Preet Bharara, the U.S. Attorney best known in the gaming industry for the Black Friday indictments, has launched an investigation in daily fantasy sports. Michael McCann of Sports Illustrated said the news is the "most troubling legal development yet" for the daily fantasy sports industry.
According to The Wall Street Journal, the office of Preet Bharara has launched a probe into whether "certain aspects" of DFS violates federal law. Though the investigation could take months to complete, Mr. Bharara is known to seize domains, freeze customer assets, and have a near-perfect record in obtaining convictions in his most high-profile cases.
Black Friday Attorney
Preet Bharara is the U.S. Attorney for the Southern District of New York. His probe could have a direct impact on DFS company policies in New York state. Sites like FanDuel and DraftKings face investigation by the U.S. official who unsealed indictments on 11 executives from 3 of the leading online poker sites (PokerStars, Full Tilt Poker, Ultimate Poker) on Friday, Apr. 15, 2011. The indictments and domain seizures had a chilling effect on the U.S. online gambling community, in what came to be known as the "Black Friday" case.
Eventually, PokerStars had to pay a $731 million fine to escape prosecution by the U.S. Department of Justice, but several of the poker site's executives still have indictments to this day. The actions by Preet Bharara led to PokerStars being excluded from the legal U.S. online gambling industry, once states like Nevada, New Jersey, and Delaware legalized such gaming in 2013. Eventually, PokerStars was sold to a Canadian software company, Amaya Gaming, in August 2014.
Full Tilt Poker Ponzi Scheme Charges
The effect on Full Tilt Poker was even more debilitating. FullTilt had been co-founded by two of America's most famous professional poker players, Chris "Jesus" Ferguson and Howard "The Professor" Lederer. Other players were associated with the company, such as Phil Ivey, Mike Matusow, Jennifer Harman, and Andy Bloch.
Part of the legal proceedings included an amended civil litigation complaint against FullTilt directors Chris Ferguson, Howard Lederer, and Rafe Furst, which claimed they ran a Ponzi scheme with the company. The complaint by Preet Bharara's office said the three "lined their own pockets with funds picked from the pockets of their most loyal customers while blithely lying to both players and the public alike about the safety and security of the money deposited."
Articles on the Wall Street Journal and SI website's suggested that companies like FanDuel and DraftKings should be prepared to prove they are not Ponzi schemes, either. Both companies claim they have enough money set aside to cover all player accounts, if those players withdrew funds at the same time. If they do not, then the same charges are likely to be made against them.
Gaming attorney Daniel Wallach said, "Bharara is the biggest threat to the [DFS] industry to date."
Forced to Declare DFS Is Gambling
Another major concern is this probe comes out of New York state. The investigation might prompt the state of New York to do as Nevada has done and ban DFS sites from accepting real money play in the state, pending a licensing process. The NFL and NBA league offices are located in New York, so any such action might put the corporate partnerships sports leagues and franchises have signed with DraftKings and FanDuel in the past year.
Decisions by state gaming commissions also would put the DFS companies in a legal catch-22 situation. If they did not apply for an application, they could lose one of the biggest gaming communities in the United States. If they did apply for an application, they would be admitting that their game is a form of betting, like casino gambling, poker, and sports betting. DraftKings and FanDuel have insisted to this point that they are not gambling, but a game of skill with money involved.
FanDuel's and DraftKings's Pop Culture Impact
The avalanche of official probes and class-action lawsuits which continue to fall on the American daily fantasy sports industry were touched-off by the Ethan Haskell controversy. After a DraftKings employee won 2nd-place and $350,000 on a FanDuel weekly football contest, people began to question whether the grinder had inside information which helped him succeed. Despite denials by DK and FD, a kind of insider trading scandal erupted.
The industry might have been heading for a fall, anyway. Over the past year, FanDuel and DraftKings have engaged in an advertising war to gain the upper hand for the number one spot in the DFS industry. The ad campaigns have reached a new level with the start of the NFL 2015 regular season, alienating many fans with constant commercials. Apparently, US officials were among the irritated sports fandom.
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