in Vancouver, B.C. and uploaded the first version. At the time, I was living with my Costa Rican wife in Costa Rica. So, it made sense to establish our operations there. We formed Soluciones Globales Optimas, S.A. (SGO) as the operating entity. A translated copy of the original incorporation documents is included in the documents folder and is titled: SGOCorpDocs. I sought and received legal permanent resident status. I’ve included a copy of my “cedula” in the documents folder. For approximately 1 year we beta tested the platform and prepared to go live. On August 9, 2004, the market was started. The initial reception was overwhelming. We dealt with a whole host of technical, operational and procedural issues in those opening months. Since the market ran 24 hours per day/7 days per week, it was a non-stop around-the-clock job to keep everything in order. Since nothing like this had ever been attempted, we were heading down a new path and nobody knew what the next day would hold. For me, there was one very clear statement: We proved the concept. From the very start, I was very public about our overall intentions and declared it in our mission statement. We would build a regulated and legitimate platform for trading sports-focused financial instruments. In my view, the AllSportsMarket platform represented a proof of concept and demonstration tool from which to evolve into the final product. The “guiding light” was my internal dedication and public disclosure of this intended path and final destination at every point along the way. The years 2005 and 2006 were consumed by the constant tweaking of the configuration and trying to maintain the general order of the marketplace. We established a compliance department (the STCC) and developed fraud-checking routines in the market operating software to detect suspicious activity, multiple accounts, manipulation and irregular trading patterns. To maintain banking compliance with international anti-terrorism and money laundering laws, we started requiring our clients to submit identity and tax information. There was a significant faction of the membership that were holding multiple accounts, “gaming the system” and in major breach of the operating Terms of Service. These accounts were frozen. I began intensely studying the legal landscape looking for jurisdictional certainty for the market we built. To the best efforts of our investigations, we could not find laws prohibiting or permitting our operation. To me, this was an unacceptable status and would never allow us to reach our full potential. I made a public plea on the trader notice board to be proactively contacted by anyone familiar with our platform who had high-level connections to any Government Regulatory body (U.S. or otherwise). The purpose was to find a way to conform our model to existing laws or potentially seek the modification or creation of new laws under which to operate with legal certainty. I felt sure that a global “sports stock market” had great value for the sports industry, would generate tax revenue and serve the public interest in a very positive way. Not long after making that initial public plea for help, we became engaged with Woods Rogers and Woods Roger Strategic Solutions (lobbying arm) of Richmond Virginia. In the folder “Woods.Rogers”, you will find both engagement letters, the work blueprint and a memo on exempt boards of trade. During our discussions with Woods Rogers, they advised us that we should bring in an expert from another firm in Washington, D.C. This was our first introduction to Paul Architzel of the blue-chip firm Alston and Bird. He was described to us as THE expert in our field and a “gatekeeper” to the CFTC decision makers in Washington. It was not long before we realized that our purposes would be better served by a direct relationship with Paul and Alston+Bird in Washington. So, we moved this ahead and engaged directly.

Paul suggested that we hire Sharon Brown-Hruska, the former Bush appointed chair of the CFTC, as our lead economist and sports contract designer. Both engagement letters are contained in the folder: “A+B.NERA.Engagement”. The redacted portions were due to these letters being used during a critical development phase. The redacted names are: Sharon Brown-Hruska, Paul Architzel and United States Futures Exchange. The initial scope of the work involved studying the existing ASM platform to find a path to evolve the system and the instruments traded into the U.S. Regulatory space under existing law. Due to an event trigger on match win/loss, it was decided that we should develop a completely parallel platform and a new instrument alongside the running ASM market.
Alper Ozgit, an early ASM enthusiast, CWH investor and SRI co-inventor, focused a portion of his doctoral thesis on the original ASM design. I’ve included a copy in the documents folder titled: “Performance Based Sports Derivatives”. We also produced a short video summary and it is uploaded here: http://www.youtube.com/watch?v=0d7E_TH6UfI. In early 2006, we received some major media coverage from the floor of the NYSE. A short clip is posted here: http://www.youtube.com/watch?v=RYIjgFOa9y8

With the understanding that we would be developing a parallel business to operate the U.S. market, Crystal World Holdings, Inc. (CWH) and Crystal World Markets, LLC (CWM) were formed under the direction of Paul Architzel at Alston+Bird. CWH would be the holding company for all intellectual property and the master entity. CWM would be a wholly owned subsidiary dedicated to the U.S. market development and operations. Both 2007 company formation documents are included in the folder along with our IRS tax number assignment notice. SGO (Costa Rica) would stand separately and continue to be the operating entity for the existing ASM platform. SGO would license any necessary intellectual property from CWH. Rainforest Internet Providers, S.A. (RF) would hold equivalent stakes in both SGO and CWH thereby vesting its own shareholders equally in the original ASM (SGO) and the developing U.S. operations (CWH). This arrangement fulfilled on the promise to vest stakeholders in the present business and future regulated market enterprises simultaneously.

