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February 12, 2012

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Las Vegas Sands shareholder sues over stock price

Complaint alleges company violated federal securities laws before stock price tumbled

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Kin Cheung / AP

Sheldon Adelson, chairman and CEO of Las Vegas Sands Corp., speaks during the news conference of the opening ceremony of the Venetian Macao Resort Hotel in Macau Tuesday, Aug. 28, 2007.

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Monday, May 24, 2010 | 5:34 p.m.

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Disgruntled Las Vegas Sands Corp. shareholders struck out with class-action lawsuits against the company last year in state court – but one returned with a new lawsuit Monday in federal court.

Attorneys for shareholder Frank Fosbre Jr. filed a complaint in U.S. District Court in Las Vegas on Monday alleging violations of federal securities laws and seeking class action status.

The defendants are Las Vegas Sands, Chairman and CEO Sheldon Adelson and former board member and President and Chief Operating Officer William Weidner. The defendants are accused of making false statements that inflated the price of Las Vegas Sands stock in 2007 and 2008, pushing it to $144 before it tumbled to less than $2 per share.

Fosbre’s new suit covers some of the ground already covered in a series of three lawsuits filed in 2008 and 2009 in the state court, called Clark County District Court.

The new suit complains that on Aug. 1, 2007, Las Vegas Sands issued a press release reporting net revenue for its second fiscal quarter that year had increased 18.6 percent to a record $612.9 million – and expressing a positive outlook on growth prospects in the Chinese gambling district of Macau.

At that time, Las Vegas Sands was preparing to open its Venetian casino resort in Macau and was planning to develop its Cotai Strip properties in Macau.

The company’s stock price rose 16.1 percent over the next week to close at $108.15 per share; and later rose to $144.56 per share by Oct. 2 after the Venetian opened, the lawsuit says.

Later, the lawsuit says, Weidner on July 30, 2008, in issuing Sands’ second quarter financial results, said: "Our second quarter results reflect both solid operating performances in Macao and Las Vegas and the measured execution of our global growth and development strategy. In Asia, our efforts to transform Macao into Asia’s premier business leisure destination steadily march forward.’’

Monday’s lawsuit charges the optimistic statements by the company and Weidner were false because:

• Increasing competition in Macau was steadily eroding the company’s foothold there

• The company was facing a liquidity crisis because of heavy capital spending in Macau and Singapore

• The company could not weather the economic downturn because the credit markets were drying up and Las Vegas Sands had been slow to access those markets

• Chinese government restrictions on visitation to Macau, "which defendants represented would not impact the company as significantly as its competitors, were expected by the defendants to have just as devastating an effect on Las Vegas Sands."

Challenges in obtaining funding caused Las Vegas Sands to cancel or postpone several development projects and by Nov. 12, 2008, the company stock fell to $3.23, the lawsuit noted. It noted the resignation of board member Andrew Heyer on Nov. 24 of that year.

Monday’s suit noted that on March 9, 2009, board member Michael Leven was named president and COO, replacing Weidner, who had left the company.

The suit notes that on March 13, 2009, the company announced that board member James Purcell resigned March 9 and was replaced on the board by Jeffrey H. Schwartz.

Purcell resigned in protest over the full board having no say in the decision to oust Weidner as president and chief operating officer.

In his resignation letter, Purcell said he was told -- after the fact -- that two board members would be meeting with Weidner on March 4 to request his resignation. Adelson, who controls the company, ultimately made the decision to replace Weidner with Leven after a series of well-publicized disputes between Adelson and Weidner.

The suit notes that on March 24, Brad Stone, executive vice president and president of global operations and construction, had resigned.

"Defendants successfully implemented their scheme to artificially inflate the price of Las Vegas Sands common stock," the lawsuit charged. "When the scheme began to falter, however, Adelson utilized his stranglehold over the company to oust Weidner, whom he publicly blamed for the company’s failings. For his part, Weidner engineered a lucrative exit from the company, characterizing his departure as a resignation for good cause, as the scheme imploded."

"Defendants caused Las Vegas Sands to engage in various extraordinary financial transactions which would not have been possible in the absence of its fraudulently inflated stock price," the lawsuit charged. "While certain of these transactions purported to further Las Vegas Sands' business prospects, these transactions by and large benefited Adelson and would not have been possible absent the fraud."

Monday’s suit was filed by Reno attorneys William O’Mara and David O’Mara, whose firm is also involved in some of the shareholder suits filed against MGM Mirage last summer.

Las Vegas Sands has not yet commented on the lawsuit, but the company’s attorneys last November won dismissal of the group of three state shareholder lawsuits asserting similar allegations. One of those state lawsuits was filed by Fosbre.

Clark County District Court Judge Allan Earl ruled the shareholders failed to show mismanagement by board members or that they breached their fiduciary duties; and said the shareholders didn't show Adelson exerted undue influence on the other board members.

The lawsuits complained the board wasn't really independent because of Adelson's controlling interest in the company and that this lack of independence allowed mismanagement there and poor investment decisions to be made by the company – all to the detriment of shareholders.

But Earl noted Adelson helped rescue Las Vegas Sands by committing more than $1 billion of his personal fortune "to infuse desperately-needed capital" into the company.

Earl said in his ruling that the transactions in question involved reasonable business decisions made by the board members -- the same board members who had helped steer the company into the lucrative Macau market and boost its stock price to more than $140.

"These decisions may well have brought the corporation to the brink of financial instability ... and in the short term can be viewed as near catastrophic," the judge said in his ruling. "It is much too early to say if these investments in large building projects, particularly in the Asian Rim, do not in the future provide the economic stability to ensure the future success of Las Vegas Sands Corp. as a powerful worldwide entity."

The decisions at issue, he said, "were part of the inherent risk taking which Las Vegas Sands Corp. made in trying to establish itself as the premier gaming company in the world."

And the backdrop of the situation, Earl said, was "a deteriorating global economy that struck with such frightening speed and force that it engulfed nearly every major banking, investment and gaming company in the world."

The judge noted that Adelson, in the transactions in which he infused capital into the company, obtained stock at market prices and that there were no allegations that any of the directors were conflicted because of personal benefits they could gain from any of their decisions.

"There was no fraud, self-dealing, short selling, golden parachute contracts, investment in junk bonds, wasting of corporate assets, fraudulent coverups, etcetera," the judge wrote.

Sands stock, after trading as low as $1.38 in March 2009, closed Monday at $20.89 – well above its 52-week low of $6.32.

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