Class Action Lawsuit Filed Against DraftKings and FanDuel

A class action complaint has been officially submitted accusing the two mega Daily Fantasy Sports companies, FanDuel and DraftKings, of misleading and false advertisements of providing fair play.

This comes after a week of regulatory scrutiny and media criticism of DFS web sites because employees of such sites may receive an unfair advantage if they choose to try their hand at fantasy sports betting. The class action lawsuit was filed this Thursday and accused both companies of false representations and fraud.

The Lawsuit

The lawsuit was filed by Adam Johnson from Kentucky, who recently tried out DraftKings by depositing $100 into his account. He decided to file after seeing the recent news coverage that both companies allow their employees to enter contests from their competitor’s website to try to win real cash prizes.

The Controversy

The controversy involving DraftKings and FanDuel mostly comes down to whether or not both websites’ employees participate in insider trading when they are choosing the rosters for their sites. If this is the case, then they can win prize money from inside information. Although insider training is explicitly illegal in regards to purchasing stocks, the laws are fuzzy when it comes to non-public information used to gain an advantage in Daily Fantasy Sports gambling.

The Situation

FanDuel and DraftKings both experienced significant backlash and were required to defend their integrity. This is because it was discovered that one of DraftKings’ staff members had accidently revealed fantasy team data for the NFL before people’s DFS games were officially locked in. Things only got worse when it was found out that the same employee won $350,000 on FanDuel.

The Backlash

The backlash from this unfortunate incident and the resulting lawsuit was caused by people arguing that the employee could have used the information he gained from DraftKings to help him bet on the competing website FanDuel. This would be an advantage similar to knowing what your opponent’s hand was in poker. It essentially gives him a competitive edge since he knows which players in the NFL were not going to be used by many players on FanDuel, as both FanDuel and DraftKings function extremely similarly.

The Investigation

New York Attorney General Eric Schneiderman has officially launched an investigation into both FanDuel and DraftKings to determine if there is an advantage to being a DFS staff member when wagering on a competitor's website. Other DFS operators have also made a call for the US to create further regulations to the fantasy sports industry. This lawsuit only makes matters worse for the two DFS companies, which has been filed to prove that both companies let staff play on their competitor’s websites.

The Response

DraftKings put out an official statement denying that they are guilty of any unethical actions:

Again, there is no evidence that any information was used to create an unfair advantage, and any insinuations to the contrary are factually incorrect.

Although staff members of FanDuel and DraftKIngs are not allowed to use their own company’s website to play DFS, there is no policy stating that they are unable to play on their competitors’ sites. Both companies quickly change this due to the scandal, and so staff members are now banned from playing on other DFS websites. At this point, only time will tell as to whether or not this prohibition will solve the issue at hand and what will result from the pending class action lawsuit.

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