Could US regulatory heat switch from Pansy Ho and her well-documented difficulties with New Jersey to her half brother Lawrence?
The reason for the question is that a unit of Elixir Group, a wholly owned subsidiary of Mr Ho’s company Melco International Development Ltd, is being pursued in a US federal court by several American hedge funds alleging fraudulent misstatement of the profit potential of a business involving the lease of slot machines to Asian slot clubs and casinos.
For the chairman of a Hong Kong-listed company (in this case Melco International) to be accused or even found liable for fraud in a US federal court is one thing. That’s relatively small potatoes. But for the co-chairman of a joint venture casino gaming company (Melco Crown Entertainment) listed on the Nasdaq in New York to be found liable for fraud in connection with a gaming-related business would potentially be a completely different matter. Mr Ho’s name is also on the Macau gaming sub licence used to operate MPEL’s properties, City of Dreams, Altira Macau and the Mocha slot clubs.
Elixir Gaming Technologies Inc (EGT), Melco International and its chairman and chief executive Lawrence Ho and 14 other directors and employees of EGT are named as defendants in the US case. In a statement to the New York Stock Exchange on 13th January this year, Melco said it owned a 39.84 percent stake in EGT.
The complainants—Prime Mover Capital Partners and three Delaware-based hedge funds—allege the defendants “made false and misleading statements about its gaming participation business in filings with the SEC, press releases, and other industry and investor conferences and meetings during the period from 13th June, 2007 and 13th August 2008”. The plaintiffs say they purchased shares in EGT at a price inflated as a result of the alleged false statements and later suffered economic losses when the price of the company’s securities decreased.
The plaintiffs seek unspecified damages—for alleged violation of the US Securities Exchange Act and of Nevada securities law. The latter part of the complaint relates to Elixir Group’s acquisition in January 2007 of a stake in Las Vegas-based VendingData Corporation. The plaintiffs also seek interest, costs and attorneys’ fees. The company denies any wrongdoing and says it will contest the allegations “vigorously”.
Although it’s unlikely any finding of fraud against EGT, Mr Ho or Melco International in the US would lead to sanctions from Macau’s casino regulator, the Gaming Inspection and Coordination Bureau (DICJ), it could create difficulties with two other important bodies. The first is the US Securities and Exchange Commission because MPEL is a Nasdaq-listed company. The second is the Nevada Gaming Control Board and by extension the Nevada Gaming Commission.
Nevada has a potential interest in the matter and potential leverage over the Elixir court case for three reasons.
The first reason is the complaint against EGT has been made under Nevada securities laws as well as US Federal law. The second is that the other MPEL joint venture partner, Australia’s Crown Ltd, has an investment in Cannery Casino Resorts LLC, which operates four casinos in Nevada. Crown also has minority interests in three other operators with Nevada operations or projects—Harrah’s, Station Casinos and Fontainebleau Resorts.
In Mr Ho’s favour in regard to the Nevada regulatory issue is the fact that MPEL’s sub-licence for casino gaming in Macau was purchased for US$900 million from Steve Wynn. For Nevada to question MPEL’s probity would be potentially to drag Steve Wynn, one of Las Vegas’s key operators, into the debate.
Nevada has been supportive of another big Las Vegas operator—MGM MIRAGE—regarding that company’s joint venture with Pansy Ho in Macau. That’s despite the New Jersey Division of Gaming Enforcement’s finding that Ms Ho was an “unsuitable” partner because of her father’s alleged connections to Chinese organised crime. In February, MGM MIRAGE announced its intention to sell its 50 percent stake in the Borgata Hotel Casino & Spa in Atlantic City and to pull out of the New Jersey market, rather than contest the “unsuitability” claim with the New Jersey Casino Control Commission.
A potential wild card in any regulatory action against MPEL that might stem from the Elixir case is that Crown’s partners, Harrah’s and Station Casinos, have operations outside Nevada. As we have seen recently in the decision of Illinois to review MGM MIRAGE’s licence there in light of New Jersey’s hostile findings, regulatory panic can spread like a bush fire, potentially consuming properties some distance from the seat of the original ‘blaze’.
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