Alliance facing shareholder lawsuits

By Liz Benston (contact)

Thursday, June 17, 2004 | 10:51 a.m.

Law firms in California and Maryland announced Wednesday they filed lawsuits seeking class action status on behalf of Alliance Gaming Corp. shareholders.

The suits, filed this week in federal court in Las Vegas, allege that company officers violated securities laws by issuing "false and misleading statements regarding the company's business prospects" that artificially inflated the company's shares.

The suits follow a decline in the Las Vegas slot machine maker's shares after the company issued an earnings warning last week.

The company made "grossly inflated projections while knowing full well such projections were unachievable" and deceived investors into buying shares at inflated prices that traded as high as $34 per share, according to one suit filed by a San Diego law firm.

The statements allowed the company to consummate acquisitions at inflated prices and allowed company officers to sell $3.6 million worth of their own shares at inflated prices, permitting the company "to grow and benefit economically from the wrongful course of conduct," the suit continues.

The suit filed by the San Diego firm also claims Alliance's acquisition of slot maker Sierra Design Group for up to $191 million suffered from "massive integrative problems" and that Sierra's strength in the New York video lottery market had "lost steam, causing defendants to question whether Alliance Gaming had in fact overpaid for Sierra."

On June 8 Alliance Gaming lowered the company's earnings projections for fiscal year 2004 to a range of 96 cents to $1 per share compared to the prior guidance of $1.04 per share. Fiscal year 2005 guidance fell to a range of $1.20 to $1.30 per share compared to prior guidance of $1.40 per share. The company's shares fell $5.24 per share, or 24 percent, on the news.

Both suits seek class action status on behalf of all Alliance shareholders from the period of Jan. 15, when the stock traded at $23.55, through June 7, when the company traded at $21.39 and before its stock plummeted.

On Jan. 15 the company reported earnings for its second fiscal quarter and lowered projected fiscal year 2004 earnings from $1.10 per share to $1.04 per share.

The company explained the lowered earnings warning by citing lower yields on certain shared-revenue slot machines, slower than expected regulatory approvals for new games in Nevada, slower than expected approvals for new lottery games in New York, a potential reduction in game orders in part because of delays in implementing new slot machines in California and increases in research and development costs for games.

The lower earnings for fiscal year 2005 reflect uncertainties about whether newer gaming states, such as California, will approve or expand slot machines as well as uncertainties related to when video lottery machines will be activated in New York, the company said. Alliance also cited the "uncertainty and lack of definition and enforcement" of the emerging Class II market, which includes slot machine-like bingo devices that are available in tribal casinos but have been called illegal by some state governments.

Alliance has not yet responded to the allegations. Company officials could not be reached for comment this morning.

Alliance shares fell shortly after the market opened today but were up about 7 cents to $16.04 in early trading this morning.