DOJ and FBI Jointly Launch Investigation into Daily Fantasy Sports’ Legality

October 15, 2015 •

fbi-daily-fantasy-sports-investigationYesterday, the FBI (Federal Bureau of Investigation) spear-headed an investigation into whether daily fantasy sports (DFS) is actually a form of gambling that is violating current federal laws.

Wednesday, the Wall Street Journal reported that they have sources which claimed that FBI agents had been contacting customers of DFS operator ‘DraftKings’ in regards to their interactions and experience with the company.

The investigation is reportedly a part of a larger one being undertaken by the DOJ (US Department of Justice) as to if this DFS is under the umbrealla term of ‘fantasy sports’ which are exempt from the stipulations enacted under the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA). So far the UIGEA’s architects do not think DFS qualifies.

The New York Times simultaneously reported that the investigation is mainly being focused on DraftKings and that there are other “prominent players” that are being asked whether employees of the company are passing on privileged information or have used any kind of info to “prey on” or target other players. The FBI has been looking into whether the site encouraged or solicited players from areas and regions where DFS is still prohibited. They are carefully looking at any infractions or bending of the rules by the company.

A DraftKings spokesperson made an offcial statement, saying it was “entirely predictable” that the government would take action on “misleading reports about our industry.” The spokesperson claimed that they had no knowledge of any federal investigation but “strongly disagree with any notion that our company has engaged in any illegal activities.”

The ‘misleading reports’ they mentioned refer to mainstream media reports on local news of the mishandling of in-house data by a DraftKings employee. They claimed that the same employee had won $350k playing at rival site, FanDuel. Uproar ensued, and led both operators to impose permanent bans on any of their employees playing for cash at any other DFS site. They also hired an outside law firms to review each company’s in-house policies and practices to be sure they were on the up and up.

But for many that was too little too later and soon after a flurry of state and federal authorities inquiries started pouring in, taking a closer look at the DFS industry as a whole. New York’s Attorney General, Eric Schneiderman gave both DraftKings and FanDuel until today, Thursday October 15th, to answer a series of in depth questions dealing with how they handle their data. In the meantime, a US Attorney in Florida has jumped ahead and reportedly convened a federal grand jury to investigate DFS for potential violations of the Illegal Gambling Business Act.

More trouble may be coming their way from authorities in Louisiana. It’s one of five states – along with Arizona, Iowa, Montana and Washington where DFS play is considered to be legally dubious. A class action lawsuit has been filed against DFS operators, by a New Orleans resident named Artem Genchanok, who claims to have deposited and played on both DraftKings and FanDuel from his home in Lousiana, despite both operators claiming and insisting that they block Louisiana IPs and residents from playing on their sites.

The merits of Genchanok’s specific claims will be looked into carefully, but if he proves that he did access their sites from his residence, both operators will face massive reprecussions. Legislators and lawmakers will have a field day trying to determine what it means exactly when the sites claim to ‘know your customer’ and the protocols that go along with it.

As the issue heats up, federal politicians continue to publically criticise the DFS’ lack of regulatory oversight. This has caused the DFS operators to lobby up. Reports are that FanDuel has hired Washington lobbying firm Steptoe & Johnson on Sept. 17, only three days after New Jersey Rep. Frank Pallone called for hearings and investigagtions into the DFS industry.

That could lead to a conflict of interest since, Steptoe & Johnson are widely known to be under contract to promote Sheldon Adelson’s Restoration of America’s Wire Act (RAWA), the federal legislation that looks to ban most forms of online gambling. DFS is considered by many to be gambling, despite DFS operators’ public claim of being a ‘game of skill’. The fine print says that, RAWA doesn’t specifically ban DFS, so Steptoe & Johnson will continue to represent both interests, until the US and federal law has a final say on fantasy sports and it’s legality.