DraftKings, the Boston-based sports betting giant, has recently been fined $200,000 by the Securities and Exchange Commission (SEC) for premature disclosures made on the personal social media accounts of its CEO, Jason Robins. This incident highlights significant compliance lapses in handling sensitive financial information.
Regulatory oversight and financial disclosures:
On July 27, 2023, statements regarding DraftKings’ operational growth were posted on CEO Jason Robins’ personal X and LinkedIn accounts, claiming the company was experiencing “really strong growth” in active states. These posts were made public before the company had officially released its financial results for the second quarter of 2023, and before other pertinent information had been fully disclosed to the public.
According to Boston Herald, the SEC identified this action as a breach of Regulation Fair Disclosure, which mandates that all material information be made available to all investors simultaneously to prevent any selective disclosure. The regulation is designed to ensure that no subset of investors has an advantage over others due to access to proprietary information.
The SEC’s enforcement action points out that DraftKings failed to follow the necessary protocols by not disclosing crucial financial data to the public promptly after it was shared selectively. The company’s delay lasted seven days until it officially announced its financial results for the aforementioned quarter.
“Information about growth in sales as a public company can be extremely important to investors,” stated John Dugan, Associate Director for Enforcement in the SEC’s Boston Regional Office, as reported by Boston 25 News. He emphasized the critical nature of equitable information distribution, stating, “It is essential that, when companies disseminate material, nonpublic information, they do so fairly to all investors.”
DraftKings’ response and compliance measures:
In response to the SEC’s findings, DraftKings neither admitted nor denied the allegations but agreed to comply with a cease and desist order to prevent future violations. The company also consented to pay the civil penalty and committed to implementing mandatory Regulation Fair Disclosure training for its employees, particularly those involved in corporate communications.
This fine is part of a series of regulatory challenges faced by DraftKings over recent months. Notably, the company was previously fined by New Jersey regulators for reporting inaccurate sports betting data and by Connecticut for issues related to the payouts of an online slot game. These fines and the recent SEC penalty underscore the ongoing scrutiny DraftKings faces in its operations and the critical importance of strict adherence to regulatory requirements.
As social media becomes an increasingly prevalent tool for corporate communications, the SEC underscores that companies can use these platforms for key announcements if they ensure that investors are aware of where and when significant information will be disclosed.
This situation with DraftKings serves as a potent reminder to all publicly traded companies of the need to rigorously maintain compliance with financial disclosure regulations to foster transparency and maintain investor trust.