Action 24/7 Sues Tennessee Lottery Over License Suspension, Seeks Reinstatement

Posted on March 23, 2021

As expected, Action 24/7’s issues with the Tennessee Lottery have ended up in a Tennessee courtroom.

On Tuesday, the Tennessee Star reported that the local sports betting app filed a lawsuit against the Tennessee Education Lottery (TEL), the Lottery Board of Directors, and TEL CEO Rebecca Hargrove. Per the lawsuit, Action 24/7 says the Lottery violated regulatory procedures when it abruptly suspended its sports betting operator license last week.

A judge is set to hear the case on Wednesday, March 24.

Lawsuit claims Hargove, TEL suspended license without due process

The crux of the lawsuit is that Hargrove and lottery employees like the TEL’s investigator Daniel DiRienzo prematurely suspended Action 24/7’s license without a vote from the Board of Directors or the Sports Wagering Committee.

Per the suit:

“On March 18, 2021, the Chair of the Board, acting with TEL’s General Counsel, TEL’s CEO, and TEL’s Sports Gaming Investigator, told Action that its license was suspended, even though neither the full TEL Board, or even the Sports Wagering Committee, had been convened to vote on the matter. TEL unlawfully disabled Action’s ability to operate despite the fact its license had not been lawfully suspended.”

Action 24/7 went offline late Thursday evening last week. However, the Board did not meet to discuss and vote on the suspension until the following day at 2 p.m. CDT.

At that time, DiRienzo spoke at length about the case. He admitted he had not fully looked at the 23 case files the operator sent to him. Based on his findings after three or four, he was comfortable saying the site lacked the necessary internal controls to be safe and meet regulatory standards.

DiRienzo emphasized some other issues beyond just the accounts suspected of money laundering. First, he noted that there was an issue with the site apparently employing a proxy bettor to facilitate and place bets from customers outside of Tennessee.

Second, he emphasized that the site first noticed suspicious activity on March 8 but failed to notify TEL until March 17.

After hearing from DiRienzo, Hargrove, and other TEL employees, the Board of Directors voted to temporarily suspend Action 24/7’s license. The discussion and debate did acknowledge that a court challenge could come and there were several questions about points of procedure.

Action 24/7 claims counsel was ready to speak Friday but had no opportunity

According to Action 24/7, the site identified the suspicious activity and, within 24 hours, froze the accounts and put in new procedures to ensure compliance.

For example, the operator was not monitoring transactions in the evening hours when the transactions in question took place. Action 24/7 then implemented round-the-clock banking oversight.

Action 24/7 CEO Tina Hodges also claims in the suit that the site quickly remedied the situation. However, the suit also states that, since the license is suspended, certain third-party companies will not work with the book to implement internal controls until the TEL reinstates it.

The suit is especially critical of DiRienzo’s damning assessment of the site on the call. DiRienzo suggested it was possible hundreds of thousands of dollars were being laundered. Action 24/7 claims the amount successfully deposited and withdrawn amounts to a little over $22,000.

Action 24/7 also claims lawyers for the company were eager and ready to speak at Friday’s impromptu meeting, but that TEL staff said it was policy to not allow outside entities to speak unless it is a question.

Court case comes down to procedure

The TEL sports betting regulations offer a decent amount of latitude regarding the choice to suspend or revoke a license. Per the regulations:

“The TEL Board may deny, suspend, or revoke a License or Registration if evidence satisfactory to the TEL exists that the Applicant, Licensee, or Registrant committed any of the following disqualifying offenses:

A: The Applicant, Licensee, or Registrant knowingly made a false statement of material fact to the TEL or its Board…”

Given DiRienzo’s testimony to the Board that he believed Action 24/7 misrepresented the extent of their internal controls during licensing, the Board is fairly well covered under this regulation.

However, the question is whether the order of events from the suspension to the vote will be considered a violation of regulations and Action 24/7’s due process. The inability of Action 24/7 to present its case on Friday is also something to consider.

In the meantime, Action 24/7 has been offline since March 18 and missed the entire first week of betting on March Madness in Tennessee.


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Jessica Welman

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