DraftKings Lawsuits Over SBTech Acquisition Consolidated

A pair of proposed securities class actions alleging DraftKings Inc. failed to disclose a company it acquired had a history of unlawful operations that exposed it to liability were consolidated and had a lead plaintiff named, in an order issued by the Southern District of New York.

The U.S. District Court for the Southern District of New York also appointed Robbins Geller Rudman & Dowd LLP, which represents the lead plaintiff, Walter Marino, as lead counsel for the plaintiffs in the Nov. 12 order.

The plaintiffs cite a report published June 15, 2021, by Hindenburg Research alleging the merger with SBTech Global Ltd. “brings exposure to extensive dealings in black-market gaming, money laundering and organized crime.”

Hindenburg alleged that SBTech “has a long and ongoing record of operating in black markets,” estimating that half of its revenue is from markets where gambling is banned.

Based on the report, the plaintiffs allege DraftKings failed to disclose “that SBTech had a history of unlawful operations.”

As a result, the plaintiffs say, DraftKings’ merger with SBTech “increased the company’s regulatory and criminal risks with respect to these transactions,” and overstated the benefits of the merger.

DraftKings announced the proposed merger on Dec. 23, 2019, and completed the merger on April 23, 2020.

Following publication of the Hindenburg report, the complaint alleges, DraftKings’ stock price fell $2.11 per share, or 4.17%, to close at $48.51 per share on June 15, 2021.

The proposed class is comprised of purchasers of DraftKings securities between Dec. 23, 2019, and June 15, 2021. The plaintiffs estimate that the class includes hundreds or thousands of members.

The court declined to appoint as lead plaintiff a litigant who engaged in short selling and day trading, after finding he would be vulnerable to attacks that he didn’t rely on the market price in trading DraftKings stock. After excluding the day trader, the court found Marino, with the next-highest financial stake, appropriate as lead plaintiff.

Judge Paul A. Engelmayer issued the ruling.

Sullivan and Cromwell LLP represents DraftKings.

The cases are Rodriguez v. DraftKings Inc., S.D.N.Y., No. 21-cv-05739, 11/12/21; Hoorn v. DraftKings Inc., S.D.N.Y., No. 21-cv-06497, 11/12/21.