LAS VEGAS (CN) – Executives at the Las Vegas Sands published false statements about the company’s success and development of the Venetian Macau Resort in China, which artifically inflated the prices of stock, a couple claims in a proposed class action filed Wednesday in Federal court on behalf of “hundreds of thousands” of investors.
Investors Wendell and Shirley Combs filed the lawsuit on behalf of ivestors who bought the company’s stock between June 13, 2007 and Nov. 11, 2008.
In their 37-page lawsuit, the couple accuses Sands CEO Sheldon Adelson and former COO William Weidner of a welter of financial misdeeds.
The couple says Adelson and Weidner drafted and distributed to shareholders “misstatements” that they knew were “materially false and misleading.”
In the complaint, the couple says the company issued a news release on June 13, 2007, announcing that the Venetian Macao Resort Hotel, “Asia’s first fully integrated resort and the anchor property of the company’s Cotai Strip development, will open on Aug. 28, 2007.”
A second news release was issued Aug. 1, 2007, announcing that the company’s net revenue had increased 18.6 percent to a record $612.9 million, compared to $517 million for the same quarter the previous year.
“With respect to its operations in Macau, the company reported that ‘second quarter casino revenues increased 21.6 percent to an all-time quarterly record $373.5 million, versus $307.1 million in the 2006 period,” the lawsuit states.
The next day, the company’s stock price jumped $6.63 per share, or 7.74 percent, and closed at $92.31 per share. “The stock price climbed a total of $15.84 per share, or 16.1 percent, to close at $108.15 per share, over the next five trading days,” according to the complaint.
The Combs say the company then released another statement on Sept. 5, 2007, “in which it continued to emphasize its prospects in Macau and represented to the market that business would prosper there.”
The release also said the project had attracted an “unprecedented amount of visitors,” and that transportation to and from the property ran smoothly for guests to travel across the region.
The company’s stock price rose from $102.98 per share on Sept. 6, 2007 to $144.56 per share per share on Oct. 2, 2007.
Plaintiffs say the company then issued another news release announcing its financial results for the third fiscal quarter ending Sept. 30, 2007, reporting that the company’s revenue had jumped 19.5 percent to a record $661 million, versus the $553.2 million in the third quarter the previous year.
“Although the company’s stock price suffered a string of consecutive declines, the stock price was nevertheless buoyed by defendants’ statements concerning the Macau operations,” the lawsuit states.
Several days after the Sands announced the launch of a high-speed ferry between Hong Kong and Macau on Nov. 30, 2007, stock prices rebounded.
But on Dec. 11, 2007, the Sands was forced to report that the ferry service was suspended due to legal issues.
Turns out that “increasing competition in Macau was steadily eroding the company’s foothold in the region, which undermined defendants’ representations that everything was proceeding according to plan,” the lawsuit states.”
In addition, “the company was facing a significant liquidity crisis as a result of its ongoing expenditure of capital in Macau and Singapore, which forced the company to divert funds from other operations to develop its Asian properties,” the lawsuit states.”
“The company could not, in fact, weather the economic downturn, because the credit markets were drying up and Las Vegas Sands had failed to timely access those markets,” according to the complaint.
Additional visitor restrictions in Macau were also misrepresented, plaintiffs claim.
Shortly thereafter, the Sands’ shares fell from an opening price of $48.38 per share at close to $45.53 per share.
On Sept. 10, 2008, the Nevada Gaming Control Board released a report disclosing that the Las Vegas Strip revenue had declined by approximately 14.7 percent in July 2008, causing Sands’ stock to fall 10.8 percent.
A month later, the Sands announced that Adelson had pumped a $475 million private investment to prevent the company from violating lender covenants.
The next day, Standard & Poor’s Rating Services announced that it was keeping the company’s ratings “under review for a potential downgrade.”
“Though defendant Adelson’s $475 million investment appeared to address near-term liquidity concerns, it did little to allay Standard & Poor’s concern over Las Vegas Sands’ ‘overall liquidity position, continued weak performance on the Las Vegas Strip and a possible ‘significant’ slowdown in the Chinese gambling enclave of Macau,'” according to the complaint.
The company’s stock then fell from $36.47 per share to $31.32 per share on Oct. 1, 2008, the lawsuit states.
The next day, the company’s stock was downgraded due to “concerns about the slowing grown in Las Vegas and new travel restrictions in Macau.” The company’s stock fell an additional 15.4 percent.
The company’s stock fell again the next day from $27.44 per share to $23.11, according to the complaint.
News reports stated on Oct. 20, 2008 that the Sands was still trying to secure $2 billion in financing for expansion in Macau even though, according to an article in the South China Morning Post, “the company had completely scrapped plans to raise money for the Macau expansion.”
Adelson then contested reports that the Sands had abandoned the project, and instead announced he was seeking to raise $2 billion from Asian banks to complete work on the expansion projects.
On Nov. 10, 2008, the company revealed that Goldman Sachs had arranged $2.14 billion in new capital, including another “multimillion dollar investment” from Adelson – his second personal investment in the company.
By the end of the next day, shares of the Sands dropped another 17 percent after it was announced that it would suspend construction in Macau to help save money.
The company also announced that it would make a public offering of $182 million shares of stock, along with nearly 92 million shares of preferred stock, to raise more than $2 billion in capital, the lawsuit states.
But the company did not seek shareholder approval, and instead “attempted to justify its refusal to obtain shareholder approval on the purported basis that ‘any delay caused by securing shareholder approval … would seriously jeopardize the ability to complete the offerings as well as the financial viability of the company,” according to the complaint.
Moody’s Investors Service cut the company’s credit ratings on Nov. 12, 2008 into junk territory, according to the complaint. Then, on the “heels of the company’s worse-than-expected third quarter results,” plaintiffs say the Sands announced that it would “fire as many as 11,000 construction workers after a ‘cash crunch’ forced it to halt construction on a number of projects, including two sites in Macau.”
By Nov. 21, 2008, the company’s stock had sunk to $3.23 per share after it was revealed that BMO Capital analyst Jeffrey Logsdon “slashed” the company’s 2009 and 2010 adjusted earnings estimates following the latest capital infusion,” the lawsuit states.
The Sands then announced that it would cut 216 jobs from its Las Vegas properties, and that development of other properties was halted because of a lack of capital, according to the complaint.
By March 24, 2009, several top executives had resigned from the company.
“Defendants successfully implemented their scheme to artificially inflate the price of Las Vegas Sands common stock, which had the intended effect of stimulating the purchase of the company’s shares and buoying the stock price so as to fund various extraordinary transactions,” the lawsuit states.
“When the scheme began to falter, however, defendant Adelson utilized his stranglehold over the company to oust Defendant Weidner, whom he publicly blamed for the company’s failings.’
“For his part, Defendant Weidner engineered a lucrative exit from the company,” according to the complaint.
Plaintiffs seek class certification and damages for Securities and Exchange Commission violations.
A similar lawsuit was filed in Las Vegas Federal Court in 2008, accusing Adelson of overextending construction projects during a financial downturn and putting future projects in jeopardy.
The Las Vegas Sands owns the Venetian Resort Hotel Casino, The Palazzo Resort and Casino, The Sands Expo and Convention Center, The Congress Center, The Sands Macau and the Venetian Macau Resort Hotel in Macau, China.
The most recent lawsuit was filed by Mark Wray.