DraftKings’ SPAC Merger Partner Had Links to ‘Black-Market Gaming,’ Securities Class Action Says

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DraftKings faces a proposed class action wherein an investor alleges the digital sports betting platform failed to disclose that a company it acquired by way of a merger had “a history of unlawful operations,” in particular dealings in “black-market gaming.” 

The 34-page lawsuit alleges DraftKings and its top executives, including CEO and Chairman Jason Robins, failed to inform investors that SBTech, who DraftKings acquired by way of a merger with special purpose acquisition company (SPAC) Diamond Eagle Acquisition Corp. (DEAC) in April 2020, had a shady past, which the plaintiff decries exposed the betting platform to “regulatory and criminal risks” with respect to the transactions between DraftKings and the SPAC at the time of the merger. 

The complaint claims DraftKing’s revenues, as a result of the foregoing, were, in part, “derived from unlawful conduct and thus unsustainable.” 

Upon the publication of a June 15, 2021 Hindenburg Research report in which it was alleged that DraftKing’s merger with SBTech exposed the former to “dealings in black-market gaming,” DraftKing’s stock price fell a little more than four percent, injuring shareholders financially, the lawsuit says. 

According to the lawsuit, DEAC on April 23, 2020 merged with DraftKings, with the latter surviving the merger, changing its name to “DraftKings Inc.” and acquiring all of the issued and outstanding share capital of SBTech, which became a subsidiary. Per the case, however, the Hindenburg Research report, which cited “conversations with multiple former employees, a review of SEC and international filings, and inspection of back-end infrastructure at illicit international gaming websites,” alleged SBTech “has a long and ongoing record of operating in black markets,” estimating that half of its revenues were from markets in which gambling is banned. 

During the class period, December 23, 2019 through June 15, 2021, DraftKings, the suit relays, represented SBTech in a far rosier manner, touting the company’s apparent status as a “premier global full-service B2B turnkey technology provider,” expansive regulated market reach, and “[p]roven track record of outperformance vs. industry peers on growth and margin,” among other accolades. 

Hindenburg’s report alleged that DraftKings’ merger with SBTech, unbeknownst to investors, “also brings exposure to extensive dealings in black-market gaming, money laundering and organized crime,” the lawsuit says. Hindenburg also alleged that it identified “numerous black market clients of DraftKings’ ‘front’ entity, through searches on social media and back-end web infrastructure,” and claimed DraftKings “has systematically skirted the law and taken elaborate steps to obfuscate its black market operations,” the case states. 

In a statement published by Law360, a DraftKings spokesperson said that the complaint “piggy-backs on a report recently published by a short seller with a financial incentive to drive down DraftKings’ share price.” 

“The complaint, which has not been served on DraftKings, was filed even though DraftKings’ stock currently trades at a higher price than just before the report released,” the spokesperson said. “Prior to our business combination with SBTech, DraftKings conducted a thorough review of their business practices, and we were comfortable with the findings.” 

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