U.S. Attorney Preet Bharara’s office in the Southern District of N.Y. "is investigating whether the business model" behind daily fantasy sports companies "violates federal law," according to sources cited by Barrett & Matthews of the WALL STREET JOURNAL. The sources added that the investigation is "at an early stage," and even as New York prosecutors "try to build their case, senior Justice Department lawyers in Washington are undecided on whether daily fantasy-sports betting violates federal gambling statutes." Five states -- Arizona, Iowa, Louisiana, Montana and Washington -- "have made the practice illegal," while Kansas "has passed a law legalizing it." Legal experts said that Bharara’s involvement "marks a significant escalation of the legal challenges confronting the burgeoning daily fantasy-sports business." Bharara’s office "is responsible for what poker players still refer to as 'Black Friday': April 15, 2011, when a grand jury indicted executives at the two biggest online poker firms doing business in the U.S." The "booming business in America was effectively shut down, and the industry suffered a huge setback from which it still hasn’t recovered" (WALL STREET JOURNAL, 10/21). Meanwhile, in Miami, David Ovalle reports DraftKings and FanDuel "are now also facing a South Florida class-action lawsuit that accuses the companies of rigging their games to fleece most customers." The suit alleges that the sites "allow a tiny number of high-rolling customers ... to use sophisticated software to crunch data that can help them win lucrative pots." Plaintiffs attorney Ervin Gonzalez at a press conference yesterday said that the rest of the customers "stand virtually no chance of winning any significant money in what amounts to an illegal gambling operation" (MIAMI HERALD, 10/21).
AFTER REVIEW: In Boston, Borchers & Adams in a front-page piece report Massachusetts Attorney General Maura Healey yesterday declined to "referee a debate over the legality of fantasy sports cash contests ... but she said she will not act to shut down" DFS operators. Her "ongoing review of the industry will focus on consumer protection issues, such as fair play and disclosure of risk, where there is no ambiguity under the law." Despite persistent questioning, Healey "refused to say whether the industry’s system of entry fees and cash payouts is legal under the state’s laws." She "acknowledged that it is arguably illegal but would not take a position one way or the other." Healey said that the review "would examine the advertising practices of daily fantasy sports companies, whether the companies adequately disclose to their customers the risks of playing, whether they are paying appropriate taxes, and whether the games are fair" (BOSTON GLOBE, 10/21).
