Powerful prosecutor said to probe daily fantasy industry

The office of Preet Bharara, the tenacious and prominent federal prosecutor in New York, is investigating the daily fantasy sports industry, The Wall Street Journal reported on Wednesday.

The investigation into the daily fantasy industry is said to be in its early stages, and The Journal reported that Justice Department lawyers have yet to decide whether daily fantasy sports violate gambling laws.

Bharara, the U.S. Attorney for the Southern District of New York, was behind criminal indictments of executives from online poker companies in 2011 that ultimately damaged to the industry. A related civil matter was settled without any admission of wrongdoing by the companies or executives.

{mosads}Victories in insider trading cases have further burnished Bharara’s reputation.

News of Bharara’s involvement in the probe follows earlier reports that the Justice Department is investigating the growing fantasy sports industry, which some critics allege is in violation of anti-gambling statutes. A representative of the U.S. Attorney for Massachusetts, where fantasy sports website DraftKings is based, declined to confirm or deny the existence of the broader investigation last week.

The investigation is just one of many challenges to a booming industry that has, in the last year, raised its profile through advertising blitzes.

Several lawmakers have called for hearings on the websites and their business model. Unlike traditional fantasy sports websites, which allow players to form virtual “teams” once a season, sites like FanDuel and DraftKings allow users to create new lineups every day for a wide range of sports.

The sites say they are legal under an exemption to a 2006 law blocking most forms of online gambling that allows for fantasy sports as long as it is a “game of skill.”

But congressional critics wonder if the newer daily fantasy sites are actually venues for gambling and should be more regulated. House Energy and Commerce Committee Ranking Member Frank Pallone, Jr., (D-N.J.) has said the panel should investigate the industry and its ties to professional sports leagues. The committee’s chairman, Rep. Fred Upton (R-Mich.), has also said a hearing is likely.

The House Judiciary Committee is also looking into the industry.

Concerns were exacerbated earlier this month when the companies acknowledged that an employee of DraftKings who accidently released key internal data early had won $350,000 on FanDuel that same week. Observers of the industry questioned whether he had used the data to gain an edge in the FanDuel contest.

DraftKings denies that he used the information to bet while making his lineup for the day in question. An investigation conducted by a law firm hired by DraftKings found that the employee did not have access to the information before he locked in his FanDuel lineup.

Still, both companies have permanently banned their employees from playing on other daily fantasy sites. They have also hired federal lobbyists for the first time as they engage with critics in Washington.