The Tennessee Education Lottery (TEL) suspended Action 24/7‘s license last week amid allegations of money laundering and credit card fraud happening on the site. Now, Action 24/7 has filed a lawsuit against the TEL, claiming the regulator unlawfully suspended its license.
The case was heard Wednesday by the Davidson County Chancery Court in Nashville.
Action 24/7 sues the Tennessee Education Lottery
Action 24/7’s temporary suspension came last week after the TEL investigated claims of credit card fraud, money laundering, and proxy betting happening on the site. This marks the first time in history that a US sports betting operator has had its license suspended.
TEL investigator Danny DiRienzo argued that inadequate internal controls ultimately allowed a player to make 124 successful deposits from seven different cards with seven different names.
Although the suspicious transactions occurred March 9, the operator did not report the findings to the TEL until March 17. The TEL argues that Action 24/7 should have reported the findings sooner, while Action 24/7 counters that it was unaware of the time restraint on reporting irregularities.
On March 17, the operator filed a total of 23 incident reports to the TEL. During an emergency suspension meeting on Friday, March 19, DiRienzo said he had reviewed three or four of those reports. After his investigations, DiRienzo concluded that:
“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.”
Action 24/7 argues that it adhered to the rules by self reporting the issue.
There are still major concerns, however. Out of the more than $37,000 fraudulent deposits, the operator recovered less than $15,000. Consequently, users made almost $23,000 in fraudulent withdrawals.
24/7 monitoring required at Action 24/7
DiRienzo stated that the sportsbook did not have the adequate internal controls in place to “prevent future criminal conduct” from occurring on the site. This was key in the Board ratifying the vote to suspend the license.
Action 24/7 argued the investigator lacked sufficient understanding of the transactions that took place and had “unreasonable expectations” for the sportsbook.
Nonetheless, the sportsbook implemented round-the-clock fraud monitoring in response to the TEL’s concerns.
Action argues that the TEL failed to properly follow its own regulations when Lottery Board Chair Susan Lanigan initially suspended Action 24/7’s license on Thursday before it was put to an official vote.
The Sports Wagering Committee did not vote on the matter until Friday afternoon.
Given that the suspension came one day before the start of March Madness, the timing couldn’t have been worse. Action 24/7’s suit suggests the suspension will have a “catastrophic impact” on its ability to survive as a Tennessee sportsbook.
The sportsbook reportedly spent Tuesday and Wednesday processing withdrawals from anxious bettors.
Action 24/7 gets closer to action
Before the hearing, Action 24/7 didn’t have a clear timeline for getting its license reinstated.
The sportsbook’s counsel requested a temporary injunction to allow Action to continue operating until it has a hearing with the Lottery Board. That hearing would allow Action 24/7 due process regarding the suspension.
Lindsay Sisco spoke on behalf of the TEL during the meeting. She reasoned that the motion should ultimately be denied because the risk to Tennessee bettors outweighed the sportsbook’s bottom line.
According to the judge, the Board acted to make a final suspension decision without following that timeline.
Sisco concluded her statement on behalf of the TEL by saying that Action 24/7 knows how to lift its suspension. The TEL sent a letter to the sportsbook on March 22 outlining the necessary steps Action 24/7 must take. In order to have its license reinstated, the regulators must confirm that these steps have taken place.
Action 24/7’s counsel reiterated that the TEL violated due process and requested the license be reinstated immediately.
Judge Patricia Head Moskal adjourned the hearing saying she would work to get a decision out as quickly as possible.