Sept. 11 (Bloomberg) -- Las Vegas Sands Corp. may be sanctioned in a lawsuit brought by the fired chief executive officer of its China casinos for not disclosing that evidence it said couldn’t be taken out of Macau was already in the U.S.
The casino operator, run and majority-owned by Sheldon Adelson, was ordered to explain to a Nevada judge in Las Vegas yesterday how and why files from its Macau operations, requested by Steven Jacobs as evidence in his breach-of-contract case, ended up in the U.S. while the company claimed that Macau law prevented it from transferring them overseas.
Clark County District Judge Elizabeth Gonzalez said at the start of the hearing that lawyers for Las Vegas Sands and its Sands China Ltd. subsidiary had not been “forthright” with her last year by failing to tell her that Jacob’s computer files, including e-mails, from Macau were already in Las Vegas. The hearing is scheduled to continue today.
Jacobs, the former CEO of Sands China, sued in 2010 after he was fired. Jacobs alleges he was dismissed because he wouldn’t give in to Adelson’s “illegal demands.” Jacobs said Adelson directed him to secretly investigate Macau government officials and use “improper leverage” against them.
Adelson, 79, worth about $20 billion according to the Bloomberg Billionaires Index, and his wife have given about $36 million to Republican super-PACs so far this election cycle. The couple contributed $10 million in June to Restore Our Future, which is dedicated to backing Republican Mitt Romney’s presidential campaign.
More than half of Adelson’s gambling-empire profits come from his four casinos in the Chinese territory of Macau. Sands China, accounted for $2.95 billion of the company’s total $5.34 billion in revenue during the first half of the year, according to its second-quarter earnings report.
Following Jacobs’s allegations, the U.S. Justice Department and Securities and Exchange Commission opened investigations into whether Adelson’s company violated the Foreign Corrupt Practices Act. That law prohibits companies with U.S. operations and their intermediaries from making improper payments to foreign officials to win or retain business.
Las Vegas Sands has denied Jacobs’s allegations and has said it is cooperating with the investigations. Lawyers for the casino company have said in court filings that Jacobs was dismissed for working on unauthorized deals and violating company policy.
Ron Reese, a spokesman for Las Vegas Sands, declined to comment on the case. Todd Bice, a lawyer for Jacobs, didn’t return phone calls seeking comment.
Patricia Glaser, a lawyer who represented Sands China, was the first to testify at yesterday’s hearing. Glaser, whose firm is no longer involved in the case, told the judge she found out sometime last year that a computer drive had been brought from Macau to Las Vegas.
During a hearing last year, Glaser told the judge that, under Macau law, no evidence requested by Jacobs could be transferred from Macau or viewed in Las Vegas without lawyers for Sands China reviewing it first in Macau and getting clearance from individuals who had received the e-mails involved, as well as from local authorities.
Glaser testified yesterday that information had been shared previously between Las Vegas Sands and Sands China “in the ordinary cause of business,” and that her comments to the court last year only pertained to documents that were still in Macau at the time.
“You knew there was a regular exchange of information between the companies,” James Pisanelli, a lawyer for Jacobs, told Glaser. He also said Glaser knew that Las Vegas Sands lawyer Stephen Peek “was reviewing on Las Vegas Boulevard documents that had come from Macau. He was reviewing Steven Jacobs’s e-mails that had come from Macau.”
Glaser said Peek had disclosed to Jacobs’s lawyers and the judge last year that they had documents in Las Vegas that had come from Macau.
“I honestly believe there was complete disclosure,” Glaser said.
Peek testified that he knew as early as December 2010 or January 2011 that e-mails from Jacobs were in Las Vegas. He was prevented by lawyers for Las Vegas Sands, citing attorney-client privilege, from answering the judge’s questions as to why he hadn’t told her last year that the information was in the U.S.
The case was put on hold last year by the Nevada Supreme Court while Gonzalez resolves whether claims against Sands China belong in the state’s courts. Sands China, a majority-owned unit of Las Vegas Sands that is incorporated in the Cayman Islands, has said in court filings that it doesn’t do business in Nevada.
Jacobs, who argues that Nevada courts have jurisdiction over the case, said in a June filing that the casino operator had moved a “large amount” of electronic files related to the lawsuit from Macau to the U.S.
“Incredibly, this had occurred all the while Sands China and Las Vegas Sands were clamoring to preclude all discovery, claiming that the Macau Personal Data Protection Act precluded any of this information from being produced in the U.S.,” lawyers for Jacobs said in the June 27 filing.
Lawyers for Sands China said at a hearing the next day in Las Vegas that the files were brought to the U.S. in error.
Company representatives met with Macau officials in March to discuss overseas data transfers related to the Jacobs lawsuit and SEC inquiries, Sands lawyers said in an Aug. 27 statement to the court. The Macau officials advised that the privacy law doesn’t allow transfers of personal data to comply with discovery obligations in the U.S., showing that the company’s concerns about the law are well-founded, the lawyers told the court.
The lawyers also said they had no legal or ethical duty to volunteer to Jacobs what documents from Macau the parent company had in Las Vegas without being asked.
The companies “did not make any false or misleading factual representations to the effect that they had not transferred any data from Macau,” according to the Aug. 27 statement to the court. “On the contrary, Sands China correctly state that ‘the overwhelming majority’ of Sands China’s documents were in Macau.”
Gonzalez said June 28 that while she won’t jail anyone over the disclosure dispute and probably won’t penalize the Sands with a ruling limiting its use of evidence, she may impose a fine.
Jacobs is seeking copies of his computer hard drives as well as e-mails that were transferred to Las Vegas Sands from Macau in August 2010, about a month after he was fired, according to a July 6 filing.
Sands China’s Venetian Macau Ltd. unit is being investigated by the Macau government in connection with the transfer of data to the U.S. The Macau government’s Office for Personal Data Protection confirmed via e-mail in August that it has started an investigation into whether Venetian Macau breached local rules.
Companies need authorization from the agency under certain circumstances to transfer data, and failure to comply with some articles of the Personal Data Protection Act can result in a fine, the agency said. Other violations of the law may also “constitute administrative offenses or crimes,” the government body said.
Edward Tracy, Sands China’s chief executive officer, said in an Aug. 27 interview in Hong Kong that the casino operator has followed regulations in its home territory and Las Vegas and that it doesn’t engage in any “crimes or any illegal activities.”
“We not only abided by the rules in Macau, we also abided by the rules in Las Vegas,” Tracy said, while declining to comment on specific investigations.
Jacobs submitted a declaration to the court June 27 saying that Las Vegas Sands and Sands China refused to turn over records that he says show the direct involvement of Adelson and of Las Vegas Sands President and Chief Operating Officer Michael Leven in running operations at the Macau casinos.
Jacobs alleged that Adelson was involved in authorizing and ordering the investigation of Macau government officials as part of the “leverage strategy.” He said missing documents also outline the company’s “strategy” of allowing prostitutes in casinos and the use of illegal workers in Macau.
Las Vegas Sands and Sands China called the allegations “a new low” in Jacobs’s efforts to “besmirch” the companies and draw media attention.
“Mr. Adelson regards prostitution as morally abhorrent,” lawyers for the casino operators said in a July 17 filing. “The notion that Mr. Adelson would approve a ‘prostitution strategy’ is as insulting as it is absurd.”
Jacobs seeks unspecified compensatory and punitive damages, including for severance pay and unexercised stock options in Las Vegas Sands and Sands China he says he’s entitled to because he wasn’t fired for cause.
The case is Steven Jacobs v. Las Vegas Sands, A627691-B, Clark County, Nevada, District Court (Las Vegas).
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