DraftKings, FanDuel Sued Over Fantasy Sports Scandal

The class-action suit accuses the two companies of fraud and negligence, among other charges.

The scandal that has engulfed the daily fantasy sites DraftKings and FanDuel could now head to federal court.

A Kentucky man on Thursday filed a class-action lawsuit against the companies, which run the two biggest websites in the growing daily fantasy industry. First reported by the New York Daily News, the suit alleges that DraftKings and FanDuel violated fraud, negligence and consumer protection laws by allowing employees to access certain information while also participating in daily fantasy contests.

The suit, filed in the U.S. District Court for the Southern District of New York, seeks damages determined in a jury trial. In addition to alleging fraud and negligence, it claims DraftKings, which operates out of New York City, and FanDuel violated New York false advertising and deceptive practices laws and Kentucky consumer protection laws.

The plaintiff, Adam Johnson of Louisville, Kentucky, deposited "at least $100" into a DraftKings account, according to the suit. The complaint asserts that Johnson would not have participated in the contests had he known that each of the companies was allowing its employees to participate in daily fantasy games on the other's website.

Daily fantasy users "were fraudulently induced into placing money onto
DraftKings because it was supposed to be a fair game of skill without the potential for insiders to use non-public information to compete against them," the suit asserts.

Johnson's is the first lawsuit filed against the daily fantasy titans since a DraftKings employee inadvertently leaked confidential information about contests on the site over the weekend. The employee won $350,000 in a daily fantasy game on FanDuel the same day.

Though DraftKings maintains that the employee did not use the information improperly, the data breach has raised major questions for the two companies about their internal controls, employees' access to proprietary information and consumer protections.

Neither company immediately responded to a request for comment about the lawsuit.

DraftKings and FanDuel on Wednesday permanently banned their employees from playing in daily fantasy contests. Amid congressional scrutiny and a new investigation from New York Attorney General Eric Schneiderman, both companies said they had also hired outside counsel to review their internal controls and practices.