In a recent enforcement action, the Securities and Exchange Commission (SEC) imposed a penalty on DraftKings due to allegations of improper disclosure of sensitive corporate information via the personal social media accounts of its CEO, Jason Robins. The SEC contends that the posts on X (formerly Twitter) and LinkedIn violated Regulation Fair Disclosure (Reg FD) by selectively sharing growth-related information without simultaneously disclosing it to all investors. DraftKings has agreed to comply with a cease and desist order and will enhance training on regulatory obligations as it navigates mounting scrutiny from regulators.

SEC Penalty Imposed on DraftKings

The Securities and Exchange Commission has levied a significant penalty against DraftKings, citing violations related to the disclosure of confidential company information. This decision stems from allegations that the company's public relations team disseminated sensitive data through CEO Jason Robins' personal accounts on X and LinkedIn.

Allegations of Selective Disclosure

According to the SEC, the DraftKings PR team posted on Robins' personal X account and LinkedIn, stating, “There’s massive potential for growth in new markets—but we’re still seeing really strong growth in existing states.” This assertion, detailing substantial revenue growth, was flagged as problematic due to its selective nature, which the SEC claims contravenes the principles of fair disclosure.

Violation of Regulation Fair Disclosure

The SEC contends that the information shared was not released through official channels and should not have been communicated to select audiences prior to broader public dissemination. This action allegedly violated Regulation Fair Disclosure (Reg FD), which mandates that material information be accessible to all investors simultaneously.

Immediate Response from DraftKings

Upon realizing the posts were live, DraftKings' communications team promptly alerted the public relations firm, resulting in the removal of the content within thirty minutes. However, the company delayed informing its investors for an additional seven days, only doing so during its scheduled earnings release.

Compliance and Training Commitments

In light of the SEC’s findings, DraftKings has neither admitted nor denied the allegations but has consented to comply with a cease and desist order. The company is also committed to instituting mandatory training for employees on Regulation Fair Disclosure, particularly for those engaged in corporate communications.

Ongoing Regulatory Scrutiny

This penalty is part of a broader pattern of regulatory challenges faced by DraftKings, including previous fines from New Jersey for inaccuracies in sports betting data and from Connecticut regarding online slot game payouts. These issues highlight the increased scrutiny the company encounters and the critical need for rigorous adherence to regulatory frameworks.

Social Media and Corporate Communication

As social media platforms become integral to corporate communications, the SEC emphasizes the necessity for companies to maintain transparency and clarity regarding where and when significant information is disclosed. DraftKings' recent actions underscore the importance of navigating these channels responsibly to avoid potential regulatory pitfalls.

DraftKings’ Internal Policies and Violations

Under its Reg FD policy, DraftKings maintains a "quiet period" that restricts employees from discussing financial or operational results. The controversial posts were made on July 27, 2023, prior to the end of this quiet period on August 4. The SEC reported that DraftKings’ staff had reviewed and approved the content, thereby violating multiple internal policies prohibiting the use of social media for disclosing undisclosed material information.