A new lawsuit in Orange County, California, named the online wagering brand Stake as its defendant, a month after the company had its U.K. gambling license revoked by the Great Britain Gaming Commission.
The suit alleges the company has been operating an illegal gambling enterprise in the state. It focuses on Stake's sweepstakes-based casino games, which the plaintiff contends violate California's gambling laws.
According to the lawsuit, Stake.com allows California residents to engage in casino-style gambling despite California's prohibition on it. The operator has circumvented California law by disguising real-money gambling under a sweepstakes model, a strategy likened to that of internet sweepstakes cafes that became prominent around the early 2000s.
These cafes typically sold internet time or other items and, in return, compensated customers with sweepstakes entries, which could then be used to play casino-style games for cash prizes.
The plaintiff alleges that Stake's current operations are similar in form and function, comparing the company's model to those sweepstakes cafes that were later deemed illegal. The complaint outlines how both types of operations relied upon a loophole in the law to offer gambling products to the public without satisfying licensing and regulatory standards.
Stake is alleged to have employed an offshore model, with companies registered in Gibraltar and Cyprus, to avoid U.S. jurisdiction and regulatory compliance.
Gaming attorney and industry expert Daniel Wallach was the first to reveal the lawsuit, which seeks to shut down Stake's sweepstakes casino website in California and hold the operator accountable for violating state laws.
Too many parallels to the gaming industry
Among the individual practices singled out in the filing is the so-called "play-through requirement" that players who use promotional credits such as Stake Cash are subjected to. The suit claims that customers who receive promotional money must wager the value of the funds at least three times over before any winnings can be withdrawn.
While such stipulations are standard in most of the online gambling industry, the plaintiff argues that this system disparately impacts players. The suit alleges it operates for the house, especially in jurisdictions where such gaming models have not been approved.
The legal motion also queries the economic scope of the operation, noting that users in California are transacting large sums of money on Stake's platform. The motion notes that the state does not accrue any of this money through taxes or licensing fees, highlighting the unregulated nature of the activity.
The suit draws a parallel with the case of an identical sweepstakes-based gambling site in Washington, which agreed with the state government to a settlement of nearly $25 million for the exact charges of unlawful gambling.
This latest lawsuit is part of a growing wave of regulatory takedown efforts aimed at sweepstakes casino models as state governments struggle to claim authority over overseas gambling websites selling to U.S. residents. Bills to outlaw or ban sweepstakes casinos are already in development in several states, including Florida, Maryland, Mississippi and New York.
