Individual DraftKings Executives Failed Company and Investors Over Merger With SBTech, Says Lawsuit

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DraftKings SBTech Merger Lawsuit Overview: 

• Who: Jiahan Yu filed a lawsuit on behalf of DraftKings Inc. against a number of individual DraftKings executives. 
• Why: Yu claims the DraftKings executives violated their fiduciary duties and misled investors by failing to disclose the checkered past of SBTech (Global) Limited after merging with the company. 
• Where: The lawsuit was filed in New York federal court. 

DraftKings Inc. merged with SBTech (Global) Limited despite SBTech having a history of operating unlawfully in gambling markets, a new lawsuit alleges.

Plaintiff Jiahan Yu claims DraftKings executives failed to disclose a history of illicit operations run by SBTech and took on an increased risk of legal trouble by merging with the company. 

Yu filed his lawsuit on behalf of DraftKings, arguing individual defendant DraftKings executives breached “their fiduciary duties as controlling shareholder, directors, and/or officers of DraftKings.” 

Yu claims the DraftKings executives misled shareholders by failing to disclose the checkered past of SBTech while also putting the company at an increased risk of regulatory or criminal action. 

Further, Yu alleges that SBTech is continuing to operate in a manner that is not entirely lawful, including by making transactions with resellers operating in illegal betting markets. 

The truth about SBTech finally came out after Hindenburg Research released a report on the matter on June 15, at which time DraftKings share price fell more than 4%, according to the lawsuit. 

Yu claims the DraftKings executives intentionally failed to disclose SBTech’s unlawful history in order to artificially inflate its stock price, which some defendants would go on to sell for a higher profit than they would have otherwise made. 

Yu says DraftKings will now have to expend millions of dollars to make up for the waste of corporate assets and losses incurred due to the unjust enrichment of executive defendants who were overcompensated. 

“The Company has been substantially damaged as a result of the Individual Defendants’ knowing or highly reckless breaches of fiduciary duty and other misconduct,” states the lawsuit. 

Yu is alleging that the defendants are guilty of abuse of control, unjust enrichment, breach of fiduciary duties, gross mismanagement, waste of corporate assets, as well as violations of the Securities Exchange Act. 

Yu is requesting relief in the form of damages to compensate DraftKings and for a declaration that the individual defendants breached and/or aided and abetted the breach of their fiduciary duties to the company. 

A class action lawsuit was filed against DraftKings earlier this year by securities holders who claimed the company violated the Securities and Exchange Act by failing to inform investors about SBTech’s checkered past. 

Do you believe DraftKings executives should have informed investors about SBTech’s history? Let us know in the comments! 

The plaintiff is represented by Phillip Kim of The Rosen Law Firm, P.A. 

The DraftKings SBTech Merger Lawsuit is Yu v. Robins, et al., Case No. 1:21-cv-08351, in the U.S. District Court for the Southern District of New York.

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