ARK Buys $42 Million Of DraftKings After Hindenburg's Allegations Of Black Market Dealings

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by Tyler Durden
Wednesday, Jun 16, 2021 - 12:04 PM

Never one to shy away from a company in the crosshairs of controversy (and in keeping with her investment "strategy" of what seems like always doubling down any time one of her holdings drops), ARK Invest's Cathie Wood scooped up an astounding 870,299 shares of DraftKings on Tuesday, after the stock plunged more than 10% at one point due a report from Hindenburg Research alleging ties to black market operations. 

The additional stake in DraftKings, which Wood was already long, is estimated to be worth about $42.2 million, according to Bloomberg.

Wood bought the shares in both her Ark Innovation ETF ARKK and Ark Next Generation Internet ETFs, the report notes. ARK now owns an aggregate of 11.3 million shares in DraftKings, which is worth about $572.2 million. DraftKings has a market cap of about $19.4 billion. 

This means you can officially add DraftKings to the (long and running) list of companies ARK is involved in that has been the center of controversy. For example, ARK famously increased its position in Wirecard "after the Financial Times began publishing articles about irregularities at the company, which soon collapsed".

ARK has also previously bought shares of short seller targets Vuzix and Workhorse. It also owns a significant stake in the always-controversial Tesla. 

ARK's Cathie Wood

We noted that shares of the online sports betting site plunged on Tuesday after short seller Hindenburg Research (most recently responsible for ousting the CEO and CFO of Lordstown Motors) released a new report called "DraftKings– A $21 Billion SPAC Betting It Can Hide Its Black Market Operations". 

"DraftKings has been considered one of the more successful deals in a recent wave of SPAC transactions marred by scandal and bad actors. Its stock is up ~398% from its announcement price," the report said.

But it continued:

"Unbeknownst to investors, DraftKings’ merger with SBTech also brings exposure to extensive dealings in black-market gaming, money laundering and organized crime."

"We estimate that roughly 50% of SBTech’s revenue continues to come from markets where gambling is banned, based on an analysis of DraftKings’ SEC filings, conversations with former employees, and supporting documents," Hindenburg alleged.

"As one former employee told us, DraftKings’ subsidiary SBTech has 'sold to plenty of mobs', a sharp contrast to the clean image of DraftKings’ brand-conscious partners, including the NFL, NBA, NASCAR, UFC and PGA, and the company’s recent hire of supermodel Gisele Bundchen to advise on governance issues."

Hindenburg Research founder Nathan Anderson

"We think DraftKings has systematically skirted the law and taken elaborate steps to obfuscate its black market operations. These violations appear to be continuing to this day, all while insiders aggressively cash out amidst the market froth," Hindenburg concluded.

DraftKings shot back at the report on Tuesday, stating that: "This report is written by someone who is short on DraftKings stock with an incentive to drive down the share price. Our business combination with SBTech was completed in 2020. We conducted a thorough review of their business practices and we were comfortable with the findings." 

Regarding additional allegations by former employees included in the Hindenburg report, DraftKings stated: "We do not comment on speculation or allegations made by former SBTech employees."