Despite assurances from MGM Mirage executives that a project to build a combination casino and resort on the Las Vegas Strip was “progressing nicely” and “on budget,” in reality the project was suffering from construction and financing problems, according to an amended lawsuit filed by a number of MGM shareholders and bond holders on April 17. The lawsuit blames MGM executives for misleading investors and inflating the prices of its securities, only to have those prices plummet once problems with the new construction came to light in 2009.
Two of the shareholders’ commercial lawsuits were dismissed in late March for lack of specificity. This time, they have brought a complaint that promises testimony from 10 confidential witnesses the suit describes as executives for MGM, now know as MGM Resorts International, over misinformation allegedly given to shareholders regarding the CityCenter casino and resort, an $8.5 billion project that was abandoned in 2009, at the height of the U.S. recession.
The lawsuit claims that MGM assured shareholders from 2007 to 2009 that the project was moving forward without problems, but that that was not true. One issue was that the complex was being built and designed at the same time, forcing several sections to be torn down and rebuilt, the suit says. MGM was also allegedly having trouble raising the money to finish construction, having just $3 billion in financing in 2007 instead of the $7.4 billion estimated to be necessary at that time.
The plaintiffs’ theory is that, by keeping the plaintiffs in the dark about these problems, MGM cost them money when the stock price fell from $99.75 to just $1.89 in about 18 months. The company has denied concealing problems with the CityCenter project.
Source: VEGAS INC, “CityCenter called financial ‘black hole’ in lawsuit over stock losses,” Steve Green, April 19, 2012