N.Y. Comp. Codes R. & Regs. tit. 9 § 5605.6

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

Section 5605.6 - Protection of contestant funds

(a)Contestant deposits in trust.

(1) Funds deposited by contestants with the SPE of an interactive fantasy sports operator or registrant shall be, by operation of this section, received as assets of a trust for the purposes set forth in this section, not property belonging to such SPE or the operator or registrant. Such deposits shall include, without limitation, any funds provided on a contestant's behalf by a credit card processor and any prize or award won by a contestant in a contest offered by the operator or registrant that is credited to such person's contestant account.

(2) Pursuant to the trust relationship and obligations created by operation of this Part, the funds deposited by each contestant shall be a separate trust and the SPE of the operator or registrant shall be the trustee of each such trust, commencing with deposits on or after the effective date of this section, and shall continue with respect to every asset of the trust until every trust claim arising at any time has been paid or discharged for the purposes of the trust and the trust has been terminated (e.g., by the closing of the contestant account by the contestant) and the trust assets distributed pursuant to this section. Such trust relationship is created by virtue of this section and shall apply regardless of the type of bank account that the SPE uses to hold the funds pursuant to paragraph (3) of this subdivision.

(3) Each SPE of an operator or registrant shall deposit and maintain all of the funds held in trust in an account in a branch of a national or State chartered banking institution.

(4) Funds held in trust shall not be commingled with other funds. The SPE shall not be required to keep in separate bank accounts or deposits the funds of the separate trusts of which such SPE shall be trustee pursuant to this section, so long as the books of account of such SPE for the operator or registrant shall show clearly the allocation to each trust of the deposits in and withdrawals from such account holding the funds held in trust.

(5) The books or records with respect to each trust shall contain entries of trust assets receivable, trust accounts payable, trust funds received and trust payments made with trust assets including without limitation the entry fees paid and prizes or awards won by a contestant in a contest. Such entries shall be sufficient to identify the party, amount, date, bank or depository and other pertinent information for each account entry.

(6) Failure of the SPE, as trustee, to keep the books or records required by this subdivision shall be presumptive evidence that the SPE, as trustee, has applied or consented to the application of funds actually received in trust by the SPE as money or an instrument for the payment of money for purposes other than a purpose of the trust as specified in this section. The SPE may be assisted by the operator or registrant to maintain such records.

(b)Trust claims. Such trust assets shall be held and applied by the SPE, as trustee, for the payment of trust claims. Trust claims means the following claims for payment for which the SPE, as trustee pursuant to the trust relationship and obligations created by operation of this Part, is authorized to use, in this order, the funds held in trust:

(1) A claim by a person to withdraw from such person's contestant account any funds that are not designated as an entry fee in an ongoing contest.

(2) A claim by a contestant for the prizes or awards won in a contest offered by the operator or registrant upon the completion of the contest. Such claims shall be paid by crediting the winnings and debiting the entry fees, and recording such credits and debits in the books and records of the SPE, with respect to the contestant account of each contestant.

(3) A claim by the operator or registrant for funds held in trust that were designated as entry fees in a contest by a contestant, after paying the claims to the contestants for the prizes or awards won by the contestants, upon the completion of such contest. The SPE of the operator or registrant may delay the payment of all or part of this trust claim for the purpose of orderly bookkeeping, including to implement a standard reconciliation of funds request submitted from the operator or registrant to initiate the payment of such claims by the SPE, and ensuring the payment of superior trust claims.

(c)Payments to contestants. An SPE, as trustee, is not authorized to determine the order of payment of trust claims of the contestants. An SPE, as trustee, shall apply assets held in trust in the order in which the contestants request a distribution or withdrawal of each such person's contestant account funds.

(d)Termination of accounts. The beneficial interest in the remaining assets in each person's contestant account, upon the termination of the trust by such person having elected to close any contestant account and by payment or discharge of all the trust claims, shall vest in such person, and the SPE, as trustee, shall distribute same to such person within five business days, unless the completion of fraud-prevention procedures necessitates a delay, in which case the operator shall so notify such person of the delay and the time in which the payment is anticipated to be made.

(e)Diversion of trust assets. Any transaction by which any contestant funds held in trust by operation of this Part are paid, transferred or applied for any purpose other than a purpose of the trust as stated in this section, before payment or discharge in order of all trust claims and the termination of the trust, is a diversion of trust assets, whether or not there are trust claims in existence at the time of the transaction. If the diversion occurs by the voluntary act of the SPE, as trustee, or operator or registrant or by the consent of the SPE, as trustee, or operator or registrant, then such act or consent is a breach of trust.

(f)Embezzlement referrals. The commission shall report to the gaming inspector general and to appropriate law enforcement officials, for possible action in regard to the embezzlement of such funds:

(1) any activity that constitutes an application or consent to an application of trust funds received in trust pursuant to this Part by the SPE, as trustee, as money or an instrument for the payment of money for any purpose other than the purposes of that trust; and

(2) any accessorial conduct, facilitation, solicitation, conspiracy or attempt by an operator or registrant to cause or benefit from a misapplication of such trust funds.

(g)Disclosure of terms and conditions of trust accounts. Each operator or registrant shall display prominently on such operator or registrant's platform a complete and unambiguous description that contestant deposits are held in trust and of the obligations of the SPE, as trustee, established by this section.

(h)Unrelated services and products. This section shall not apply to the purchase by a person from an interactive fantasy sports operator or registrant of any service or product that is unrelated to interactive fantasy sports or whose purchase is independent from entering any such contest.

N.Y. Comp. Codes R. & Regs. Tit. 9 § 5605.6

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