Lakes settles shareholder lawsuits for $18 million

David Strow

Tuesday, June 20, 2000 | 11:19 a.m.

Lakes Gaming Inc. announced Monday it will pay $18 million to settle a series of four-year-old shareholder lawsuits over problems in building and opening the Stratosphere hotel-casino in Las Vegas.

Under terms of the settlement, Minneapolis-based Lakes said it will pay $9 million to shareholders of the now-defunct Stratosphere Corp., and an additional $9 million to certain shareholders of Lakes predecessor company Grand Casinos Inc. The settlement does not affect current holders of Stratosphere stock, since the current corporation is a separate entity.

Lakes said it will place the $18 million into an escrow account by mid-July, pending final approval of the settlements. Lakes will take a one-time after-tax charge of $1 per share as a result, an amount Lakes officials call "reasonable."

"We're admitting to nothing," said Tim Cope, chief financial officer of Lakes. "We feel we're not at fault of any kind. But it's in the best interest of shareholders at Lakes to get this behind us and move ahead.

"It's been an uncertainty with our company, with respect to our market valuation. We're trying to improve shareholder price, get back to business and move ahead with life."

Lakes was created in December 1998 after Grand Casinos sold its non-tribal casino holdings to Park Place Entertainment Corp. The company, at that time, assumed all legal claims against Grand Casinos.

The lawsuits, filed in both federal and state court, related to alleged financial misstatements made by Grand Casinos relating to the Stratosphere project. Prior to the Stratosphere's bankruptcy, Grand Casinos held 42 percent of the Stratosphere's outstanding stock.

The first suit, filed in federal court in Las Vegas in August 1996, sought relief for all Stratosphere shareholders who purchased stock between Dec. 19, 1995, and July 22, 1996. A second federal lawsuit was filed one month later in Minnesota on behalf of Grand shareholders who purchased stock over the same time period.

In these lawsuits, former shareholders claimed Grand had misstated the anticipated construction costs of the Stratosphere and did not disclose cost overruns in a Stratosphere prospectus filed in December 1995 or other quarterly and annual reports filed with the Securities and Exchange Commission through July 1996. Stratosphere filed for bankruptcy in January 1997, a move that eventually led to the liquidation of the company's stock and the hotel-casino's takeover by Carl Icahn.

Trials in each case weren't expected to begin until early next year.

Charges were also raised that Grand and its directors had made misleading statements before the Nevada Gaming Commission and had issued misleading press releases, though these complaints were dismissed.

Judge Philip Pro's decision to pare the claims down to just the financial documents helped convince the plaintiffs to settle, said Spencer Burkholz, a San Diego attorney representing Stratosphere shareholders.

"In light of the court's order, this is an excellent settlement," Burkholz said. "(Jury trials) are fraught with risks. Because of the judge's order, this was a very good result. We think the shareholders will benefit from this."