NY attorney general launches inquiry into fantasy sports sites

New York’s attorney general is launching an inquiry into two daily fantasy sports sites, DraftKings and FanDuel, that are at the center of a growing scandal, according to his office.

Attorney General Eric Schneiderman sent letters to both companies on Tuesday asking for information related to the controversy.

{mosads}In the last week, it emerged that an employee of DraftKings had accidently released crucial game data the same week he made $350,000 in a contest on FanDuel. Lawmakers and observers have expressed concern that he engaged in a form of insider trading.

“These allegations, and your company’s subsequent statement, raise legal questions relating to the fairness, transparency, and security of DraftKings and the reliability of representations your company has made to customers,” Schneiderman wrote in the letter to DraftKings. FanDuel received a similar message.

He wrote that the company’s policies “are matters of concern to the public, particularly to the many customers who put money at risk on your site each day.”

Schneiderman is requesting that the companies send him information on their data collection and storage practices by Oct. 15.

“We’ve heard from users that they would appreciate more clarity about the rules for this issue,” the companies said in a joint statement with the Fantasy Sports Trade Association. “In the interim, while the industry works to develop and release a more detailed policy, DraftKings and FanDuel have decided to prohibit employees from participating in online fantasy sports contests for money.”

The inquiry was first reported by The New York Times.

DraftKings is already facing a probe from the attorney general in Massachusetts, where it is based.

Schneiderman’s investigation comes as the companies face growing scrutiny in Washington over the relationships they have with professional leagues and, more broadly, over whether their services constitute online gambling — rather than “games of skill.”

Rep. Frank Pallone Jr. (D-N.J.) called last month for a hearing on the daily fantasy sports industry and its close relationship with professional leagues and teams. Critics such as Pallone contend that the sites allow for gambling, rather than the games of skill that are exempt from a 2006 law that blocks many forms of online betting.

The chairman of the House Energy and Commerce Committee, which handles gambling issues, indicated before news of the DraftKings controversy broke that it is likely to hold a hearing on the topic but not in the near-term.

Pallone and Sen. Bob Menendez (D-N.J.) have also called for a Federal Trade Commission investigation into the websites, while Rep. Hakeem Jeffries (D-N.Y.) has said that the House Judiciary Committee should hold its own hearings on the controversy.