The Sands of Time: An Interesting New Subprime Securities Suit

The Sands of Time: An Interesting New Subprime Securities Suit

The subprime and credit crisis-related litigation wave may now be in its fourth year, but lawsuits continue to come in. The latest of these suits - a securities class action lawsuit involving Las Vegas Sands - has a number of interesting features, and it also raises the question whether we may see even further new filings related the credit crisis in the months ahead.

On May 24, 2010, plaintiffs' attorneys filed a securities class action lawsuit in the United States District Court for the District of Nevada against Las Vegas Sands Corp., its Chairman and CEO, Sheldon Adelson, and its former President and COO, William Weidner. The complaint can be found here. A May 24, 2010 Las Vegas Sun article describing the lawsuit can be found here.

The complaint alleges that the defendants' misled investors concerning developments at the company's Asian casino properties, as well as with respect to the company's liquidity and the company's vulnerability to the economic downturn. Specifically, the plaintiffs allege that defendants' statements during the class period were false and misleading because, according to plaintiffs' lawyers May 25, 2010 press release about the case:

(i) increasing competition in Macau was steadily eroding the Company's foothold in the region, which undermined defendants' representations that everything was proceeding according to plan; (ii) the Company was facing a significant liquidity crisis as a result of its ongoing expenditure of capital in Macau and Singapore, which forced the Company to divert funds from other operations to develop its Asian properties; (iii) that the Company, could not, in fact, weather the economic downturn, because the credit markets were drying up and Las Vegas Sands had failed to timely access those markets; and (iv) increasing visitor restrictions in Macau, which defendants represented would not impact the Company as significantly as its competitors, were expected by defendants to have just as devastating an effect on Las Vegas Sands.

There are several very interesting things about this new lawsuit. The first is that it follows in the wake of an unsuccessful shareholders' derivative suit based largely on the same circumstances and similar allegations. The first of these lawsuits was filed in January 2009. A copy of the complaint can be found here

According to a November 6, 2009 Las Vegas Sun article (here), Clark County (Neb.) District Judge Allan Earl granted the defendants' motions to dismiss these cases, citing, among other things, Adelson's investment of over $1 billion of his personal fortune to try to rescue the company. Judge Earl found that the company's predicament was the result of "reasonable business decisions," that, while risky, and that may have brought the company to the "brink of financial instability," might in the future "provide the economic stability to ensure the future success of the company."

Judge Earl also noted that the events played out against a "backdrop" that involved "a deteriorating global economy that struck with such frightening speed and force that it engulfed nearly every major banking, investment and gaming company in the world."

The other interesting thing about the new lawsuit, and that might be a direct consequence of the fact that it follows after the unsuccessful derivative suit, is that this case falls in the category of "belated lawsuits." This complaint was filed on May 24, 2010 but the class period is August 1, 2007 to November 6, 2008. In other words, the complaint was filed 18 months after the date of the proposed class period cutoff.

As I recently noted (here), belated lawsuit filings, where the filed date is more than a year after the proposed class period cut-off, have been a key component of 2010 securities class action lawsuits. The phenomenon first emerged in mid-2009, but the earliest cases related to nonfinancial companies. The speculation about the emergence of this filing trend has been that up until mid 2009, plaintiffs' lawyers were preoccupied filing credit crisis lawsuits against financial firms, and a backlog of cases against nonfinancial firms built up.

The Las Vegas Sands securities lawsuit seems to represent something different - a belated case that is related to the credit crisis. Of course, Las Vegas Sands is not a financial company, and in that respect the new lawsuit is not inconsistent with the whole belated lawsuit filing phenomenon. But the case and its allegations about the company's real estate developments, liquidity and funding problems are all related to the credit crisis.

For that matter the Las Vegas Sands case is not the first belatedly filed credit crisis-related securities suit in 2010. Cases filed earlier this year against The Hartford Financial Group (refer here) and the Morgan Keegan funds (refer here) each also were first filed more than a year after the proposed class period cutoff date and both reflect subprime meltdown or credit crisis related allegations.

The consensus view has been that the subprime and credit crisis-related litigation wave has largely ended, but the fact is that a number of subprime and credit crisis related securities suits have been filed in 2010-as many as 13, by my count. The possibility of further belated filings, relating back to events that unfolded a significant time ago, raises the prospect that there could be even further subprime and credit crisis-related cases yet to come.

Bottom line: it may be premature to suggest that the subprime and credit crisis-related litigation wave has ended. It may have quite a bit further to run.

I have in any event added the Las Vegas Sands case to my table of subprime and credit crisis-related lawsuit filings, which can be accessed here. I note that the list, which I first began compiling in April 2007, is now 214 cases long. I certainly never foresaw how lengthy or long-lived the list would be when I first began it so long ago.

Special thanks to Adam Savett of the Securities Litigation Watch blog for providing a copy of the Las Vegas Sands securities class action complaint.

Read the The Sands of Time in its entirety at D&O Diary, a blog by Kevin LaCroix.