Late final month, DraftKings filed a movement to dismiss an amended criticism in litigation surrounding securities legal guidelines.
The litigation stems from a class-action lawsuit filed in July 2021 alleging that DraftKings violated federal securities legal guidelines. Particularly, the lawsuit alleged that DraftKings made false or deceptive statements concerning the firm’s relationship with SBTech.
The case was filed a couple of month after the Hindenburg Analysis report that alleged the merger between the 2 gaming corporations uncovered DraftKings to “black-market gaming.” The rise of short-seller experiences will undoubtedly elevate novel questions that courts might be compelled to deal with.
Whereas the lawsuit has languished in current months because the plaintiffs have amended their criticism, DraftKings has now filed a movement to dismiss the amended criticism, possible hoping to move off an costly and doubtlessly intrusive discovery course of.
Background on authentic DraftKings criticism
The unique criticism filed on July 2, 2021, by Kent Rodriguez on behalf of himself and equally located people in opposition to DraftKings, the SPAC which introduced DraftKings to the general public markets, CEO Jason Robins, and a number of other different firm insiders alleged that the
“Defendants made materially false and deceptive statements relating to the Firm’s enterprise, operations, and compliance insurance policies.”
Particularly, the criticism alleged that DraftKings did not disclose:
- “SBTech had a historical past of illegal operations;”
- “accordingly, DraftKings’ merger with SBTech uncovered the Firm to dealings in black-market gaming;”
- “the foregoing elevated the Firm’s regulatory and prison dangers with respect to those transactions;”
- “on account of all of the foregoing, the Firm’s revenues had been, partially, derived from illegal conduct and thus unsustainable;” and
- “consequently, the Firm’s public statements had been materially false and deceptive in any respect related instances.”
If these allegations sound acquainted, it’s possible as a result of they’re just like the claims within the Hindenburg Analysis report revealed in June 2021. The plaintiffs reported that after the publication of the Hindenburg Report, DraftKings inventory worth fell by 4.17% to USD48.51 per share. At present, the inventory trades beneath USD20 per share.
The amended criticism
In January 2022, the plaintiffs filed an amended criticism beneath the brand new caption of “In re DraftKings Inc. Securities Litigation.” Headed now by the lead plaintiff, Walter Marino, the amended criticism revised among the allegations in opposition to DraftKings.
Nevertheless, the crux of the amended criticism continued to heart on DraftKings’ relationship with SBTech and SBTech’s alleged “lengthy and ongoing document of working in black markets.”
The amended criticism alleges that SBTech was a vital element to DraftKings going public by way of SPAC. SBTech was described because the “technological and monetary spine” and “was the one constructive contributor of working revenue.”
You’ve heard this earlier than
A substantial amount of the amended criticism is dedicated to reiterating the allegations contained within the Hindenburg Report.
The amended criticism makes a number of particular alleged violations of securities legal guidelines, together with:
- Violations of Part 10(b) of the Change Act; and
- Violations of Part 20(a) of the Change Act;
The amended criticism seeks compensatory damages for the whole thing of damages suffered by all class members, and prejudgment and post-judgment curiosity together with attorneys’ charges and prices.
DraftKings movement to dismiss amended criticism
DraftKings and the person defendants named within the criticism filed a movement to dismiss the amended criticism in a largely predictable transfer. The defendants argue that the plaintiffs have did not state a declare upon which aid may be granted beneath federal guidelines of civil process 9(b) and 12(b)(6).
DraftKings breaks their memorandum of legislation down into separate arguments for why the amended criticism must be dismissed with prejudice.
No particular point out of misstatements or omissions
The memorandum of legislation argues that whereas the plaintiffs make varied damning claims, they lack specificity relating to any statements or omissions made by the defendants that may be actionable. The defendants cite the Supreme Court docket Primary Inc. v. Levinson for the proposition that “silence, absent an obligation to reveal, will not be deceptive.”
The memorandum then argues that nowhere within the criticism do the plaintiffs allege a violation of legislation by SBTech. The defendants argue that merely pleading that the defendants have engaged in alleged “unlawful” acts with out specificity doesn’t meet the requirements vital for securities litigation.
The memorandum’s first argument is constructed round the truth that whereas the criticism makes varied allegations of criminal activity, there may be little specificity as to how the alleged exercise violates the legal guidelines. Moreover, almost all (if not all) the alleged impermissible exercise is reported to have taken place exterior the USA.
Ma, the place’s the fraud?
The defendants’ second argument is that there is no such thing as a clear allegation of fraud within the criticism. DraftKings’ legal professionals argue that there is no such thing as a “cognizable motive to defraud the plaintiffs” and that the plaintiffs have did not plead convincingly that there was even sturdy circumstantial proof of fraud.
As well as, the protection argues that DraftKings made intensive disclosures about dangers related to uncertainty about gaming legal guidelines “in unregulated jurisdictions exterior the U.S.”
Nonetheless, extra
Moreover, the defendants argue that the plaintiffs have did not plead a viable declare in opposition to every defendant. It’s the plaintiffs’ accountability to attach all defendants to the acts within the criticism (or amended criticism on this case.)
DraftKings argues that the plaintiffs failed to take action within the case of not less than among the named particular person plaintiffs. Lastly, the defendants argue that the criticism fails to allege causation, which means there may be an obvious disconnect between any act by the defendants and the loss by the plaintiffs.
What to make of DraftKings submitting?
Securities litigation following short-seller experiences has turn into fairly widespread. Within the rapid time period, the plaintiffs will reply to the defendants, adopted by a reply from DraftKings.
After totally briefing the movement to dismiss, we would see oral arguments (which have been requested) the place the 2 sides will argue the movement.
Even when the movement to dismiss is granted, there’ll possible be an enchantment.