The gambling affiliate of Wall Street firm Cantor Fitzgerald LP has negotiated to pay over $2 million under a tentative settlement reached over the weekend with the Nevada Gaming Control Board, according to people familiar with the matter.
The settlement is to address allegations against Cantor's affiliate by gambling regulators in a civil complaint filed this week before the Nevada Gaming Commission. The complaint said the company or Lee Amaitis, chief executive of the Las Vegas-based sports-betting unit, known until this week as Cantor Gaming, knew or should have known that one of their top executives was taking illegal bets. According to the complaint, failure to supervise an employee sufficiently to prevent criminal activity violates Nevada gaming regulations. Cantor Gaming's failure to do so "tends to reflect poorly on the reputation of gaming in the State of Nevada" and could hurt development of the industry, the complaint said.
The state doesn't allege that Mr. Amaitis engaged in specific illegal actions himself, and, through a spokesman, he denies doing anything improper.
The complaint involves allegations Cantor employees knowingly accepted bets from runners working on behalf of an allegedly illegal gambling organization known in law-enforcement circles as the "Jersey Boys."
The settlement is expected to be completed in the next couple of days but could still fall apart. Such a settlement would be a relatively large fine for Nevada gambling regulators. It would still need approval from the Nevada Gaming Commission, which oversees gambling regulators in the state.
Nevada gambling regulators generally allow companies to settle by acknowledging that the board would win its case without admitting wrongdoing, according to a person familiar with the matter.
The company denies wrongdoing beyond the actions of the former executive, Michael Colbert, and expects to resolve all matters "reasonably soon," a spokesman said.
"The Company conducted its own extensive internal analysis of Mr. Colbert's actions and of the Company's systems, operations, and procedures, and has implemented additional industry-leading compliance processes," the company said in a statement.
"It's going to be a severe punishment that will resolve the matter in the regulatory world," said A.G. Burnett, chairman of the Nevada Gaming Control Board. "The hope is that the company will be more compliant with the board in the future."
The complaint and potential settlement are the latest developments in a series of federal and state investigations following Cantor Fitzgerald's unusual attempt to build a sports-betting business based on financial-market technology.
Among the investigations being conducted, previously reported by The Wall Street Journal, are those from the Brooklyn U.S. attorney's office and Internal Revenue Service, according to people familiar with the matter.
That effort at Cantor was spearheaded by Mr. Amaitis, a veteran Cantor Fitzgerald executive who created Cantor Gaming.
Founded in 1945, Cantor Fitzgerald remains one of the largest private partnerships on Wall Street.
Led by its longtime chairman and CEO, Howard Lutnick, the firm has branched out in the past decade from its core brokerage business to a bevy of other financial services, including commercial real estate, investment banking and gambling. The company became an important touchstone of the attacks of Sept. 11, 2001, when hundreds of the firm's employees died in the collapse of the north tower of the World Trade Center. Mr. Amaitis was then running Cantor's international business from London, where he built a reputation as a tough-nosed manager.
In October 2012, Mr. Colbert, then the gambling unit's director of risk management and chief bookmaker, was indicted by the Queens, N.Y., district attorney among a group alleged to have been running a separate and illegal sports-betting network. The people indicted included proprietors of offshore betting websites and alleged bookmakers. He was charged with enterprise corruption, money laundering and conspiracy. That indictment prompted the Nevada Gaming Control Board to investigate whether the firm itself had violated gambling regulations.
The charges by the Queens district attorney were later dropped against Mr. Colbert, who no longer works at Cantor. Around the same time, federal prosecutors in Brooklyn, N.Y., charged Mr. Colbert with knowingly accepting illegal wagers on behalf of Cantor Gaming. He pleaded guilty in a federal court last year to the charges and is cooperating with Brooklyn prosecutors in their ongoing investigation, according to people familiar with the matter. An attorney for Mr. Colbert didn't respond to requests for comment Tuesday.
The sports-betting unit on Monday said it was dropping the word "Cantor" from its name, which it changed to CG Technology.
The Wall Street Journal reported in October that the investigation reached further up at Cantor Gaming, with federal prosecutors in Brooklyn looking at whether either Mr. Amaitis or the company itself bore responsibility for accepting illegal sports bets as well as for violating money-laundering laws by failing to report suspicious transactions. That investigation is still continuing, according to a person familiar with the matter.
Other agencies investigating Cantor's gambling unit have included the New York City Police Department, U.S. Postal Inspection Service, Internal Revenue Service, the Treasury Department's Financial Crimes Enforcement Network and the inspector general of the Federal Reserve Board, for which Cantor Fitzgerald is a primary dealer authorized to buy Treasury securities directly. Those investigations are ongoing, according to a person familiar with the matter.
The Gaming Control Board's complaint, issued Monday, said Mr. Colbert was involved in a scheme to take thousands of bets worth more than $30 million from messengers on behalf of alleged bookmaker Gadoon Kyrollos. Such third-party bets are illegal in Nevada, the only state in the country where it is legal to offer a full array of sports betting.
Mr. Kyrollos maintains that he is a bettor and not a bookmaker and denies any wrongdoing, according to his attorney. He pleaded not guilty to the Queens indictment.
Nevada in its complaint also alleged that Cantor Gaming violated several other gambling regulations, such as failing to keep proper player records and allowing employees to bet.
However, it said that he "either knew or should have known that Colbert was conducting the illegal activity."
Mr. Amaitis was once a top Cantor Fitzgerald executive who ran the firm's financial business and used Cantor Fitzgerald's coffers to start the gambling unit in Las Vegas. He offered revenue- sharing deals to casinos that had long seen sports betting as more of an amenity than a profit center in exchange for the right to run their sports books, according to company filings with the Securities and Exchange Commission.
Since setting up shop in Nevada and promising to use technology based on Cantor's bond- trading platform to transform the sports-betting business, Mr. Amaitis has often noted the gambling business's financial-industry roots.
The company said that the "new identity represents its commitment to develop and deliver best-in-class technology products and services for the gaming industry."
The sports-betting business was started with funds from Cantor Ventures, the venture-capital arm of Cantor Fitzgerald, the company disclosed this week. It said Cantor Ventures has no equity interest in the gambling business, without disclosing the identities of its current owners. The former Cantor Gaming says it controls over 30% of Nevada's sports-wagering market.
Write to Alexandra Berzon at alexandra.berzon@wsj.com and Michael Rothfeld at michael.rothfeld@wsj.com