• by Wendy Davis , Staff Writer, November 17, 2015

Online fantasy sports company FanDuel has stopped allowing New York residents to enter any paid contests on its platform. 

The company's move came just hours after New York Attorney General Eric Schneiderman sued FanDuel and its rival, DraftKings, for allegedly violating a host of state laws against sports betting and unfair advertising.

Schneiderman is seeking an injunction prohibiting both companies from operating in New York.

DraftKings said in a statement that it believes Schneiderman's view "is based on an incomplete understanding of the facts about how our business operates and a fundamental misinterpretation and misapplication of the law."

Among other allegations, Schneiderman says both companies' ad campaigns fraudulently "lure New York residents with promises of easy riches for a lucky few sports fans."

DraftKings allegedly has spent more than $21 million this year on ads while FanDuel allegedly has spent more than $75 million in the same time frame, Schneiderman alleges in the complaints, brought in New York County Supreme Court.

DraftKings' ads promise "the simplest way of winning life-changing piles of cash," while FanDuel boasts that “even the novice can come in and spend 1 or 2 dollars and win 10, 20 thousand dollars,” New York's top law enforcement official says in his complaint.

He also alleges that both companies violate New York's longstanding laws against sports betting.

Schneiderman makes the somewhat counterintuitive argument that both companies were inspired by the 2006 Unlawful Internet Gambling Enforcement Act. That law -- which doesn't trump tougher state restrictions -- aimed to end online gambling on the federal level by prohibiting banks and credit-card companies from processing payments for Internet gambling.

But the federal law has an exception for fantasy sports. Schneiderman alleges that FanDuel and DraftKings drew on that exception to grow their businesses.

FanDuel launched in 2008, while DraftKings has been around since 2012. Both companies recently attracted scrutiny after reports surfaced that a DraftKings employee won $350,000 at FanDuel based on "insider information."

Schneiderman appears to go out of his way to draw a distinction between the "traditional" fantasy sports leagues run by media companies like ESPN and CBS Sports, and the "daily fantasy sports" offered by FanDuel and DraftKings.

"The sweeping majority of participants in traditional fantasy sports compete solely for bragging rights or side wagers," Schneiderman asserts.

He also says that more mainstream fantasy sports sites "typically" generate revenue from advertising and administrative fees.

FanDuel and DraftKings went to court on their own late last week to seek a restraining order against Schneiderman. On Monday, Justice Manuel Mendez denied to issue an emergency order and scheduled the matter for a hearing on Nov. 25.