Las Vegas Sun

October 23, 2017

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Judge dismisses suits blaming Las Vegas Sands for stock drop

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Sheldon Adelson

A state judge on Friday dismissed a group of shareholder lawsuits blaming Las Vegas Sands Corp. Chairman and Chief Executive Officer Sheldon Adelson and his fellow board members for the collapse of the gaming company's stock beginning in late 2007.

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.

In three lawsuits filed between November 2008 and February, the shareholders -- represented by veteran securities attorneys from Las Vegas and around the country -- tried to pursue "derivative" claims.

In the derivative suits, they wanted Las Vegas Sands to sue its own directors to recover damages for the decline of the stock price from a high of $140 in October 2007.

The stock, which traded as low as $1.38 in March of this year, now trades at about $15.35 as investors seem satisfied the company's capital-raising efforts have bolstered its debt-heavy balance sheet.

The lawsuits complained the board wasn't really independent because of Adelson's controlling interest in the company.

From a shareholders' point of view, they complained, the directors presided over a period from January to November 2008 when the company's financial viability was called into question as the company embarked on an unsustainable program to spend billions of dollars on projects in Las Vegas, Pennsylvania, Macau and Singapore.

Some of those projects have been put on hold and, Earl noted in his opinion, Adelson helped rescue the company 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 $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 Nevada law allows company directors "great latitude" in making such decisions, the judge wrote.

As for claims Adelson controlled the Sands board, making members incapable of making independent decisions, the judge wrote: "There is no question or debate that defendant Adelson exercised enormous influence in the everyday decision-making process of the corporation and the board of directors."

The shareholders complaints, however, "clearly indicate that among his board of directors, there was 'spirited' debate and often significant disagreement as it pertains to the decisions the plaintiffs objected to."

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.

Represented by attorneys Steve Morris and Akke Levin of the Las Vegas law firm Morris Peterson and Walter Carlson of the Chicago firm Sidley Austin LLP, Las Vegas Sands prevailed in the cases by seeking their dismissal on the grounds that the shareholders had failed to make demands on the board of directors before filing their lawsuits.

The shareholders argued they should be exempted from the rule requiring such pre-lawsuit demands. They said such demands would be futile.

Earl rejected their arguments, saying they had failed to show that a majority of the directors were not independent.

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