Two of the most feared and reviled, yet respected personalities in the world of Wall Street will go head-to-head this week in a legal battle of epic proportions.
Since being elected in 2010, New York State Attorney General Eric Schneiderman has quickly developed a reputation as the fiercest, most aggressive financial regulator in the country, someone who jumps at any chance to use Wall Street banks as his personal piñata. David Boies is a powerhouse lawyer, last spotted representing the NFL against Tom Brady in the Deflategate scandal and helping the insurance company AIG sue the U.S. government for $40 billion for bailing out AIG in 2008.
Rather than clashing over bank regulation, sanctions avoidance, or foreign exchange manipulation, these two larger-than-life personalities will be squaring off over a topic of much greater interest to the public: fantasy football.
Schneiderman claims that FanDuel and DraftKings, the two largest daily fantasy sports providers, are operating what amount to illegal gambling operations that rip off unsuspecting sports fans. He has ordered them to stop taking bets in the state of New York.
Boies, possibly the top white-collar superlawyer in the country, has been retained by DraftKings to help fight off aggressive regulators like Schneiderman.
The war of words has already begun, with Boies ripping into Schneiderman’s claims that daily fantasy games constitute gambling under state law. “The attorney general is entitled to change his mind,” Boies said on a press call with reporters on Friday, noting that DFS games had operated in New York for years without issue. “He is not entitled to unilaterally change the law.”
Boies has a track record of representing clients and arguing cases that few others top lawyers want to touch. Noteworthy clients include former Enron COO Andy Fastow – the man who engineered the company’s monumental collapse, which ruined the retirement accounts of countless Americans; Napster – the illegal file sharing site that shook the music business in the late 1990s; tobacco companies; and the former president of Blackwater – the mercenary contractor employed by the U.S. government in Iraq.
More recently, Boies aided former AIG Chairman Hank Greenberg’s lawsuit against the U.S. government for its intervention during the 2008 financial crisis. AIG’s risk-taking – selling over $400 billion of unregulated financial products – had recklessly exposed it to huge potential losses, and the likelihood that it could not pay billions of dollars’ worth of liabilities to stressed U.S. banks. To keep AIG solvent, the U.S. government stepped in with an $85 billion taxpayer-backed loan and received warrants, for up to 80% of the company’s equity, as compensation.
Years later, Greenberg and Boies are now arguing that the terms of the bailout were onerous and harmed shareholder value. Never mind that had the government not stepped in, AIG would have failed, and all shareholder value would have been completely destroyed. With Boies’ legal skills, AIG actually won this case, though no monetary damages were awarded. (That decision is being appealed.)
On the other side, Schneiderman, after his 2010 election, wasted no time in taking on crooks on Wall Street, rooting out fraud, and even suing Donald Trump for violating state education licensing rules with his Trump University. (It’s now called the Trump Entrepreneur Initiative; it’s still not accredited.)
For a regulator as aggressive as Schneiderman, the opportunity to look tough by attacking DFS companies is a meaty fastball right down the middle of the plate. These companies are unregulated entities that publicly boast about processing billions of dollars’ worth of transactions, they operate in a legal grey area which they have recklessly exploited, self-regulation within their industry is basically non-existent, and insider trading allegations have raised questions over the integrity of the games.
But DraftKings and the DFS industry have landed a huge counterpunch by retaining Boies. Given that he has convinced a legal court that AIG shareholders were harmed by a taxpayer bailout that saved it from failing, he might be able to convince other courts that DFS is not gambling – even though it looks, smells and feels like gambling in every imaginable way – with relative ease.
Pull up a chair and get some popcorn ready, because this is going to be a great match to watch.
(Additional reporting by John Broughton)
