Las Vegas Sun

May 25, 2019

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Gaming supplier Shuffle Master to settle shareholder suit

Casino industry supplier Shuffle Master Inc. of Las Vegas has agreed to settle one of two groups of class-action shareholder lawsuits for $13 million.

Three such lawsuits were filed in June 2007 in U.S. District Court in Las Vegas claiming Shuffle Master and certain officers had engaged in fraudulent accounting practices, including the improper recognition of revenue from intercompany inventory transfers.

The shareholders alleged these practices inflated the company's fourth quarter 2006 earnings by nearly 50 percent and its full-year 2006 earnings by more than 30 percent.

The lawsuits claimed Shuffle Master had misled investors about measures taken to improve the company's internal accounting controls after the company had acknowledged an internal control weakness in connection with a restatement of its financial statements a year earlier.

Shuffle Master, which makes card shufflers and other equipment for casinos, was also accused of misleading investors about the success of Shuffle Master's acquisition and integration of Australian gaming company Stargames.

The defendants in the suits are the company, the chief executive at the time, Mark Yoseloff, and the chief financial officer at the time, Richard Baldwin.

The defendants denied the allegations, in part claiming that the alleged misstatements concerning Shuffle Master’s acquisition of Stargames were protected as "forward-looking statements."

But court records filed this month show the defendants agreed to settle the cases for $13 million -- with the money coming from their directors' and officers' liability insurance carriers.

Attorneys for the lead plaintiffs, the City of Tulsa Municipal Employees Retirement Plan and the Oklahoma Firefighters Pension and Retirement System, said the settlement covers potentially thousands of purchasers of Shuffle Master common stock between Feb. 1, 2006, and March 12, 2007. Shuffle Master insiders who purchased stock during this period are not eligible to receive payments from the settlement.

The plaintiff's attorneys said the settlement was reached after a judge rejected the defendants' motion to dismiss the cases.

"At the time of settlement, lead plaintiffs had conducted extensive investigation that included discussions with confidential witnesses and extensive work with accounting experts and consultants. The parties had also begun conducting discovery that included a review of a substantial number of Shuffle Master documents, including an investigative report conducted by a Shuffle Master special committee into certain matters alleged in the complaint," the shareholders' attorneys said in court papers.

"Accordingly, the parties are well-positioned to evaluate the risks of continued litigation against the fairness and prudence of the settlement, and each of the parties believes the settlement produces an excellent result for the class," said the shareholders' attorneys.

The lead law firm for the plaintiffs is Grant & Eisenhofer in New York. The plaintiffs' local attorneys are Richard Wright and Margaret Stanish of the Las Vegas firm Wright, Stanish & Winckler.

A May 4 hearing has been set in federal court in Las Vegas on whether the settlement should be approved.

Court records show plaintiff's attorneys can seek payment of up to 18 percent of the $13 million, or $2.34 million, for their fees.

Three more lawsuits are pending in federal and state courts in Las Vegas over the same issues. These are "derivative lawsuits" in which the shareholders seek to have the company sue for damages Yoseloff, former President Paul Meyer, Baldwin and current and former members of the board of directors.

These lawsuits accuse the defendants of breach of fiduciary duty and claim their actions harmed the company and its shareholders.

The lead plaintiff in two federal derivative cases is the Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust.

Shuffle Master said in a January regulatory filing its directors' and officers' insurance carriers are defending the derivative cases.

"We believe that the claims in the Pirelli case and the state derivative lawsuit are without merit and intend to vigorously defend the cases. Due to the uncertainty of the ultimate outcome of these matters, the impact, if any, on future financial results is not subject to reasonable estimates," the company said in its filing.

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