|By Steve Green, Las Vegas
SunMcClatchy-Tribune Regional News
May 18, 2012--Shareholders have struck out with two of their lawsuits over the decline of MGM Resorts International's stock price between 2007 and 2009.
Six suits were filed in the fall of 2009, and four remain active in federal court.
The other two were filed in state court and, after they were combined into one action, were dismissed this week by Clark County District Court Judge Mark Denton.
The shareholders complained in the state court lawsuits against MGM Resorts directors that company officials harmed MGM Resorts and its shareholders by disseminating misleading and inaccurate information about its financial condition and prospects in 2007 and 2008.
They claimed company officials routinely reported MGM Resorts was in sound financial shape without revealing it was headed toward a credit crunch in 2009 because of problems tied to the construction of CityCenter, difficulties finalizing the financing for CityCenter and a slowdown in business tied to the recession.
These problems weren't timely revealed, the shareholders charged, because MGM Resorts insiders were in the midst of selling nearly $81.5 million of their stock in the company while it traded at high prices "before the bottom inevitably dropped out."
During this period, shareholders have complained, the stock price fell from $99.75 in October 2007 to $1.89 in March 2009.
The stock price has since rebounded to the $10.35 range, thanks to financing deals, stronger business conditions and MGM Resorts' investment in its casino in the booming Macau market.
The state court lawsuits were "derivative" actions in which the shareholders essentially were suing MGM Resorts officers and directors on behalf of the company in hopes the officers and directors would pay damages to the company, benefiting all shareholders.
The problem with their lawsuits, Denton ruled, is that the shareholders failed to make a required demand upon the company board before suing.
"This requirement enforces a fundamental principle of corporate governance: it is the directors of a corporation, elected by all of the shareholders, who should be empowered to decide the corporation's affairs, not a single shareholder," Denton's order said.
Besides that, Denton's order said, the directors failed to show that making such a demand would be futile.
Shareholders' attorneys said such a demand would be futile because many of the directors were beholden to the company and its largest shareholder, Kirk Kerkorian.
They said the proof of that is that many directors were employed by MGM Resorts or Kerkorian, that several had sold millions of dollars worth of their own stock holdings during the period at issue, that their annual directors' fees typically topped $320,000 and that several personally faced shareholder lawsuit allegations of breaches of fiduciary duty.
"Every member of the board was aware of, or should have been aware of, numerous 'red flags' regarding the company's various problems concerning CityCenter and failed to act," charged the shareholder attorneys, who in various lawsuits call CityCenter a "virtual black hole, bringing the company to the brink of bankruptcy."
MGM Resorts has denied making misleading statements.
Its attorneys says shareholders and their attorneys in various lawsuits have tried to "blame MGM for failing to foresee the greatest economic collapse since the Great Depression" and have failed to acknowledge "the global economic crisis, its harsh effects on Las Vegas in particular and the severe slump in the real estate development and gaming industries."
Denton, in his order this week, didn't buy the "demand futility" arguments of shareholders.
For instance, the shareholders complained about a $470 million stock buyback program in 2007 and said certain board members had cashed in on the buyback by selling their shares at near all-time high prices of around $90.
Instead of using cash to improve the company's balance sheet, the buyback was aimed at propping up the stock price, the shareholders complained.
But Denton said the shareholders failed to allege "any improper benefit" received by a majority of the board.
"By definition, a share repurchase plan benefits both the corporation and all stockholders equally, and accordingly the board was disinterested in this transaction," Denton's order said.
As for the pay of board members, which he said averaged about $350,000 per year, Denton found the shareholders failed to allege "any particularized facts showing that MGM Resorts' fees are atypical of similarly situated boards of directors."
"Payment of directors' fees, without more, does not disable a director from evaluating a pre-suit demand," the judge found.
MGM Resorts directors at times were represented in the litigation by attorneys at the law firms Morris Peterson in Las Vegas; Pisanelli Bice PLLC in Las Vegas; Munger, Tolles & Olson LLP in Los Angeles; Irell & Manella LLP in Los Angeles and Glaser, Weil, Fink, Jacobs, Howard & Shapiro LLP in Los Angeles and Las Vegas.
(c)2012 the Las Vegas Sun (Las Vegas, Nev.)
Visit the Las Vegas Sun (Las Vegas, Nev.) at www.lasvegassun.com
Distributed by MCT Information Services
To Learn More
About Your News Being Published on Hotel-Online Inquire Here