Las Vegas Sands steps up counterattack against former executive

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Sheldon Adelson

The litigation between Las Vegas Sands Corp. and its fired China CEO Steven Jacobs is heating up again, with Sands filing a counterclaim accusing Jacobs of extortion and of being slow to sever ties between Sands’ Macau casinos and an organized crime figure.

The dismissal of Jacobs as CEO of Sands’ subsidiary Sands China Ltd. on July 23 was followed by Jacobs suing Las Vegas Sands in Clark County District Court in Las Vegas on Oct. 20, charging the company failed to pay him one year of severance pay and refused to allow him to exercise stock options he had been awarded because Sands says it fired him for cause.

Jacobs claimed that instead of being fired for cause, he was fired for refusing to go along with demands by Sands Chairman and CEO Sheldon Adelson that he engage in improper and illegal conduct in Macau, the world’s largest casino market where Las Vegas Sands generated net revenue of $1.09 billion in the fourth quarter of 2010.

Allegations in his lawsuit are believed to have prompted investigations of Las Vegas Sands and Sands China Ltd. – including Las Vegas Sands’ compliance with an anti-bribery law – by the U.S. Securities and Exchange Commission and the U.S. Justice Department as well as the Hong Kong Securities and Futures Commission.

Las Vegas Sands has denied Jacobs’ allegations and has said Jacobs was fired for working on unauthorized deals and violations of company policy.

Las Vegas Sands and Sands China sustained a setback March 15 when a state judge refused to dismiss Jacobs’ lawsuit, but Las Vegas Sands and Sands China filed new court papers last week expanding on their denials of Jacobs’ allegations.

Among these filings was the first counterclaim against Jacobs, detailing for the first time the alleged misconduct that led to Jacobs’ firing.

Las Vegas Sands’ counterclaim alleges Jacobs violated a noncompetition agreement Sands China had entered into with its parent Las Vegas Sands in which Sands China was prohibited from involvement in any gaming business outside of a "Restricted Zone" that included the People’s Republic of China, Macau, Hong Kong and Taiwan. He allegedly violated this agreement by publicly announcing Sands China would be pursuing casino businesses outside of the restricted zone in Japan and elsewhere.

"As Las Vegas Sands Corp. had previously announced its intention to pursue a development in Japan, the chairman of Las Vegas Sands had no option but to make a public statement to correct Jacobs’ statement and reassure investors that any such development would be carried out by Las Vegas Sands," the counterclaim says.

The disclosure by Jacobs that Sands China was interested in Japan injured "Las Vegas Sands’ prospective business relationship with necessary third parties in development of the Japanese market," the counterclaim says.

"Jacobs engaged in intentional acts intended and designed to disrupt the prospective business relationship by wrongfully accusing Las Vegas Sands Corp. and its officers of engaging in criminal and improper activity," the counterclaim says.

The counterclaim also alleges Jacobs endangered the relationships Las Vegas Sands and Sands China had with the governments of China and Macau – an administrative region in China -- when he commissioned a detailed investigative report regarding Macau public officials by consulting firm International Risk Ltd.

The counterclaim says Jacobs did not seek authorization from the board of Sands China or from Adelson prior to commissioning the report, that he met secretly with an International Risk investigator and that upon receipt of the report he kept it at his home and did not advise Las Vegas Sands or Sands China board members of the report’s existence.

The counterclaim also alleges that Jacobs refused to immediately terminate gambling junket contracts involving organized crime figure Cheung Chi Tai, aka Cheung Chi-tai (CCT), identified as a triad member and junket operator by Reuters last year, even when told to do so by Sands President Michael Leven with the backing of Adelson.

The counterclaim says that after CCT’s involvement with Las Vegas Sands was publicized in news reports, and Nevada gaming regulators started to look into the reports, Las Vegas Sands ordered its own investigation of CCT and because of that probe the decision was made to sever ties with him.

"Las Vegas Sands conducted due diligence and discovered that CCT was a party, as a guarantor, with two junket credit guarantor agreements between two junkets and Venetian Macau Ltd. (a Sands China subsidiary)," the counterclaim says.

"Although Jacobs has asserted that he objected to the relationship with CCT, Jacobs knows that the allegation is false, is designed to injure the defendants (Sands & Sands China) and that the opposite is true," the counterclaim says.

