The Securities and Exchange Commission (SEC) announced today that it has charged DraftKings (NASDAQ: DKNG) with the unauthorized disclosure of nonpublic, material information through the social media accounts of its CEO, Jason Robins. To settle the charges, the gaming company has agreed to pay a $200,000 civil penalty.
On July 27, 2023, Robins took to his personal account on X (formerly known as Twitter) to announce that DraftKings was experiencing “really strong growth” in states where it offers iGaming and sports betting. Later that same day, a public relations firm representing the company echoed Robins’ remarks on his LinkedIn profile. These posts were made a week before DraftKings publicly released its second-quarter results, raising concerns over the premature dissemination of sensitive information.
According to the SEC, Regulation Fair Disclosure (FD) mandates that companies must promptly disseminate material information to all investors if it has been selectively disclosed to a few. DraftKings, however, did not make this information publicly available until seven days later, during the announcement of its financial earnings for the second quarter of 2023.
The SEC emphasized that although platforms like LinkedIn and X are widely used, public companies must adhere to SEC disclosure guidelines. This means they cannot solely rely on social media to distribute information vital to investors, as not all shareholders use these mediums for their investing information.
The SEC found DraftKings in violation of Section 13(a) of the Exchange Act and Regulation FD. While DraftKings neither admitted nor denied the findings, it has committed to abiding by the protocols in the future.
This case has further burdened DraftKings’ legal team, which already had its hands full. Last week, the Major League Baseball Players Association (MLBPA) sued DraftKings and three other gaming companies, alleging unauthorized use of player names and images. This lawsuit followed a similar action by the NFL Players Association (NFLPA), which claimed that DraftKings potentially owes it tens of millions of dollars for utilizing player names and images in its now-defunct Reignmakers nonfungible tokens (NFTs) game.
DraftKings is also grappling with a class action complaint from plaintiffs who argue that the NFTs were investable securities and that they incurred losses when the NFT market plummeted. In July, DraftKings ceased its NFT marketplace and discontinued Reignmakers, offering some compensation to those who participated in the fantasy game.
This isn’t the first time Jason Robins’ social media activity has sparked controversy. On March 28, 2023, in an eight-tweet thread on X, Robins shared his optimistic outlook on the company’s future. He did not mention the stock, which was fortuitous, as he sold 300,000 shares that very day. The SEC did not address these March posts; however, the commission’s regulations stipulate that any publicly traded company must inform investors about the platforms where material information will be disclosed before doing so on social media.
