YouStake Asks Court to End SEC Investigation
Many poker players are familiar with YouStake. It is an online platform that allows players to participate in investments – as buyers and/or sellers – for poker tournaments and various esports and gaming events. Poker players found it to be a hassle-free way to start a campaign to find investors for tournament action or to back players for a fun sweat and possible profit.
The site itself allows players and investors to participate in a streamlined process, and YouStake handles the details for the funds transfers. The monies are held in an escrow account, transferred per the arrangements, and updates are provided to all parties involved. For players, YouStake also offers the service of pre-registering for tournaments, and backers can participate for stakes as low as $20.
An Investigation Goes Nowhere
The case at hand involves YouStake and CEO Frank DeGeorge as the plaintiffs versus the United States Securities and Exchange Commission and Chairman Jay Clayton. Case 5:17CV00065 was filed in the US District Court for the Western District of Virginia on July 7, 2017.The case was filed as a complaint seeking declaratory judgment regarding an ongoing SEC investigation.
Nearly a year after the company launched and only months after YouStake bought competitor TastyStakes, the SEC issued subpoenas to YouStake and DeGeorge for documents pertaining to an investigation. This happened on April 12, 2016. They complied and provided “thousands of pages of records,” and in March 2017, DeGeorge met the terms of another subpoena to give testimony to the SEC. Further, YouStake temporarily ceased its online staking services to “demonstrate good faith cooperation with the SEC’s investigative and enforcement efforts.”
However, the SEC had never been able to file any charges or substantiate any of its concerns that launched the investigation in the first place. The lawsuit asserts that “it has become increasingly evident that the SEC is unable to identify any specific statute or regulation contravened by YouStake’s operations. Meanwhile, the restriction of the business has cost the company “hundreds of thousands of dollars.”
Not only did YouStake miss the opportunity to offer staking in the largest tournament series of the year, the World Series of Poker in June and July, numerous other events have come and gone as well. The downtime has also hurt the company’s ability to continue to raise capital, considering it is still classified as a startup company.
YouStake feels that the absence of the sale of any securities puts it outside the purview of its investigatory reach. Meanwhile, YouStake has requested assurance from the SEC that it would not recommend enforcement action, but there was no response for two months, which brought about the current litigation.
See You in Court!
ICYMI & were curious about our recent changes, this should help explain – we hope to see additional positive changes to the industry! https://t.co/iNXRQmZzVc
— YouStake (@YouStake) July 7, 2017
In seeking the declaratory judgment, YouStake asks the court to determine whether the sales of securities are involved in the business. If not, the SEC must end the investigation as it has no jurisdiction over the subject matter involved.
If the court does find that securities are involved, then the SEC should continue its investigation, but YouStake then asks for information about the regulatory framework upon which that investigation is based. In essence, YouStake wants the court to rule on the legality of the business.
Finally, in the last sentence of the final section of the complaint, YouStake asks to be exempt from any SEC registration and “affording such other and further relief as may be just and proper.”
Potential on Hold
YouStake had incredible potential in the beginning, so much so that it caught the attention of Forbes in 2015 as a “cutting edge tech company you need to know.” The article pushed YouStake’s idea as a forward-thinking one described as “Kickstarter meets FanDuel for poker players.” An investment in YouStake also came from an organization called “500 Startups.”
— Joseph Little (@JML_Victor) May 13, 2016
The response from the poker community upon launch was positive. Some of the initial brand ambassadors for the company included David Tuchman and Anthony Zinno, with other advisors listed as Greg Raymer, Jamie Gold, Joe Cada, Mike Leah, Lizzy Harrison, Casey Jarzabek, Brett Jungblut, and Allen Kessler.
In its first month of operation in June 2015, YouStake garnered nearly three million page-views on its website from approximately 22,000 unique visitors. More than 1,400 poker players signed up to participate, representing 108 different nations of the world.
As the company was celebrating its first year and tremendous growth, it was also preparing to relaunch a new site to make fan engagement and player management tools even simpler and more accessible. But the start of the SEC investigation hampered that progress and has put the company on perpetual hold since that time.
While a court date has yet to be set, there are notice deadlines set for September 15 and October 5. Stay tuned for information as it becomes available regarding the progress of the case.