Lottery.com faces accounting non-compliance and ongoing class action lawsuit
Lottery.com, an online lottery business, discloses material weakness in its accounting non-compliance and grapples with an ongoing class action lawsuit due to alleged false statements
Lottery.com, an online lottery business, has revealed that it is facing a significant challenge in the form of "material weakness" regarding its accounting non-compliance, which has led to an ongoing class action against the company. In its long-delayed Q2 2022 financial report, Lottery.com outlined several issues related to the effectiveness of its controls and procedures in reporting its financial results. The company acknowledged "deficiencies" in the design and operation of these procedures, including a lack of personnel with the necessary knowledge and experience in accounting for complex transactions.
Lottery.com also admitted that its policies and procedures concerning the review, supervision, and monitoring of its accounting and reporting functions were either inadequately designed or not operating effectively. This resulted in the inability to complete timely closing of financial books, incomplete segregation of duties in certain transactions and processes, and insufficient procedures and controls for non-routine transactions, such as the sale of LotteryLink Credits.
As a consequence, Lottery.com overstated its revenue by $52.1 million for the year ending December 31, 2021, leading to the resignation of its chief revenue officer in July 2022. In response to these deficiencies, the company has implemented remedial steps to improve its processes and address the material weaknesses. These steps include hiring personnel with appropriate accounting knowledge, adopting a more rigorous period-end review process for financial reporting, and implementing improved accounting processes while clearly documenting the segregation of duties.
However, the challenges faced by Lottery.com extend beyond its internal issues. The company is currently engaged in ongoing lawsuits, with a class action lawsuit filed in August 2022 on behalf of investors against Lottery.com and former high-ranking employees. The lawsuit alleges that the company made materially false or misleading statements and failed to disclose its lack of adequate internal accounting controls. The plaintiffs claim significant losses and damages as a result of these wrongful acts and omissions.
Lottery.com had filed a motion to dismiss the lawsuit in April, and the class action is expected to file its opposition. The deadline for Lottery.com to reply to the opposition is set for no later than June 20. As the company grapples with these legal challenges and works towards remedying its internal control weaknesses, it faces a period of uncertainty and the need to rebuild trust among investors and stakeholders.