Settlements between Nevada sports entity wagering funds and SEC viewed as ‘positive steps’

September 11, 2018 4:25 AM
  • Howard Stutz, CDC Gaming Reports
September 11, 2018 4:25 AM
  • Howard Stutz, CDC Gaming Reports

Two Nevada-based entity wagering funds – which invest pooled money on legal sports wagers much like a stock or bond mutual fund – have settled complaints filed by the U.S. Securities and Exchange Commission for violations of federal securities laws.

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Neither company was fined by the SEC nor were they suspended from doing business.

Officials for the two companies – Contrarian Investments LLC and Nevada Sports Investment Group – said Monday the SEC settlements were considered as a positive step forward for the entity wagering industry that was created in 2015 by Nevada lawmakers.

“While some might view this as a negative, it was necessary to make us aware of all of the federal requirements to operating such a fund,” Contrarian Owner Chris Connelly said in an email.

Kenneth Murphy Jr., fund manager for Nevada Sports, said in an interview the SEC settlement “was a very positive development for the industry. What goes overlooked is that we were in discussions with the SEC for 22 months. It was a very fair agreement.”

Nevada lawmakers – working with state gaming regulators – approved the creation of entity wagering for the state’s legal sports betting market. The law allowed out-of-state residents to participate in the state’s legal sports betting through mutual fund-style pools. The funds had to be managed in Nevada. Any profits from wagers are split among the investors.

Only one sports book operator, however, CG Technology, agreed to accept wagers from the entity funds.

The funds were considered in compliance with Nevada law, but the SEC said they were not in compliance federally.

The SEC filed both complaints and settlements Friday in the U.S. District Court in Las Vegas. According to the complaints, Contrarian Investments and Nevada Sports conducted unregistered offerings of securities.

According to the lawsuits, which were first reported by Legal Sports Report, neither company – under SEC rules – made determinations regarding its clients status as accredited investors nor did the companies file registration statements under the Federal Securities Act. The companies also did not fulfill the requirements necessary for an exemption.

  1. Shawn Murnahan, an attorney with the SEC in the Atlanta, said the federal judge signed the judgement with Nevada Sports but had not yet signed the judgement with Contrarian. He expects the matter “to be entered, but the judge hasn’t gotten to it yet.”

According to the court filings, both Contrarian and Nevada Sports offered settlement “without admitting or denying” the SEC’s findings. The companies also consented to a permanent injunction should there be future violations and will send a copy of the final judgement to each investor.

According to the court filings, Contrarian raised $437,500 from 25 investors while Nevada Sports raised $1.035 million from 35 clients.

Murphy said Nevada Sports stopped taking new investors in 2016, “primarily because only one sports book operator” was accepting entity wagers.

“We now know that all sports entity funds have to be viewed as securities and register as such,” Murphy said. “We have always endeavored to be fully compliant with the SEC.”

Connelly said Contrarian will “look forward to refocusing our efforts on investing in the sports betting market and making sports betting an alternative asset class, while meeting all SEC regulations to do so.”

The SEC started looking into the funds back in 2016. The settlements were agreed upon as the U.S. legal sports betting market continues to expand following May’s U.S. Supreme Court ruling allowing states to legalize and regulate sports betting. So far, Nevada is the only state with entity sports wagering laws on its books.

In February, the Las Vegas Review-Journal reported that clients Bettor Investments had filed complaints with the Nevada secretary of state and the attorney general, claiming the fund had not responded to requests to return their money.

Meanwhile, CG Technology, could be facing a potential gaming license revocation after the Nevada Gaming last month rejected a stipulated settlement over various regulatory violations. The Gaming Control Board had agreed to accept a $250,000 fine to end a four-count complaint, but commission members said the amount was too low for the company’s third such disciplinary action in five years.

CG Technology operates the sportsbooks at seven Las Vegas Strip and Las Vegas-area casinos.

Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at Follow @howardstutz on Twitter