DraftKings, FanDuel Face Class Action Over Alleged Cheating Scandal

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On October 15, a class action lawsuit was filed in New York federal court, alleging FanDuel and DraftKings (two fantasy sports companies) tricked users into believing their online games are based on skill despite the fact that their employees have a greater chance of winning because of insider information.

Plaintiff John Weaver states that both DraftKings and FanDuel should be held responsible for their false ads and deception that allegedly amount to insider trading on part of the companies’ employees. This is second fantasy sports class action lawsuit filed against the companies in the last week.

Weaver has used both DraftKings and FanDuel’s websites and claims that since a DraftKings employee won a $350,000 FanDuel contest, leading to both fantasy sport sites banning from playing fantasy sport for money, Weaver’s game success has significantly increased. In the wake of the contest debacle and the banning of employees in these cash contests, FanDuel and DraftKings announced they would be conducting internal reviews to determine the extent of the insider trading activity.

“By the Defendants’ own admission, in daily fantasy sports games, such as those operated and conducted by the defendants, the single biggest ‘edge’ that any participant can have comes from having data and information,” the DraftKings and FanDuel class action lawsuit claims. “The employees of DraftKings and FanDuel have access to an incredible amount of non-public data and information.”

Weaver further claims that DraftKings and FanDuel advertise and market their fantasy sports websites as skill-based activities, similar to chess or playing the stock market. He alleges these advertising claims are directly contradicted by the fact that until Oct. 6 of this year, DraftKings and FanDuel’s employees were allowed to use “material, non-public, internal, proprietary, and valuable data and information to gain an enormous edge over competitors.”

The fantasy sports websites misrepresented that the daily fantasy sport contests were not games of skill because individuals hired by the companies used insider information to play and win, the Draft Kings and FanDuel class action lawsuit states. Weaver goes on to allege that employees from both sites have won $6 million because of their inside knowledge of the games.

The fantasy sports class action lawsuit also alleges the companies claim the fact that someone employed by DraftKings winning a FanDuel contest was just a coincidence, though the companies did subsequently ban their employees for playing for cash in the daily contests.

Weaver is seeks certification for a national Class that would include: “All persons in the United States of America who deposited money into a DraftKings or FanDuel account before October 6, 2015 and competed in any contest where other entries were made by employees from DraftKings, FanDuel, or any other daily fantasy sports site.”

He is also seeking monetary damages and a formal apology by the companies to their allegedly deceived users.

Weaver is represented by Alan C. Milstein of Sherman Silverstein Kohl Rose & Podolsky P.A.

The DraftKings and FanDuel Class Action Lawsuit is John Weaver, et al. v. FanDuel Inc. and DraftKings Inc., Case No. 15-cv-8110, in the U.S. District Court for the Southern District of New York.

UPDATE: On June 30, 2016, daily fantasy sports player plaintiffs laid out their grievances in a 273-page consolidated class action lawsuit alleging DraftKings and FanDuel duped players into participating in illegal gambling operations that gave an unfair advantage to their own employees who also participated in the daily competitions.