Investors allege that DraftKings hid illegal activities by its new subsidiary SBTech in order to keep share values high

Class Actions Related To DraftKings And SBTech Consolidated Into Single Lawsuit

Two class action lawsuits against DraftKings by its shareholders will become one. The shareholders are suing for monetary losses they believe resulted from the online gambling operator’s acquisition of SBTech.

The new, unified case will move forward in US District Court for the Southern District of New York. Judge Paul A. Engelmayer has granted his approval to the motion to consolidate last week, on Nov. 12. By next week, he expects to see “a joint letter setting out an efficient proposed schedule for next steps in this case.”

Engelmayer also chose a lead plaintiff for the combined case, Walter Marino. Marino’s attorneys, Robbins Geller Rudman and Dowd of San Diego, will likewise serve as lead council for the plaintiffs. That firm filed its case on July 2, which the docket now reflects.

The motion Engelmayer approved on Nov. 12 reads:

“Plaintiffs allege that SBTech’s transgressions left DraftKings exposed to dealings in black market gaming, which exposed DraftKings to regulatory and criminal risks and meant that some of its revenues derived from unlawful conduct. As a result, plaintiffs allege, various public statements by DraftKings were materially false and misleading, causing its shares to trade at artificially inflated prices.”

What is the class action about?

In December 2019, DraftKings announced the US online gambling operator would go public and merge with SBTech. Plaintiffs claim that DraftKings had misled potential investors about the value of the company and the legal risks associated with that acquisition.

Robbins Geller’s eligibility requirements for shareholders looking to join the class action were that the investor in question bought DraftKings stock between Dec. 23, 2019, and June 15, 2021.

The plaintiffs say that DraftKings’ “artificially inflated prices” ended abruptly on June 15. That’s when Hindenburg Research published a report titled DraftKings: A $21 Billion SPAC Betting It Can Hide Its Black Market Operations.

The report alleged numerous wrongdoings by SBTech prior to the DraftKings takeover. The allegations included providing back-end infrastructure to various black market gambling websites, working with criminal organizations, and attempting to obfuscate such misdeeds. Having acquired SBTech, DraftKings now has potential legal exposure to its subsidiary’s alleged actions.

One of the Hindenburg report’s bullet points claims:

“We think DraftKings has systematically skirted the law and taken elaborate steps to obfuscate its black market operations. These violations appear to be continuing to this day, all while insiders aggressively cash out amidst the market froth.”

Next steps for the plaintiffs, and for DraftKings

What Engelmayer expects to see on Friday is:

“The Court directs the parties to meet and confer and, by November 19, 2021, to file a joint letter setting out an efficient proposed schedule for next steps in this case, including proposed dates for the filing of (1) a consolidated amended complaint and (2) defendants’ response. If defendants anticipate that their response will take the form of a motion to dismiss, the parties shall include proposed dates for the opposition and reply briefs, as well. SO ORDERED.”

- Heather Fletcher is the lead writer with OnlinePokerReport. She's a career journalist, with bylines in The New York Times, Adweek and other publications. Reach her at [email protected]
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