Embattled Lottery.com business facing class action lawsuit over accounting non-compliance
Investors round on operator after instances of potential fraud and non-compliance with state laws over lottery ticket transactions and financial declarations
Lottery.com – a source for lottery results – and three of its executives have been named in a shareholder class action lawsuit over irregularities and potential non-compliance with state and federal laws relating to accounting practices.
In a suit filed at the US District Court for the Southern District of New York by Lottery.com, investor Preston Million called out the operator, suggesting its executives had made “materially false or misleading” statements relating to three areas of company accounting.
The class action period in the lawsuit ran from November 15, 2021, when the company engaged an independently registered public accounting firm Armanino LLP as its primary auditors, and July 29, 2022.
Contentions highlighted include that Lottery.com had lacked adequate internal accounting controls, as well as not having sufficient internal controls in areas including revenue recognition and the reporting of cash.
Finally, the suit claims Lottery.com was not in compliance with state and federal law regarding the sale of lottery tickets, and as a result, company public statements were materially false and misleading “at all relevant times”.
On July 6, Lottery.com confirmed that an internal investigation had uncovered instances of “non-compliance” with state and federal laws “concerning the state in which tickets are procured as well as order fulfillment.”
The investigation also found issues relating to the company’s internal accounting controls. In light of the findings, the firm terminated the employment of company president, treasurer and CFO Ryan Dickinson.
On this news, Lottery.com’s shares fell more than 12%, to close at $1.07 per share on July 6, 2022. Later, on July 15, Lottery.com chief revenue officer Matthew Clemenson resigned.
https://twitter.com/PrestonMillion/status/1550593985370013696
The company would later confirm that the internal investigation had concluded Lottery.com had “overstated” its available unrestricted cash balance by more than $30m, with revenue likewise overstated by the same amount.
At the time, Lottery.com confirmed it had entered a period of internal review and the institution of “appropriate remedial measures”, a disclosure which triggered a further 14.5% drop in the company’s share price on July 16.
On July 22, Lottery.com CEO Lawrence DiMatteo resigned from his position with immediate effect.
Additional adverse disclosures were made in the following few days, before the company admitted on July 29 that it did not have “sufficient financial resources” to fund its operations or pay certain existing obligations, declaring its intention to furlough employees.
In addition, Lottery.com was forced to admit its resources could not fund operations over the next year, suggesting there was “substantial doubt” about the firm’s ability to continue, with winding down and a potential liquidation of company assets mooted as the next step.
As a result, shares of Lottery.com lost 64% of their value in a single trading day, falling by $0.52 per share to close at $0.29 per share by close of trading on July 29.
The legal challenge names three executives as primary defendants, Lottery.com CEO Lawrence Anthony “Tony” DiMatteo III, CFO Ryan Dickinson and chief revenue officer Matthew Clemenson, who have all since left the firm.
“The individual defendants possessed the power and authority to control the contents of Lottery.com’s SEC filings, press releases, and other market communications,” the suit states.
https://twitter.com/PrestonMillion/status/1561677665924521984
“The individual defendants were provided with copies of Lottery.com’s SEC filings and press releases alleged herein to be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or to cause them to be corrected.
“Because of their positions with Lottery.com, and their access to material information available to them but not to the public, the individual defendants knew that the adverse facts specified herein had not been disclosed to and were being concealed from the public, and that the positive representations being made were then materially false and misleading,” it adds.
In his suit, in which he is named as the primary plaintiff, Million calls on other investors to join the class action lawsuit, which calls for the payment of damages and a jury trial for the accused.
“As a result of defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the company’s securities, plaintiff and other class members have suffered significant losses and damages,” the suit stated.
Lottery.com was delisted from the Nasdaq stock exchange on August 22, after previously indicating it would be unable to produce mandatory financial statement documents required for a listing, with the firm now facing a 60-day period in which it can submit a plan to restore its compliant listing.
In the wake of the lawsuit filing, US lawyers The Portnoy Law Firm and Robbins LLP have also issued press releases inviting disgruntled shareholders to seek representation in the class action lawsuit through their respective legal practices.
The case continues.