Losing more than half the value of shares in a day is not as rare as we could wish. Usually, it comes with the receivers or when shares are suspended pending “financial restructuring”, a phrase that says we shall end with virtually nothing. A million learnt that blue chips such as Railtrack are not immune, in spite of their eminent status and solid assets. Occasionally, catastrophic loss is the result of a liability lawsuit or the failure of a pharmaceutical maker’s main drug. Police raids did for Polly Peck. Companies can suffer the imperial thumbs down when monopolies are being doled out, if they lose their licence to run a rail franchise, a lottery or, in old days, regional television.

Short of violent revolution or foreign invasion, however, it is hard to think of anything to compare with the panic that swamped an entire subsector of the London stock market on Monday, a day that will live in speculative infamy. London’s flotilla of internet gambling companies suffered a series of crippling torpedo hits after the US Senate effectively made all internet gambling illegal in America. Against smart, premium-cost predictions, it backed a House of Representatives move making it illegal for banks and credit card companies to handle payments to offshore gambling websites.

Shares in PartyGaming, the FTSE internet poker champion, dropped by 58 per cent. Sportingbet dropped 65 per and smaller companies followed suit. 888 shed a more modest 26 per cent because, unlike most of the others, nearly half its business is not in the United States. The odd Canadian internet gaming software company lost three quarters of its value.

World Gaming was the unlucky soldier not meant to be there when the attack happened. It was in the process of being bought by Sportingbet, which understandably cancelled its bid, since 95 per cent of World Gaming’s turnover came from America. Within 36 hours the company had admitted that it could be in technical default on its debt.

By then, Dresdner Kleinwort, which had a buy recommendation for its client Party-Gaming with a target price of 180p per share, was reviewing its position. It reckoned that, using what seems a wildly optimistic valuation basis, Party-Gaming’s remaining non-US business could be worth 38-50p per share. That would have it dismissed from the FTSE 100, losing the only company not audited by one of the big four global accountancy firms.

Within hours, however, PartyGaming shares had lost a further 4.75p to 40.25p after the company revoked its interim dividend for the January to June period to help reorientate its business. An obvious target for such moves is Gaming VC, which is aimed at Germans, or any outfit with a base in Asia.

From all this, you would think that the torpedoes from Washington came out of clear blue sea, if not sky. Not so. The critical warning came ten weeks ago, after David Carruthers, then chief executive of BetOnSports, was snatched by federal officials during an an airline transfer in Dallas. Investors were soon reminded that distance gambling on sports was illegal across the US, that any sort of distance gambling was illegal in an array of states and that both federal and state officials were getting agitated and trigger-happy about the rapid build-up of offshore websites targeted at US punters.

The House of Representatives had already passed its version of the law outlawing credit payments to gambling websites. So most of the value of the sector depended on “intelligence” that the Senate was unlikely to follow suit, even in election year. BetOnSports was a special case, it was said, because its founder had been targeted. When Sportingbet’s chairman was arrested, optimists said that only sporting bets were at risk. With luck, readers of this column will not have been stuck with online gambling shares. As argued here, it is rarely worth holding shares in a business that labours under serious legal or political doubts unless they trade at a heavy discount to reflect the risk. Tobacco shares, for instance, may now face another round of huge lawsuits.

Sadly, investors in tracker funds will still be holding a shrunken stake in PartyGaming, just as they held on to Marconi, Maxwell Communications, Railtrack and British Energy. They have no choice. For the rest of us, catastrophic risk is usually worth avoiding for all but rank gambles.

As with online gambling, there is usually plenty of warning. We know, for instance, that all main UK political parties think that cheap air flights are environmentally bad and should be taxed. We know that terrorists attack landmark buildings and transport systems, frightening travellers away. We know that supermarkets are vacuuming sales from high street chains and non-smokers spend less in pubs. We have been warned.

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