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SEC Drops YouStake Investigation, Countering Action Dismissed

Counsel representing the online poker staking platform YouStake and the site’s founder, Frank DeGeorge, have dropped a lawsuit against the United States’ Securities and Exchange Commission (SEC) following the SEC’s dropping of a lengthy investigation into YouStake. At issue was whether the site might be in violation of any securities-based regulations or rules regarding its product, in which players sell stakes in tourneys in which they participate.

YouStake LogoThe ending of the investigation by the SEC into YouStake and the subsequent dropping of the motion for declaratory judgment favoring the site’s interests came after lawyers for YouStake and the SEC parried for roughly half a year over the underlying issues, The SEC never filed a formal case against the SEC, nor did it publicly identify any specific regulations that the site might be violating. On the flip side, YouStake and its founder, Frank DeGeorge, suffered the negative financial impact of nearly two years of an SEC investigation, which all but shut down YouStake’s live operations during that period.

In a court document obtained by Flushdraw, the SEC acknowledged that it had no plans to continue pursuing the matter:

“On December 18, 2017, Enforcement Staff informed [YouStake lead counsel Maurice] VerStandig that it had concluded its investigation involving YouStake and that based on the information Enforcement Staff has as of this date, it does not intend to recommend an enforcement action by the SEC against YouStake.”

Whether or not YouStake might be in violation of any securities rule or regulation isn’t quite as clear cut. YouStake’s lead counsel, VerStandig, filed the dismissal of the declarative-judgment motion that quotes from an SEC communication in the case: “During the course of this litigation, the SEC has acknowledged that it ‘is not now
contending that the business model of YouStake involves the sale and/or exchange of
securities.’”

However, the SEC’s court filing on December 18th, in which it acknowledges not continuing the overall investigation, contains a somewhat contradictory quote. “The responses never stated that the SEC is unable to identify a particular regulation,” SEC counsel wrote. “The responses simply state that the SEC has not yet made a determination whether YouStake’s business model involved the sale or exchange of securities.”

Whichever version of what the SEC claims is true, it looks like clear sailing from here on for YouStake and DeGeorge. The formal dismissal of YouStake’s own action against the SEC occurred on December 21st, having been signed of on by US District Judge Michael F. Urbanski. YouStake is already in the process of ramping up its offerings to the level before the SEC inquiry began.

“While this matter certainly followed an unorthodox course as we pursued litigation against the SEC,” said VerStandig, “I am immensely proud of the work George Calhoun and I undertook, and enormously grateful that an upstanding corporate citizen like YouStake may now return to the day-to-day affairs of offering a service vital to the communities it serves.” Calhoun, another counselor representing YouStake, works with veteran gaming firm Ifrah PLLC.

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