Sands shares drop after probe is revealed

2 March 2011

LAS VEGAS, Nevada -- A revelation that the U.S. Securities and Exchange Commission and the Department of Justice have opened investigations into Las Vegas Sands Corp. sent shares of the casino operator tumbling more than 6 percent Tuesday.

The agencies have asked Las Vegas Sands, which operates casinos in Las Vegas, Pennsylvania, Macau and Singapore, to provide documents relating to its compliance with the Foreign Corrupt Practices Act.

Wall Street analysts told investors the specter of the government investigations, whether or not they lead to any legal action, could weigh on the company's stock price and its future international growth potential.

"While handicapping the end results of investigations of this sort are nearly impossible, we believe the headline risk will serve as an overhang on shares in the near term until more on the matter is known," Wells Fargo Securities gaming analyst Carlo Santarelli said.

The company revealed Tuesday in its annual report filing with the SEC that government regulators filed a request for documents on Feb. 9. Las Vegas Sands officials said the company also was advised by the Justice Department that it was conducting a similar investigation.

Nevada Gaming Control Board Chairman Mark Lipparelli said he was aware of the government's probe into Las Vegas Sands.

"The matter is the subject of a current investigation by our agency and we have no further comment," Lipparelli said.

Las Vegas Sands, in a one-paragraph comment under the legal proceedings section of its annual report, said it believes the request emanated from allegations contained in a lawsuit filed by Steven Jacobs, the company's former chief executive of its operations in Macau, who was fired last summer.

Jacobs sued Las Vegas Sands in Clark County District Court in October, alleging breach of contract. In his lawsuit, Jacobs claims a Las Vegas Sands subsidiary transferred substantial sums of money out of Macau to Nevada.

He also claimed company Chairman Sheldon Adelson told him to "threaten to withhold Sands China business from prominent Chinese banks unless they agreed to use influence with newly elected senior government officials of Macau in order to ... obtain favorable treatment with regards to labor quotas and table limits."

In the SEC filing, Las Vegas Sands officials said the company "intends to cooperate with the investigations."

Las Vegas Sands spokesman Ron Reese would not release copies of the letters from the SEC and Justice Department. He said the SEC called the investigation "a nonpublic, fact-finding inquiry."

Standard verbiage from the SEC stated the agency would be "trying to determine whether there have been any violations of the federal securities laws."

Reese said the company continues to "adamantly deny the allegations in the Jacobs lawsuit."

In January, Las Vegas Sands filed a counter defamation lawsuit against Jacobs in Macau, submitting evidence of extortion and other claims to the Macau public prosecutor. Las Vegas Sands claims Jacobs threatened the company and Adelson.

Wall Street and investor reaction to news of the government investigations was quick, especially following Las Vegas Sands' remarkable financial turnaround over the past two years after staring down a bankruptcy filing in late 2008.

Las Vegas Sands had net revenues of more than $6.85 billion in 2010, with almost 80 percent coming from the company's three casinos in Macau and the Marina Bay Sands in Singapore, which opened in April. Las Vegas Sands also is building 6,400 additional hotel rooms on the Cotai Strip region of Macau and exploring gaming opportunities in Japan, Spain and other foreign destinations.

"This disclosure came on what otherwise should have been a good day for Las Vegas Sands," Hudson Securities gaming analyst Robert LaFleur told investors. On Tuesday it was reported Macau gaming revenues grew 48 percent in February.

"We think this issue will linger as an overhang," LaFleur said.

Shares of Las Vegas Sands, traded on the New York Stock Exchange, were off as much as 7 percent before closing at $43.70, down $2.94.

"We believe the Jacobs lawsuit has quietly been a drag on shares in recent months given the nature of the claims and the potential for something like this to occur," Santarelli said.

JP Morgan gaming analyst Joe Greff said Las Vegas Sands will most likely incur legal costs related to the lawsuit and complying with government requests.

"We think Las Vegas Sands will be in 'providing documentation' mode for many months before any resolution or conclusions are reached," Greff said. "Las Vegas Sands' market capitalization is down to less than $1 billion this morning, a level that likely takes into account a reasonably based downside scenario related to today's news."

A hearing on Las Vegas Sands' motions to dismiss the Jacobs lawsuit is scheduled for March 15 in Clark County District Court.

Related Links
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