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Federal Trade Commission could look into DFS sites after controversy

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DraftKings, FanDuel sued in class action lawsuit (3:12)

ESPN sports business reporter Darren Rovell explains the lawsuit against DraftKings and FanDuel. (3:12)

United States Sen. Robert Menendez and Congressman Frank Pallone have asked the Federal Trade Commission to investigate daily fantasy sports operators who allowed employees with access to nonpublic information to compete on rival sites.

"Allowing employees of fantasy sports websites with access to nonpublic information to participate in online fantasy games, even if the games are operated by other fantasy sports companies, could give those employees an advantage akin to insider trading," Menendez and Pallone stated in an Oct. 6 letter to the FTC. "Therefore, we also ask the FTC to investigate whether this constitutes an 'unfair or deceptive practice' as defined in Section 5 of the FTC Act.

"We believe that fantasy sports should be legal and subject to appropriate consumer and competitive protections."

The FTC did not immediately respond to a request for comment.

Pallone and Menendez held a news conference at noon Tuesday outside of MetLife Stadium to discuss fantasy sports.

"Daily fantasy sports is an industry crying for consumer protection," Pallone said. "Despite its explosion in popularity and the allegation of 'insider trading' by employees of daily fantasy sports operators, the industry is operating in a void within the legal structure -- without any regulation or the necessary transparency. The backdrop of MetLife Stadium calls attention to the fact that the same professional sports leagues and teams that support and invest in fantasy sports betting are opposed to and serve as a barrier to professional sports wagering. The illegality of sports betting has forced it to function almost exclusively through organized crime, and the lack of regulation of daily fantasy sports has left the industry open to unfair practices and consumer vulnerabilities. Both need to be taken out of the shadows and should be legal and regulated."

Added Menendez: "I have serious concerns about whether these online fantasy sports leagues can police themselves. This is about fairness and ensuring a level playing field for fantasy sports fans. There's a lot of money at stake, and these sites are drawing in tons of players. These players should know they aren't being duped. I think Congress needs to look into this and see whether by exempting fantasy sports from the Unlawful Internet Gambling Enforcement Act, we've created a regulatory vacuum that leaves consumers out in the cold."

Daily fantasy operators DraftKings and FanDuel have been under fire over the past week after a DraftKings employee published data revealing which players were included on the most rosters for an NFL DFS contest. The same weekend, the employee finished second in a contest on FanDuel, winning $350,000.

DraftKings has denied that the employee had access to the data prior to submitting his winning lineup and, along with FanDuel, has since banned employees from participating in public fantasy contests for money.

Menendez and Pallone said the reports of employees playing and winning on other sites "raise serious questions about the integrity of these online fantasy sports websites, and it raises the question of whether there are sufficient consumer and competition safeguards to protect the integrity of these online games."

Pallone, a ranking member of the House Energy and Commerce Committee, has also requested a congressional hearing to examine the "relationship between professional sports and fantasy sports and to review the legal status of fantasy sports and sports betting."

The hearing is expected to be granted, but as of Oct. 13, it has not yet been scheduled.