"Jacobs delayed in terminating the CCT agreements and acted as an impediment to the prompt termination of the CCT agreements," the counterclaim says.

"Jacobs claimed (in June 2010) that the revenue associated with those junkets was substantial and that he owed the shareholders of Sands China a fiduciary duty, the performance of which would be placed in question if the CCT agreements were terminated," the counterclaim says.

Arrangements with CCT eventually were terminated, the counterclaim says.

The counterclaim says that after Jacobs was fired, he disparaged Adelson in conversations with Leven and Sands board member Irwin Siegel by claiming Adelson had bribed or attempted to bribe the CEO of Macau and instructed subordinates to gather damaging information about public officials for Sands China to improperly use to its advantage.

The counterclaim says Jacobs threatened to go public with these allegations unless "he was paid money to which he was not entitled."

The counterclaim says Jacobs knew these statements were false and that they were made recklessly and with malice "in furtherance of his scheme to extort money to which he was not entitled."

"Failing an advantageous settlement, Jacobs intends for his Nevada case to be the vehicle to continue his defamatory and malicious crusade against Las Vegas Sands and Adelson," says the counterclaim, which asserts legal claims of abuse of process, business defamation & disparagement, intentional interference with prospective economic advantage and civil extortion.

Separately, Las Vegas Sands filed a motion to dismiss Jacobs’ claim of defamation against Las Vegas Sands and Adelson personally. That claim was added to Jacobs’ lawsuit after Adelson told the Wall Street Journal on March 15: "We have a substantial list of reasons why Steve Jacobs was fired for cause and interestingly he has not refuted a single one of them. Instead, he has attempted to explain his termination by using outright lies and fabrications which seem to have their origins in delusion."

The defamation claim charged Jacobs was defamed when Adelson said he was fired "for cause" and that Jacobs had resorted to "outright lies and fabrications."

In seeking dismissal of the defamation count from Jacobs’ lawsuit, attorneys for Las Vegas Sands and Adelson wrote in a motion last week that Adelson’s statements were unconditionally privileged (not subject to a lawsuit) by the litigation privilege concept in Nevada law.

"The statements allegedly made by Adelson simply reiterate and reply to statements made in the course of this lawsuit" the motion to dismiss says.

Adelson’s statement simply reiterated statements by Jacobs in his lawsuit that Sands claims Jacobs was fired for cause; and reiterated a statement by a Sands China attorney in court on March 15 that Jacobs had lied to the court, the filing said.

Jacobs' attorneys have not yet responded to the counterclaim or that the motion that his defamation claim be dismissed.

With no settlement in sight, attorneys for both sides filed a status report with the court indicating they’re proceeding toward a June 2012 trial on Jacobs’ lawsuit.

Also, attorneys on Friday filed at least the third shareholder lawsuit against Adelson and the other Las Vegas Sands directors over the fallout from Jacobs’ allegations, charging the revelations in Jacobs’ lawsuit had harmed the company and have shown the board didn’t properly supervise the company’s conduct in China.

The complaint was filed in federal court in Las Vegas on behalf of shareholder John Zaremba and like two previous suits filed in the same court since April 1, it is a "derivative" suit seeking to force Las Vegas Sands to sue its own directors to recover damages allegedly sustained by the company.

The latest shareholder suit was filed by Reno attorney Patrick Leverty and attorneys with the San Diego law firm Robbins Umeda LLP.

"As reflected in the company's over $4.4 billion decline in market capitalization from a share price high on Nov. 8, 2010; to when the company revealed it was subject to SEC and DOJ investigation on March 1, Las Vegas Sands has been, and will continue to be, severely damaged and injured by the individual defendants' misconduct," the new lawsuit alleges.

Las Vegas Sands and its directors have not yet responded to these three derivative lawsuits.

Those suits are in addition to two shareholder suits from 2010 pending in Las Vegas federal court asserting different claims.

In those cases, disgruntled investors are seeking to recover damages over a decline in the price of Las Vegas Sands stock from $144 in 2007 to less than $2 per share in early 2009. The stock fell during that period as the recession hit the worldwide gaming industry and Las Vegas Sands faced liquidity problems related to its massive expansion in Asia.

That stock has since rebounded somewhat – to about $46 -- as the company has improved its balance sheet and is reporting booming revenue from its casinos in China and Singapore.

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