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2 MGM shareholder suits fizzle in Nevada court

Two of six lawsuits against MGM Resorts International directors and officers in Las Vegas were tossed out of court. The derivatives litigation was brought by shareholders in a combined state court action. A judge threw out the case after deciding that shareholders did not make a demand on the MGM board of directors or prove that the effort was not worth trying.

The rejected complaint claimed that MGM officials misled shareholders in 2007 and 2008 by pretending the company’s financial condition was better than what it really was. The suit, which we discussed in our April 20 blog post, said the board masked the effect the national recession was having on business and hid credit and financing problems associated with the building of the later-abandoned CityCenter casino and resort project on the Las Vegas Strip.

MGM’s board and officers were also accused of taking advantage of the company’s nearly $100-per-share stock price in 2007. The shareholder suits allege company decision makers used insider knowledge to sell off over $81 million in stock, before the share price bottomed out at $1.89 in spring 2009.

Attorneys for the company said the MGM board could not share information it did not possess. The lawyers stated that the board could not predict what the recession would do to the national or local economy. Shareholders countered that the board was aware of the “virtual black hole” CityCenter created but did nothing about it.

The judge said shareholders failed once by not making a demand on the board and failed a second time when it could not show that making the attempt would be worthless.

The twin shareholder suits reasoned that well-paid board members were too caught up in high-priced stock sales or lawsuits questioning individual fiduciary duties to respond to a demand. Shareholders also claimed making a demand on company directors who were tightly bound to MGM jobs would be an act of futility.

Federal court will decide the fate of the four remaining shareholder suits.

Source: VEGAS INC, “Judge dismisses lawsuits over drop in MGM Resorts stock price,” Steve Green, May 18, 2012

John P. Aldrich
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