The Securities and Exchange Commission today charged DraftKings Inc. with selectively disclosing material, nonpublic information to investors who followed or otherwise viewed the company CEO’s social media accounts without disclosing that same information to all investors, in violation of Regulation Fair Disclosure (FD). DraftKings agreed to pay a $200,000 civil penalty to settle the SEC’s charges.
The order finds that, on July 27, 2023, at 5:52 p.m., DraftKings’ public relations firm published a post on the personal X account of the DraftKings CEO. The post, according to the order, stated that the company continued to see “really strong growth” in states where it was already operating. DraftKings’ public relations firm posted a similar statement that same day on the CEO’s LinkedIn account. At the time of the posts, DraftKings had not yet disclosed its second quarter 2023 financial results, nor had it otherwise publicly disclosed certain information contained in the posts. Shortly after the public relations firm published the posts, it removed both posts at the request of DraftKings. According to the order, even though Regulation FD required DraftKings to promptly disclose the information to all investors after it was selectively disclosed to some, DraftKings did not disclose the information to the public until seven days later when it announced its financial earnings for the second quarter of 2023.
“Information about growth in sales as a public company can be extremely important to investors,” said John Dugan, Associate Director for Enforcement in the SEC’s Boston Regional Office. “It is essential that, when companies disseminate material, nonpublic information, they do so fairly to all investors.”
The order charges DraftKings with violations of Section 13(a) of the Exchange Act and Regulation FD. Without admitting or denying the order’s findings, DraftKings agreed to cease and desist from future violations of the charged provisions, pay the civil penalty referenced above, and comply with certain undertakings, including required Regulation FD training for employees who have corporate communications responsibilities.
The SEC’s investigation was conducted by Jonathan Menitove, Colin Forbes, Patrick Noone, Sean Fishkind, and Kathleen Shields, and supervised by Celia Moore of the SEC’s Boston Regional Office.
While companies can use social media outlets to announce key information in compliance with Regulation FD, investors must first have been alerted about which social media will be used to disseminate such information. For more information, see SEC Says Social Media OK for Company Announcements if Investors Are Alerted.
