Fantasy Sports Case Study

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A daily fantasy sports customer in Kentucky has filed a lawsuit against DraftKings and FanDuel, accusing the companies of fraud because they failed to disclose that their employees had access to insider data the suit claims could help them help win millions at the expense of regular customers.

Adam Johnson, the plaintiff, is seeking unspecified damages on behalf of himself and others “similarly situated” after a controversy about insider trading erupted this week in the growing new field of daily fantasy sports. The federal lawsuit was filed in New York on Thursday and is proposed as a class action.

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An employee for DraftKings had won $350,000 in a contest on FanDuel – the same week that he had inadvertently leaked insider data about the
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FanDuel and DraftKings announced this week have hired outside law firms to review their internal controls against fraud and have since forbidden employees to play fantasy games for money.

With access to data about which players are the hottest to own that week, the theory is that insiders can use that information to capitalize on market inefficiencies and improve their chances of beating those without such access.

DraftKings declined comment through a spokeswoman. FanDuel didn’t immediately return a message seeking comment about the lawsuit.

The case is “going to have to survive a motion to dismiss,” said attorney Daniel Wallach, an expert in sports and gaming law. “FanDuel and DraftKings are going to be pointing to their terms of use, which say, `If you sue us, it can only be decided by mandatory arbitration and no class
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