NASHVILLE, Tenn. (AP) - A Tennessee sports betting company has sued state officials to try to overturn their suspension of the firm’s sportsbook, a move taken last week due to suspected fraud and money laundering in accounts on the betting platform.
On Monday, Tennessee Action 24/7 filed the lawsuit against Tennessee Lottery officials for the suspension that came at the outset of the men’s basketball NCAA Tournament, a huge sports betting event that continues for several weeks. The company is challenging the regulatory process used to suspend them and is calling into question the level of debit card fraud an investigator suspects occurred.
The company is one of six authorized so far to run sportsbooks under Tennessee’s online-only sports betting law, which saw its first bets in November.
The move marked the first time an online sportsbook operator has had its license suspended in the U.S., according to Dustin Gouker, lead analyst for the PlayUSA.com sports betting news website. The suspension remains in effect indefinitely until a review finds that proper internal controls are in place going forward.
Danny DiRienzo, a sports betting investigator for the lottery, last week said the activity would have been stopped early on, with fewer victims and less money in losses, if the company had implemented the internal controls they spelled out in their application as a sportsbook operator.
DiRienzo said in one instance, a player made a $10 deposit almost immediately followed by 184 attempted deposits from seven cards with seven names, 124 of which were successful, with minimal bets placed and then multiple withdrawals out to an account with the player’s name. He called it a clear case of what could be charged as credit card fraud, money laundering, aggravated identity theft or wire fraud.
“It is serious, serious criminal activity, probably in the tens if not hundreds of thousands of dollars worth of damages done with multiple real individuals and business victims,” DiRienzo said during a Friday meeting of the lottery’s board.
The lawsuit by Tennessee Action 24/7 says the lottery acted outside of its authority when its top officials suspended the license last Thursday, before the board voted on the move the following day. The company was on the phone during the meeting but the board “refused to hear their position,” the lawsuit says. Discussions between the parties also unfolded via emails ahead of the meeting.
The sportsbook operator said it self-reported the suspicious activity March 17, sending the lottery 23 incident reports of activity that occurred March 9 through 12, of which DiRienzo said he had read through three or four as of last week’s lottery meeting. According to Tennessee Action 24/7, the total amount of fraudulent deposits was about $37,362, of which the company has recovered $14,701, with $22,661 in fraudulent withdrawals successfully made by seven individuals to four bank accounts.
The company said it had already frozen the accounts in question at the time it reported the issues and implemented other measures, saying there’s no evidence that the sportsbook’s internal controls were inadequate.
The lottery’s actions, the company’s lawsuit said, were “an inadequate or sometimes complete lack of review of the evidence, an unwillingness to hear Action’s side of the story, and a rush to judgment, ultimately resulting in a destruction of Action’s business.”
At last week’s meeting, lottery CEO Rebecca Hargrove said if Tennessee Action 24/7 did not wait days to notify the lottery, maybe the issues could have been resolved before the NCAA Tournament began.
Through a spokesperson, lottery officials declined to comment on the pending litigation. The case heads to a hearing Wednesday in Davidson County Chancery Court over the company’s request for a preliminary injunction to get them back up and running immediately.
Tennessee Action 24/7 is the only Tennessee-based sportsbook in the state, with a top Advance Financial official at the helm of the operation. The company has come under scrutiny for allowing people to deposit money into their betting accounts at Tennessee locations of Advance Financial, a payday lender. Some state lawmakers have introduced legislation seeking to clamp down on the practice, which lottery officials have expressed concerns about, but determined it wasn’t prohibited under current Tennessee sports betting law.
DiRienzo said it’s not the first case of “very serious criminal conduct” at Tennessee Action 24/7. He said 45 player accounts were opened around the Super Bowl, so about 41 out-of-state residents could place hundreds of bets through someone in Tennessee to circumvent geolocation requirements because bettors are required to be in state when they wager. The person who placed the bets was under contract with Tennessee Action 24/7, DiRienzo said.
The lawsuit said DiRienzo spoke “improperly” about the incident at last week’s meeting as a topic unrelated to the current issues.
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