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Judge rules taking bets from black markets is no big deal

22 May 2023

By I. Nelson Rose
An online sportsbook can report taking millions of dollars in bets from gray and black markets, as long as the numbers they report are accurate. This is the startling decision of New York federal district court judge Paul A. Engelmayer: “disclosing the fact of operations in Asia ‘did nothing more than’ accurately ‘characterize statistical facts.’”

I have taught International Gaming Law as a Visiting Professor at the University of Macau almost every summer since 2007, and often act as a consultant and expert witness for governments and industry. But you don’t have to be a Law Professor to know that gambling, especially internet sports betting, is illegal in almost every jurisdiction in Asia.

Judge Engelmayer ruled that that doesn’t matter. A company reporting hundreds of millions of dollars in wagers from “Asia,” “did not oblige it to address different subjects: the particular jurisdictions in which that revenue was earned, or the allocation of that revenue to non-black-market, versus black-market, jurisdictions.”

To be clear, black market means it was illegal, which means it was a crime under the local law. But, again, Judge Engelmayer: “No actionable omission where financial reporting was accurate, even where it did not disclose revenue sources relating to uncharged criminal conduct.”

The case was an attempted class action against DraftKings, involving its acquisition of a company, SBTech (Global) Limited, which DraftKings acquired in the course of going public. The Complaint, dismissed by Judge Engelmayer, alleged that SBTech “had secretly operated in ‘black-market’ jurisdictions — that is, ones in which gambling was illegal.”

DraftKings, SBTech and every other defendant have denied all of the allegations.

The decision raises an interesting question of whether there is actually this great a difference between securities laws and gambling laws. No regulator or judge would dismiss allegations of criminal gambling operations like these if a company were seeking a gambling license. At the very least, a licensed sports book would have to explain where it took online bets and whether those bets were legal. It couldn’t just say, “Asia.”

Judge Engelmayer based his decision not on gambling law, but rather on securities laws. The suit alleged that the defendants had committed securities fraud. Judge Engelmayer ruled that the Complaint did not adequately spell out the alleged fraud. But he then went further: The defendants had been under no obligation “to identify its alleged operations in black-market jurisdictions.” He ruled that under securities law, there is “no duty to disclose” such information “merely because a reasonable investor would very much like to know” such information.

It is, of course, possible that Judge Engelmayer was wrong. I am not an expert on securities laws. But I also worry about one of his other decisions.

Securities fraud requires “scienter,” basically meaning the defendants had bad motives. This “can be established with allegations that a defendant made unusual insider sales at a time when he withheld material information from the investing public.”

Here, one of the defendants sold $601 million in stock. Or maybe I should say “only” $601 million. Because Judge Engelmayer ruled that that insider’s profits did not sufficiently allege scienter, because the defendant could have sold even more!

And anyway, the numbers were accurate.
Judge rules taking bets from black markets is no big deal is republished from Online.CasinoCity.com.
 

NFL suspends five players for alleged violations of gambling policy

25 April 2023
The NFL hit four Detroit Lions and one Washington Commander with heavy suspensions for allegedly violating league gambling policy, officials said Friday. Wide receiver Quintez Cephus and safety C.J. Moore of the Lions, and defensive end Shaka Toney of the Commanders were “suspended indefinitely through at ... (read more)
 

What's next for California sports betting?

17 November 2022
Some of the richest, most powerful political players in the world of legal gambling just spent the most money ever on ballot propositions, nearly half a billion dollars, and won… nothing. Well, not exactly nothing. It’s important to not only see what proponents of a measure want, but also what happens if they lose. ... (read more)
 

California tribes would get sports betting if they didn’t hate card clubs

25 August 2022
The extremely rich and politically powerful gaming tribes in California are spending nearly half a billion dollars this year to win the right to have sports betting. Or, I should say, they are throwing away their money on a fatally flawed initiative, which the voters will reject in November. And it is the tribes’ own fault. ... (read more)

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I. Nelson Rose
Professor I. Nelson Rose is an internationally known scholar, public speaker and writer and is recognized as one of the world's leading authorities on gambling law. A 1979 graduate of Harvard Law School, he is a tenured full Professor at Whittier Law School in Costa Mesa, California, where he teaches one of the first law school classes on gaming law.

Professor Rose is the author of more than 300 books, articles, book chapters columns. He is best known for his internationally syndicated column, "Gambling and the Law ®," and his landmark 1986 book by the same name. His most recent book is a collection of columns and analysis, co-authored with Bob Loeb, on Blackjack and the Law.

A consultant to governments and industry, Professor Rose has testified as an expert witness in administrative, civil and criminal cases in the U.S., Australia and New Zealand, and has acted as a consultant to major law firms, international corporations, licensed casinos, players, Indian tribes, and local, state and national governments, including Arizona, California, Florida, Illinois, Michigan, New Jersey, Texas and the federal governments of Canada and the United States.

With the rising interest in gambling throughout the world, Professor Rose has spoken before such diverse groups as the F.B.I., National Conference of State Legislatures, Congress of State Lotteries of Europe, United States Conference of Mayors, and the National Academy of Sciences. He has presented scholarly papers on gambling in Nevada, New Jersey, Puerto Rico, England, Australia, Antigua, Portugal, Italy, Argentina and the Czech Republic.

He is the author of Internet Gaming Law (1st & 2nd editions), Blackjack and the Law and Gaming Law: Cases and Materials.

I. Nelson Rose Websites:

www.gamblingandthelaw.com

Books by I. Nelson Rose:

Compulsive Gambling and the Law

> More Books By I. Nelson Rose

I. Nelson Rose
Professor I. Nelson Rose is an internationally known scholar, public speaker and writer and is recognized as one of the world's leading authorities on gambling law. A 1979 graduate of Harvard Law School, he is a tenured full Professor at Whittier Law School in Costa Mesa, California, where he teaches one of the first law school classes on gaming law.

Professor Rose is the author of more than 300 books, articles, book chapters columns. He is best known for his internationally syndicated column, "Gambling and the Law ®," and his landmark 1986 book by the same name. His most recent book is a collection of columns and analysis, co-authored with Bob Loeb, on Blackjack and the Law.

A consultant to governments and industry, Professor Rose has testified as an expert witness in administrative, civil and criminal cases in the U.S., Australia and New Zealand, and has acted as a consultant to major law firms, international corporations, licensed casinos, players, Indian tribes, and local, state and national governments, including Arizona, California, Florida, Illinois, Michigan, New Jersey, Texas and the federal governments of Canada and the United States.

With the rising interest in gambling throughout the world, Professor Rose has spoken before such diverse groups as the F.B.I., National Conference of State Legislatures, Congress of State Lotteries of Europe, United States Conference of Mayors, and the National Academy of Sciences. He has presented scholarly papers on gambling in Nevada, New Jersey, Puerto Rico, England, Australia, Antigua, Portugal, Italy, Argentina and the Czech Republic.

He is the author of Internet Gaming Law (1st & 2nd editions), Blackjack and the Law and Gaming Law: Cases and Materials.

I. Nelson Rose Websites:

www.gamblingandthelaw.com

Books by I. Nelson Rose:

Compulsive Gambling and the Law

> More Books By I. Nelson Rose