By Steve Green, Las Vegas
SunMcClatchy-Tribune Regional News
April 19, 2012--MGM Resorts International shareholders and
bondholders have filed an amended class-action lawsuit in hopes of
recovering losses from the decline of the Las Vegas company's stock and
bond prices between 2007 and 2009.
Two and a half years ago, stockholders filed six lawsuits
after the stock price fell from $99.75 on Oct. 9, 2007, to $1.89 on
March 5, 2009. Bondholders sued over similar steep losses.
The securities holders complained the prices fell because of
problems related to the global recession as well as undisclosed cost
overruns, construction problems and financial difficulties MGM Resorts
faced with its half-owned $8.5 billion CityCenter casino resort complex
on the Las Vegas Strip.
The lawsuits complained that MGM Resorts officials failed to
promptly disclose many of these problems, causing the stock and bond
prices to be inflated before they tumbled once the market realized how
serious the issues were.
U.S. District Judge Gloria Navarro in Las Vegas on March 27
dismissed two of the suits, saying they weren't specific enough.
The shareholders and bondholders responded Tuesday by filing
an amended combined lawsuit with more specific allegations about what
certain MGM Resorts officials told shareholders, bondholders and
analysts in presentations and in earnings reports and conference calls
in 2007, 2008 and 2009.
The amended suit says 10 confidential witnesses have provided
detailed information to the shareholders' attorneys about CityCenter
construction and financing problems.
The suit says these witnesses are executives who served as a
vice president of global sourcing for MGM Resorts, an MGM director of
construction management and finance, an MGM design project manager, an
MGM corporate finance officer, an MGM financial analyst, an MGM
internal audit director, an MGM lead project manager, a cost engineer
for general contractor Perini Building Co., a project control director
for contractor Tishman Construction and an engineer on the podium
portion of the Harmon Hotel, where construction remains halted because
of construction defects.
Based on information from these witnesses, the shareholders
allege that as early as August 2007 MGM Resorts officials falsely told
shareholders that construction was "progressing nicely" on CityCenter
and that it was "on budget."
The shareholders allege these statements were false because
much of CityCenter was being designed as it was being built, sometimes
forcing contractors to remove components and then rebuild them
according to updated designs.
"Constant design changes while construction was already in
progress led to increasing construction costs," the suit says, citing
information from one of the confidential witnesses.
One witness "confirmed that MGM's construction estimates were
underestimated from the very beginning of the project because the
design drawings were not completed and the exact quantity and grade of
materials was not known to Perini when it made its initial bids (the
bids on which MGM's estimates were based)," the suit says. "After
Perini submitted its bids, MGM changed the designs, increasing the
quantity, grade and price of materials required, thereby increasing the
construction costs."
"The publicly announced construction costs for CityCenter were
purposely underestimated. This was so because, while Perini provided
accurate cost estimates to MGM, MGM and Tishman arbitrarily reduced
those estimates by 20 percent when formulating CityCenter's estimated
construction costs to be reported to the public," the suit charges.
The shareholders complained that CityCenter was "plagued by
construction problems" including at the Harmon, where the suit says
major issues were apparent as early as March 2008 but weren't disclosed
until January 2009.
The suit says that even when CityCenter was described as a
$7.4 billion project in 2007, MGM Resorts was facing difficulties in
finalizing $3 billion in financing for it.
That's because just as the credit markets were tightening in
response to the global recession, MGM Resorts was being squeezed by the
declining value of CityCenter as well as a slowdown in visitation to
Las Vegas that was reducing its revenue and cash flow.
"CityCenter would prove much more costly to MGM -- and its
shareholders -- than ever disclosed by defendants. In fact, MGM's crown
jewel project would prove to be a virtual black hole, bringing the
company to the brink of bankruptcy and causing its investors to suffer
massive losses," the suit complained.
The shareholders and bondholders in Tuesday's amended
complaint are pension funds, including the Arkansas Teacher Retirement
System, the Philadelphia Board of Pensions and Retirement, the Luzerne
County (Pa.) Retirement System and Netherlands-based pension fund
manager PMT.
They claim to have lost about $6.7 million on their MGM
Resorts investments and hope to recover their losses and the
unspecified losses of others who bought MGM Resorts securities between
Aug. 7, 2007, and March 5, 2009.
MGM Resorts -- then called MGM Mirage -- eventually finalized
financing for CityCenter and beefed up its own balance sheet with a
series of debt and equity issuances beginning in 2009.
The company has denied the shareholders' allegations that it
failed to disclose problems with the construction and financing of
CityCenter; and it's unknown when or how the shareholder lawsuits will
be resolved.
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