Law Firms Seeking DraftKings Investors to Sue Company Over SBTech’s Alleged Black Market Activities

  • Five law firms are interested in a class action suit against DraftKings if investors are on board
  • Lawyers claim that DraftKings misled investors by not fully reporting SBTech’s dealings
  • A June 15 report claims that SBTech has been operating in black markets
  • One analyst believes the claims are dubious and would’ve been found by state regulators
DraftKings app icon on a smartphone
Law firms are looking for DraftKings investors to sue the company over allegations that SBTech has hidden black market dealings. [Image: Shutterstock.com]

Claim DraftKings misled investors

Five law firms are urging DraftKings investors to contact them to participate in a possible class action lawsuit regarding the sports betting and daily fantasy leader’s involvement with SBTech. The Portnoy Law Firm, Johnson Fistel LLP, Schall Law Firm, Pomerantz LLP, and attorney Howard G. Smith have each opened their own investigations into the company.

The potential legal action is the result of a June 15 report from investment research firm Hindenburg Research. Because of the report’s findings, the lawyers seeking investors to join them claim that DraftKings was not upfront with investors on important information about SBTech. As such, the company misled investors about its “financial condition.”

We conducted a thorough review of their business practices and we were comfortable with the findings.”

A DraftKings representative hand-waved the report’s claims, saying: “This report is written by someone who is short on DraftKings stock with an incentive to drive down the share price. Our business combination with SBTech was completed in 2020. We conducted a thorough review of their business practices and we were comfortable with the findings.”

Sure enough, DraftKings’ stock price fell 11.8% on the news of the report, though it closed on June 15 only down about 4.2%. It still sits below its pre-report price, but not by much.

Report says SBTech has shady dealings

In the report titled “DraftKings: A $21 Billion SPAC Betting It Can Hide Its Black Market Operations,” Hindenburg said that half of SBTech’s revenue comes from markets where gambling is illegal.

“Unbeknownst to investors, DraftKings’ merger with SBTech also brings exposure to extensive dealings in black-market gaming, money laundering and organized crime,” the report claims, calling SBTech’s operations in black markets “long and ongoing.”

DraftKings went public in April 2020 through a SPAC deal in which Diamond Eagle Acquisition Corporation bought it and SBTech. The resulting company changed its name to DraftKings, with the stock ticker DKNG. Though DraftKings was understandably the headline name, SBTech was important, as it meant DraftKings now had SBTech’s technology in-house.

Hindenburg also claims that SBTech has gone to lengths to cover up its alleged black market business, creating a “distributor entity” called BTi/CoreTech to serve as a sort of buffer between the “illicit customer relationships” and SBTech itself. About 50 SBTech employees, the report says, were moved from SBTech to BTi/CoreTech.

Analyst not buying it

At least one financial analyst does not think much of Hindenburg’s report. Daniel Adam, senior analyst at Loop Capital Markets told Yahoo! Finance Live that SBTech is only responsible for about 10% of DraftKings’ revenue. Hindenburg says that number is 25%, though Adam did say that the 25% figure was accurate at the time DraftKings’ went public.

He added that the point of the SBTech acquisition was SBTech’s technology, not its customer base. Adam also said that state regulators would have asked about any sort of “black market” operations if they existed, implying that something like that would be difficult to keep hidden.

that piece of the business is pretty irrelevant in the grand scheme of things for DraftKings”

“I can’t comment intelligently as to whether or not these allegations that were made relating to business dealings that occurred five and 10 years ago at SBTech are actually true,” Adam said, “but the reality is—fast-forward to today—that that piece of the business is pretty irrelevant in the grand scheme of things for DraftKings.”