DraftKings Shareholder Yu Files Lawsuit against Company Execs

DraftKings is facing another legal challenge after one of its shareholders filed a lawsuit against a number of senior executives and shareholders of the company.

The lawsuit, filed by Jiahan Yu in the US District Court for the Southern District of New York, focuses on allegations of the operator’s misdoings related to the acquisition of SBTech, on one side, and insider trading purported by some of the senior executives at the Boston-based daily fantasy and sports betting company.

SBTech’s Shady Dealings

The lawsuit argues DraftKings failed to ensure its sports betting technology provider, SBTech, discontinued illegal gambling operations in Asia following the completion of the three-way merger deal with special purpose acquisition company Diamond Eagle Acquisitions Corp (DEAC).

The business was conducted by a front company, BTi/CoreTech, the complaint outlines, reiterating a report released earlier by Hindenburg Research, which revealed the schematics behind the involvement of DraftKings in the illegal operations due to the lack of separation between SBTech and BTi/CoreTech following the transaction close last year.

The Hindenburg report also revealed possible involvement of organized crime in Thailand, Vietnam and China related to the technology behind BTi/CoreTech operations, further implicating DraftKings in wrongdoings from not disclosing these dealings and making false or misleading statements around the risk of financial crime stemming from these operations in Asia and the lawsuit sides with it.

The complaint names DraftKings CEO Jason Robins, CFO Jason Park, SBTech founder and DraftKings shareholder Shalom Mackenzie and DEAC CEO Jeff Sagansky among a total of 22 defendants, for violations in dealing with securities, unjust enrichment, gross mismanagement, waste of corporate assets, leading to long-term loss of company reputation.

Insider Trading

Further, the lawsuit alleges six executives at the Boston-based company colluded to participate in insider trading based on false or misleading statements with proceeds amounting to more than $825 million to date.

The DraftKings executives, including president and co-founder Matt Kalish, president of global technology Paul Liberman, board members Ryan Moore, Steven Murray, Hany Nada and John Salter, also profited from bonuses or financial incentives tied to the company’s share price by artificially inflating it.

According to the complaint, “the company has been substantially damaged as a result of the individual defendants’ knowing or highly reckless breaches of fiduciary duty and other misconduct.”

“As a direct and proximate result of the individual defendants’ conduct, DraftKings has also suffered and will continue to suffer a loss of reputation and goodwill, and a ‘liar’s discount’ that will plague the company’s stock in the future,” Yu’s lawyers state in the lawsuit.

The lawsuit comes at a time when DraftKings is under investigation by the Securities and Exchange Commission for the findings related to the Hindenburg report. Unfazed, the gaming and technology company is considering another major acquisition with a mammoth $22 billion price tag.