New York Court Sues DraftKings for Misconduct in SBTech Merger

By Todd Winkler,
Editor at online-gambling.com

Todd Winkler Editor at online-gambling.com

Todd Winkler is another one of our highly professional editors at online-gambling.com. The expert has been part of our team for 6 years, during which time he contributed articles regarding poker, blackjack, and DFS. Winkler is also knowledgeable about New Zealand's legal gambling market.

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Last updated: November 29, 2021

In both cases, it is alleged that DraftKings management violated its loyalty obligations by not reporting alleged black market deals to SBTech.

Both named DraftKings CFO Jason Park and CEO Jason Robins as defendants, and their charges are nearly identical. DraftKings made a contentious trilateral union with SBTech and DEAC in May 2020.

What the Hindenburg Research Discovered?

A report released in June by Hindenburg Research said that about 50% of SBTech’s income comes from domains where betting is prohibited.

It said that prior to the merger, SBTech attempted to cover it up by setting up a “front” organization called BTi Core Tech.

It will take over SBTech’s black market activities to hold the situation a secret from US regulators, according to the report.

The report also claimed that 1 of the customer is an Asian company that bets on sports on the black market, 12Bet. It has believed to be controlled by Paul Phua, a famous poker player, and junket operator. The Federal Bureau of Investigation stated that Phua was a leading member of the 14K triads.

We believe that DraftKings uniformly circumvented the rule and took active steps to hide its reports from the black market. These breaches seem to proceed until now, as insiders use sewage, said in the message.

As a small merchant, Hindenburg was very interested in reducing DraftKing’s inventory, and it worked. Following the release of the statement, the shares of DraftKings dropped 4.17%.

Prosecutors said the union raised the firm’s administrative and illegal risks and exposed plenty of black market transactions, systematic violations, and money laundering.

They also claim that the defendants and DraftKings gave inaccurate and fallacious claims to shareholders without disclosing genuine negative points about SBTech’s company. According to lawsuits, this directed to some “false hype” on the part of DraftKings.

More About the Lawsuit

Summing up the lawsuits, the United States Court named DraftKings shareholder Walter Marino as the main plaintiff.

The other party involved in the dispute suffered heavy losses. However, as a trader, the court ruled that his interests were not in line with those of the majority of share-owners.

Last month, the plaintiff voluntarily dropped a claim filed by a separate shareholder asking for the same.

Hindenburg noted that SBTech has a long and lasting experience in the black market and thinks that 50 percent of income comes from markets where betting is prohibited.

According to the report, prosecutors say DraftKings did not reveal that SBTech has engaged in illegal activities in the past.

As a result, the merger of DraftKings with SBTech, according to the plaintiffs, “raised the criminal and legal risks of the company associated with these transactions and inflated the cost of the alliance.”

DraftKings declared the alliance on 23rd December 2019 and made the alliance on 23rd April.

According to the statement, the lawsuit claims that DraftKings’ share value dropped $ 2.11 per share.

The suggested group includes people who purchased securities from DraftKings between 23rd December 2019 and 15th June 2021. The plaintiffs think that the group will contain a large number of members.

The court refused to appoint a day-trading and short-selling lawyer as the front petitioner after it noticed he had been assaulted for not relying on sale prices to negotiate market prices. After the trader was fired that day, the court decided Marino guilty with the second-largest equity stake as the front petitioner.