As time progressed through 2006 into 2007, it became apparent that we should focus our resources on CWH/CWM. Due to the continuing legal uncertainty of the existing ASM platform, we were advised by Paul Architzel at Alston and Bird to block U.S. clients. A copy of the legal opinion is provided in the documents folder titled: ASM.Model.Analysis. We agreed and made the necessary changes to prohibit the opening of accounts by U.S. persons. Prior to this, our U.S. client base represented about 75% of accounts. We were told that continuing to operate without legal certainty could jeopardize our efforts with CWH/CWM as well as create exposure. It was clear to me that the regulated U.S. market represented our future so the decision was clear. We would pull the plug on all marketing and advertising, restrict the U.S. clients and focus all our attention on CWH/CWM. We would continue to maintain the ASM platform and its legacy clients until a decision could be made on its future direction. We considered a number of configurations for operational bases in Europe and Asia focusing on markets other than the United States. In summary, the ASM market was put in a holding pattern and we pressed forward with great intensity on the U.S. market built on CWH/CWM.

Interestingly, there is a California-based company that serves the U.S. market and has raised several million dollars to expand. Having spent a considerable sum on legal counsel and economics talent inside the beltway who were specifically responsible for the authoring and administration of financial regulation over the futures markets, I am at a loss on how they continue to operate in the United States. If you are interested, the site is OneSeason.com. They took many elements from our model and actually tried to steal one of our marks. We were successful in having them discontinue use. A copy of our communication via Counsel is included in the documents folder titled: “OneSeason Cease and Desist”.

We decided to develop 2 families of products. One would be a binary contract on the selection of hosting sites for major sporting events such as the Olympics, World Cup and Super Bowl games. The flagship product would be an index contract that tracked the value of sports teams in terms of their financial health.
Prior to starting the full development cycle, Paul Architzel advised that we should make a presentation directly to the CFTC to brief them on our product development ideas. The purpose was to find out if we would be wasting our time because of the subject matter: “sports”. A copy of that presentation is included in the folder titled: CFTC Presentation 09.25.07. The outcome was very positive. We were informed by the CFTC Division of Market Oversight staff that sports is a business like any other irrespective of the fact that playing games is part of their operations. We were provided some design guidelines and development moved into high gear.

It was finally determined that redesigning ASM to carry these new instruments was financially and logistically impossible. It was also determined that building a new exchange and broker network was well beyond our capabilities overall. This opened the discussion of joining with a partner. At the time, Paul Architzel was also counsel to the startup futures exchange, United States Futures Exchange, based in Chicago. He arranged an introduction and detailed discussions and negotiations began shortly afterward.

In the Winter of 2007 and Spring of 2008, Paul was involved in discussions within the CFTC. As a former top director of the CFTC for 20 years, Paul was still very close to the agency staff. He informed us that the CFTC would take up the subject matter our contracts were built around in the Summer of 2008. He advised that we respond to the CFTC request for public comment when it was published. On July 7, 2008 our comment authored by Paul and signed by me appeared in the Federal Register:

http://www.cftc.gov/stellent/groups/public/@lrfederalregister/documents/frcomment/08-004c023.pdf
At this point, everything begins to move really quickly. In July 2008, we receive the fully executed copy of a 3-year license agreement to carry our sports-focused financial products to the world pending final CFTC approval. We are now focused on the implementation processes and working our way down a market startup checklist. On a parallel track, we are discussing ideas on how to handle the existing ASM clients and where we should relocate to continue operation. The HostCitySelect and HostCountrySelect binary contracts are complete and we are making final data arrangements with Nielsen Media for a sample historical T.V. ratings data set to complete the flagship SportsRiskIndex (SRI) product. I’ve included scans of the fully executed USFE contract including the FedEx envelope in a sub-folder: “USFE Contract”. I’ve also included a copy of the Nielsen invoice for the historical data needed to complete the SRI formulation titled: Nielsen Invoice Dated 11.21.2008. At this point, all the elements were coming together to startup operations in Q1 2009.

The big task at hand becomes the completion of the SRI formulation and filing for patent. The HCS binary contracts are complete but we will hold them for patent filing at a later time. I’ve included the HCS submission documents to the CFTC in the sub-folder: HCS.Contract. The completed SRI combined with our license agreement with United States Futures Exchange operating under CWH/CWM would complete our development cycle and bring our nearly 7 year journey to a successful conclusion. Ideally we would end up with two separate running enterprises both owned by a common set of stockholders. The existing “ASM” would be migrated to a (most likely) European jurisdiction and CWH/CWM would startup operations as the first U.S.-based regulated trading market for sports-focused financial products: “A Sports Stock Market”.

