Last August, Nevada Secretary of State Barbara Cegavske issued a Summary Order to Cease and Desist on Thomas Becker and Wellington Sports Club, LLC, Einstein Sports Advisory, Ltd., and Welscorp, Inc. The gist of Secretary of State's allegations is that the respondents' sports betting model is a security. Shortly thereafter the Securities and Exchange Commission filed a civil complaint against Mr. Becker and several other individuals and entities. The SEC alleges, among other things, violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and the registration provisions of Section 5(a) and 5(c) of the Securities Act.
Earlier this month, several of the defendants in the SEC action moved to dismiss the SEC's action, arguing that gambling contracts are not securities and cannot be regulated as such, "because the 'investor' never gains an interest in an underlying asset - such contracts rest on on the outcome of a game". The SEC argue that the defendants' contracts are investment contracts under SEC v. W.J. Howey, 328 U.S. 293 (1946). The SEC also rejects the defendants' argument that the regulation of gaming under other laws precludes SEC jurisdiction.
