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Friday, May 24, 2024 | Back issues
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Tainted Sports-Fantasy Contests Outrage Fans

MANHATTAN (CN) - Fantasy sports sites are facing real-world problems - big ones -as allegations of insider trading have prompted federal class actions against DraftKings and FanDuel.

Adam Johnson and Cody Allgeier, both of Kentucky, each filed complaints Thursday in Manhattan and Kentucky, respectively, against Boston-based DraftKings and Manhattan-based FanDuel. The New York case is a federal complaint, but Allgeier filed his case in Jefferson County Circuit Court.

They say the websites induced football fans into wagering money on contests that they allowed their own employees to play - and win using insider information.

According to the complaints, Johnson "deposited and risked" $100, and Allgeier $251, on DraftKings.

Had he known "defendants were working in concert to allow employees ... to play against them," however, Johnson says he would not have wagered the money.

"The biggest edges any player can have come from having data and information. DraftKings and FanDuel employees have access to both things, neither of which is public," the Manhattan suit states. "For instance, DraftKings performs analytics to determine winning strategies ... and even how lineups on FanDuel would do if they were entered into DraftKings contests." Information like this has led DraftKings employees to win at least $6 million from FanDuel contests, the complaints say.

Indeed, just last week, it was reported that DraftKings employee Ethan Haskell won $350,000 in a FanDuel contest, coming in second out of 229,883 entrants.

The scandal prompted New York Attorney General Eric Schneiderman to open an investigation Tuesday into fantasy sports sites like DraftKings and FanDuel.

A day later, DraftKings announced that it had "permanently banned [its] employees from playing any daily fantasy games for money, on any site."

Johnson is represented by Paul Whalen, of New York, and Jones Ward PLC, in Louisville, Ky.

Allgeier is represented by Jones Ward as well. Alleging negligence, fraud and false advertising, they seek damages, restitution and a cease-and-desist order.

The players hope to represent a class of "all persons in the United States who deposited money into a DraftKings account before Oct. 6, 2015 and competed in any contest where other entries were made by employees from DraftKings, FanDuel or any other [daily fantasy sports] site."

When approached for comment, FanDuel responded with a statement published on Oct. 7, distancing itself from the DraftKings contest.

"Based on everything we know thus far, there is no evidence indicating that the integrity of FanDuel's contest was in any way compromised, or that non-public information was used for unfair advantage," FanDuel said in a statement. "That said, the incident has raised questions about the trust-based relationship we have with our players so just relying on what we know right now isn't enough."

FanDuel claims to have "permanently banned our employees from playing any daily fantasy games for money, on any site."

"We will also require all customers to confirm that they are not an employee of any other third party fantasy site, and if they are, they will not be allowed to access our site," the statement continues.

FanDuel says it has also asked U.S. Attorney General Michael Mukasey, a former federal judge, "to review the facts and evaluate our internal controls, standards and practices," with help from a team of lawyers at Debevoise & Plimpton.

Another former U.S. attorney, Michael Garcia of the Kirkland and Ellis law firm, meanwhile will lead a new internal advisory board for FanDuel.

Though DraftKings declined to comment on the lawsuits, CEO Jason Robins told Fortune in an interview that the company is addressing the issue both by banning employees from playing and by "engag[ing] Greenberg Traurig to do a full audit of all the sensitive data available on DraftKings in the last several years - who accessed it, how and when they accessed it."

Robins also made a point distinguishing insider trading from what happened at DraftKings and FanDuel.

"It's not at all the same thing," he said. "While we agree that having that data can help your performance, the skillfulness of the players on DraftKings and their ability to compete is much more about an ability to synthesize a lot of data, not just one data point like ownership. With insider trading, markets move on a single data point in the world of securities trading."

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