DraftKings execs targeted in new lawsuit over alleged illegal activity of SBTech

Several DraftKings senior executives and shareholders have been named in a multi-million-dollar lawsuit alleging illegal gambling activity relating to its SBTech sports betting subsidiary.

Shareholder Jiahan Yu filed the shareholder derivative action in the US District Court for the Southern District of New York. The filing concerns DraftKings’ dealings between December 2019 and June 2021.

The suit centres on SBTech, which was consolidated into DraftKings via a reverse merger with the Diamond Eagle Acquisition Corporation SPAC.

Echoing claims made separately by New York analysts Hindenburg Research, the suit alleges that DraftKings failed to ensure SBTech discontinued illegal gambling operations in Asia following completion of the merger.

These actions were undertaken by an SBTech subsidiary, BTi/CoreTech, which was named by Hindenburg in its own report.

It also suggests wrongdoing by DraftKings for not disclosing these dealings and making false or misleading statements surrounding the “heightened” risks of financial crime encountered by DraftKings in maintaining these operations.

Offences named in the lawsuit include Securities and Exchange Commission (SEC) law violations, as well as acts including unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets.

“The lack of separation between SBTech and BTi/CoreTech implicates the company in unlawful activity as, according to interviews of former BTi/CoreTech employees conducted by Hindenburg, “almost all” or “[w]ell over 90%” of BTi/CoreTech’s business comes from black or grey markets,” the lawsuit states.

“For instance, according to Hindenburg’s investigation, BTi’s technology has been linked to various black-market operators and to suspected organised crime, including in Thailand, Vietnam, and China,” it adds.

The lawsuit names 22 defendants including DraftKings CEO Jason Robins, group CFO Jason Park and Diamond Eagle Acquisition Corp CEO Jeff Sagansky.

DraftKings director and SBTech founder Shalom Meckenzie, one of the Boston-based operator’s largest shareholders, is also named among the defendants in the case.

In addition to the claims regarding malfeasance, the lawsuit claims that six DraftKings executives engaged in “lucrative insider transactions tied to false or misleading statements”, as well as receiving bonuses or financial incentives based on an artificially inflated share price.

These include DraftKings president and co-founder Matt Kalish and global technology president Paul Liberman. DraftKings board members Ryan Moore, Steven Murray, Hany Nada and John Salter were also linked to alleged insider trading in the lawsuit.

Transactions were made on a number of dates for proceeds of more than $825m.

“The company has been substantially damaged as a result of the individual defendants’ knowing or highly reckless breaches of fiduciary duty and other misconduct,” the lawsuit states.

“As a direct and proximate result of the individual defendants’ conduct, DraftKings has also suffered and will continue to suffer a loss of reputation and goodwill, and a “liar’s discount” that will plague the company’s stock in the future,” the lawsuit adds.

The lawsuit calls for a jury trial of the 22 individuals named in the lawsuit.

DraftKings is currently under investigation by the SEC over claims made in the Hindenburg Research report, which first made headlines in June and caused a dramatic dip in the company’s share price.

Separate class action lawsuits launched by other DraftKings shareholders are currently ongoing.

EGR has contacted DraftKings for comment on the lawsuit, but no comment has been made by the firm at the publication of this article.