DraftKings Hindenburg Allegations: Subpoenaed By SEC

DraftKings and investment research firm Hindenburg Research are at odds after a report surfaced questioning technology provider SBTech, an entity that merged with DraftKings in 2020 when the company went public. Hindenburg claims that half of SBTech’s revenues came from markets where gambling is illegal.

In the report published in June, Hindenburg revealed that SBTech has a long record of operating in black markets. The report says that one employee stated the company has ‘sold to plenty of mobs,’ which contradicts the clean-cut image of brand-conscious partners of DraftKings such as NASCAR, the NBA, and NFL.

Hindenburg says that before the SPAC merger, SBTech tried to distance itself from its black-market operations. Questionable customer relationships were moved to a new entity known as BTi/CoreTech. Around 50 employees were moved to a new location to work for the new company.

A Thorough Review of Black Market Allegations

The report concluded the research firm’s findings based on an analysis of SEC filings by DraftKings and supporting documents and conversations with former employees of SBTech. Hindenburg Research says that the merger exposed the new company to black-market gaming, organized crime, and money laundering.

Last year, DraftKings merged with Diamon Eagle, a special purpose acquisition company, and SBTech. Trading began in April 2020, and shares rose more than 175% since the newly merged company debuted. In its report, Hinderburg said that the company is sure to see shares fall due to the findings.

DraftKings responded to the allegations via a spokesperson to FOX Business, stating that the report was written by an individual short on stock with DraftKings that had an incentive to drive down the price of shares. The spokesperson stated that DraftKings business combination with SBTech was completed in 2020 and…

“We conducted a thorough review of their business practices, and we were comfortable with the findings. We do not comment on speculation or allegations made by former SBTech employees.”

DraftKings Subpoenaed By The SEC

DraftKings revealed this week that the US Securities and Exchange Commission (SEC) sent a subpoena to the company based on the allegations in the report by Hindenburg Research. The company received the subpoena on July 9, not long after the report was published.

The operator did not provide information on what documents were requested by the SEC. DraftKings announced they plan to cooperate with the investigation and will defend themselves of the claims. During the recent half-year report, the company stated it is unsure what impact an SEC action could have, but they do not see any serious negative outcome for the future.

Additional DraftKings Hindenburg Research Report Findings

Further findings of the report showed that the CEO chosen to run the BTi/CoreTech company was a former executive of a gambling company that the FBI raided. The company was later charged with tricking investors from the United States out of more than $100 million.

Former employees of SBTech stated to Hindenburg that BTi/CoreTech was a ‘front’ and the split helped preserve the illicit business of SBTech while keeping the public company from being scrutinized. Basically, the BTi entity was used as an illegal gambling division according to Hindenburg.

The report continues with even more allegations, and Hindenburg Research closes by stating they think DraftKings skirted the law and took elaborate steps to hide black-market operations.

Business as Usual at DraftKings

For DraftKings, the allegations come at a time when the company is thriving. With online sports betting and casino operations in several states, the company also recently announced the Golden Nugget Online Gaming (GNOG) acquisition.

The acquisition should close in the first quarter of 2022, and it brings together one of the top sports betting operators with the leading online casino operator in the United States.

Related: DraftKings Earnings Call Sparks Investor Concerns