Then, the completely unexpected happens. The entire world economy begins to rapidly collapse. While continuing to complete the SRI formulation, finalize CFTC submission documents and prepare the SRI patent filing, I begin to notice that attempts to move the startup process ahead with USFE become increasingly difficult. The SRI submission to the CFTC is prepared. A copy is included in the SRI.Contract sub-folder along with real-world trading examples (titled: SRI.MLB.Trading). After many drafts and revisions, the SRI provisional patent is filed on December 22, 2008. 9 days later, USFE is unexpectedly terminated (http://www.usfe.com/) thereby voiding our contract and turning our business completely upside down. The immediate result is the total loss of financing. With this major piece of the business model bankrupt and horrid financial conditions around the globe, the risk profile becomes too high to continue financing by our principal funding partner. I must seek a new exchange to replace our now defunct agreement with USFE in order to have any chance of restoring our financing. Paul Architzel authored a CFTC status report document in an effort to assist securing new funding and a new exchange contract by detailing how close we were to completion when USFE failed. I’ve included a copy of the March 2009 report in the document folder. It is titled: “CFTC Status 03.04.09”.

The loss of financing for CWH resulted in the inability to continue supporting SGO. Over the past 10 months or so and continuing to this moment, I’ve been working through the liquidation of SGO and potential ASM account settlement procedures. I maintain a public log here: http://gsfe.blogspot.com/. I am standing in the Acting President/CEO role of CWH/CWM pending a final decision from serious investment discussions underway. I’ve included a spreadsheet that outlines the present stockholders of CWH along with a major remittances and payables detail. The document is titled: Crystal World Holdings – Cap Table + Payables + Remittances and is located in the root directory of the documents folder. There have been no Federal or Government of the District of Columbia tax returns filed yet as 2008 was the first full tax year for CWH. Included in the root directory of the document folder are copies of the three filed extension documents:

1. 2010.FP129A.Extension.Mailed.07.20.2009 (D.C.)
2. DC Form D20 Extension to 9.15.2009 (D.C.)
3. CWH Form 7004 2008 1120 Extension to 9.15.2009 (IRS)

To continue the support of the ASM platform and provide funding for the expensive process of developing CWH and CWM, we were granted a credit line as a lien against the CWH preferred stock. I’ve included a copy of the executed agreement titled: “CreditLine.1 and CreditLine.2”. The disbursements recorded until August 4, 2009 are outlined in the spreadsheet: “CWHLoanDisbursementSheet08.04.09”.

Following the December 2008 unexpected failure of United States Futures Exchange, we have been busily redrafting our business plans. I’ve included a copy of the most recent versions: CWH Exec Summary – Final – June 2009 and CWH Overview May 2008 in the documents folder.

We are presently in serious negotiations with a private investment group from Toronto who has expressed interest in purchasing a controlling interest in CWH. As part of the due diligence process, we’ve supplied them with many of the same documents you now hold.

For my part in developing this project, I have worked almost entirely without pay for nearly 7 years. The vast majority of my income resulted from royalty payments on personal intellectual property I own completely unrelated to (and pre-dating) this project. I’ve included my 2005 1040 filed return and IRS transcripts for 2006, 2007 and 2008 along with a statement of payments from the remitter to back my claims (see: Christopher.Rabalais.Personal.Returns.2005-8) At the present time, I continue to work without benefit of pay to reassemble the business after the major setback in December 2008. On top of this, I am carrying in excess of $35,000 of personal debt from company direct expenses. This says nothing of approximately $100,000 I personally invested over the course of 6+ years. I am making these points to be abundantly clear of my motives and disposition as it relates to this enterprise. There was never any possibility of profit for me unless we succeeded in our goals and I accept that.

I hope that this information has been helpful and I’ll be happy to address any aspect of it as part of our August 29, 2009 Internet Teleconference.

Sincerely,

Chris P. Rabalais
Acting President/C.E.O.
Crystal World Holdings, Inc.
Crystal World Markets, LLC

3 responses to AllSportsMarket/SportsRiskIndex Stakeholder Update (Cover Letter) 2.20.10

  1. I as a Rain Forest shareholder would also be interested in your response to this query.

  2. Hi Chris, I continue to support your efforts and look forward to successful launch. If you would provide more details in a future update of how owners of shares in Rainforest will be affected when CWH goes on the market, that would be appreciated.

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