N.Y. Comp. Codes R. & Regs. tit. 9 § 5605.5

Current through Register Vol. 46, No. 53, December 31, 2024

Section 5605.5 - Special purpose entity

(a) Each interactive fantasy sports operator or registrant shall establish and maintain a special purpose segregated account that is maintained and controlled by a properly constituted entity that is not the operator or registrant and whose governing board includes one or more corporate directors who are independent of the operator or registrant and of any corporation affiliated with or controlled by the operator or registrant. Such special purpose corporate entity (which is defined as SPE in paragraph (14) of subdivision (b) of section 5600.1 of this Part) must require a unanimous vote of all corporate directors to file bankruptcy and must have articles of incorporation or organization, or other governing documents, that prohibit commingling of funds with those of the operator or registrant, except as may occur by the payment of a trust claim by the SPE pursuant to paragraph (3) of subdivision (b) of section 5605.6 of this Part. Such SPE must also be:

(1) restricted from incurring debt other than the obligation as trustee to pay trust claims, including to contestants;

(2) restricted from taking on obligations of the operator or registrant other than trust claims payable to contestants; and

(3) prohibited from dissolving, merging or consolidating with another company (other than an SPE established by another operator or registrant that meets the requirements of this section) while there are unsatisfied obligations to contestants, including, without limitation, the obligations set forth in section 5605.6 of this Part.

(b) Each operator or registrant shall implement and prominently publish procedures that:

(1) prevent unauthorized withdrawals from contestant accounts by operators or registrants or others;

(2) make clear that the funds in the segregated account do not belong to the SPE or the operator or registrant and are not available to creditors other than a contestant whose funds are being held; and

(3) prevent commingling of funds in the segregated account with other funds, including, without limitation, funds of the operator or registrant; and

(4) establish a protocol for responding to and reporting on complaints by IFS contestants that their accounts have been misallocated, compromised or otherwise mishandled.

(c) Notwithstanding anything to contrary in this Chapter, all funds of an interactive fantasy sports contestant shall be deposited directly with the SPE of the interactive fantasy sports operator or registrant. The SPE shall receive and hold such funds in trust in a trust relationship whose legal existence is created solely by this Part and that is governed by the provisions of section 5605.6 of this Part. No such funds, including any prize or award won by a contestant, shall be deposited with the interactive fantasy sports operator or registrant or otherwise paid to such operator or registrant except as may be paid as a trust claim by the SPE pursuant to subdivision (b) of section 5605.6 of this Part.

N.Y. Comp. Codes R. & Regs. Tit. 9 § 5605.5

Adopted New York State Register October 18, 2023/Volume XLV, Issue 42, eff. 10/18/2023