DraftKings Files Motion to Dismiss Lawsuit Over Security Violations

  • The litigation is a result of a 2021 lawsuit
  • Plaintiffs allege that DraftKings benefitted from SBTech’s black-market operations
  • The information is based on a 2021 Hindenburg report 
  • DraftKings claims that the plaintiffs have not properly implicated the named individuals
DraftKings ad at NASDAQ in Times Square
DraftKings has filed a motion to dismiss a lawsuit alleging multiple security violations. [Image: Shutterstock.com]

Lawsuit questions what DraftKings knew about SBTech

DraftKings filed a motion in late February to dismiss litigation over security laws. The litigation was a byproduct of a class-action lawsuit filed in 2021 alleging several federal security law violations. The lawsuit, among other claims, stated that DraftKings made false or deceptive statements about its relationship with SBTech.

would eliminate an expensive and invasive investigation process

The lawsuit was filed after DraftKings’ merger with the company was alleged to have exposed it to “black-market gaming.” The case has slowly deteriorated over time, however, and now that it has been stagnant for a few months, DraftKings has filed a motion to dismiss the complaint. If successful, this would eliminate an expensive and invasive investigation process.

The original case

Kent Rodriguez filed a suit on July 2, 2021, on behalf of himself and others in similar positions. His case targeted DraftKings, Chief executive officer Jason Robins, the special-purpose acquisition company (SPAC) that brought DraftKings public, and other insiders.

“Defendants made materially false and misleading statements regarding the Company’s business, operations, and compliance policies,” alleged Rodriguez’s suit.

Among the many complaints, the case also stated that “SBTech had a history of unlawful operations” that exposed the sports betting giant to black-market dealings. This posed a potentially major issue for DraftKings, which is constantly fighting for a share in the market.

The suit also attacked DraftKings’ revenue and attached it to illegal operations.

derived from unlawful conduct and thus unsustainable”

“The Company’s revenues were, in part, derived from unlawful conduct and thus unsustainable,” read the lawsuit.

These claims are similar to those published in the Hindenburg report in June 2021. That report ultimately caused the stock price to fall by 4.17%, which prompted an investigation by the US Securities and Exchange Commission (SEC).

The amended complaint

The original complaint was amended in January 2022 with the new caption “In re DraftKings Inc. Securities Litigation.” Walter Marino has taken over as the lead plaintiff and was in charge of making changes to the new suit.

The main focus of the case remains DraftKings’ merger with SBTech and the latter’s history of involvement in black-market dealings. It also claims that DraftKings’ relationship with SBTech was a massive factor in it going public via SPAC. 

The new amendment went so far as to say SBTech was the “technological and financial backbone.”

It focuses on information disclosed in the Hindenburg report that alleged multiple violations of the Exchange act. The amendment is seeking compensatory damages for damages against class members, interest, and attorneys’ fees.

DraftKings’ motion to dismiss

DraftKings and individuals named in the suit filed an expected motion to dismiss the case. The defendants are sticking to the claim that the prosecution has not named a claim that can lead to relief under federal rules. 

“silence, absent a duty to disclose, is not misleading” 

The defendants are building their case around the precedent from the Supreme Court case Basic Inc. v. Levinson which states “silence, absent a duty to disclose, is not misleading.” 

The defendants’ memorandum also states that the plaintiffs have not provided precise information as to SBTech’s activities; rather, they are focusing on sentiments and alleged wrongdoings.

The memorandum also continues that there are no clear allegations of fraud in the suit. It also says that DraftKings has conceded disclosures of risks associated with business “in unregulated jurisdictions outside the U.S.” 

Finally, the company’s lawyers argue that the accusers have not implicated all of the individuals named in the suit; this would effectively break down the entire case, as the plaintiffs must link all individuals to the alleged offenses.

Oral arguments have been requested and could force both sides to plead their case in person. There is likely to be an appeal if the motion to dismiss is granted.

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