Earlier this week, Las Vegas Sands (NYSE:LVS) announced in its 10-K for the year ended December 31, 2010 that it is the subject of an FCPA investigation:
On February 9, 2011, LVSC received a subpoena from the Securities and Exchange Commission requesting that the Company produce documents relating to its compliance with the Foreign Corrupt Practices Act (the “FCPA”). The Company has also been advised by the Department of Justice that it is conducting a similar investigation. It is the Company’s belief that the subpoena may have emanated from allegations contained in the lawsuit filed by Steven C. Jacobs described above. The Company intends to cooperate with the investigations.
Las Vegas Sands says that it is also the target of a similar investigation by the U.S. Department of Justice.
The lawsuit referenced was filed In October 2010 by Steven Jacobs, the former CEO of Sands China Ltd. in Clark County District Court in Las Vegas. In the lawsuit for wrongful termination, Jacobs alleges he was fired because of conflicts with Las Vegas Sands CEO and Chairman Sheldon Adelson:
Some of the conflicts with Adelson were over issues such as demands that Jacobs use improper “leverage” in working with Macau government officials and prominent Chinese banks on a Four Seasons Apartment project, the lawsuit said.
Jacobs also claims Adelson ordered him to arrange investigations of Macau government officials so that “negative information” could be used to thwart government regulations and initiatives adverse to the interests of Las Vegas Sands.
The suit said he was pressured to use a Macau attorney, despite concerns this could risk violations of the Foreign Corrupt Practices Act, and that he was told not to disclose “material information,” such as cost overruns to the Sands China Board of Directors.
The suit also claims Jacobs disagreed with Adelson’s desire to aggressively grow the Macau junket business because of its low margins, credit risks and investigations alleging connections between Las Vegas Sands, triad organized crime groups and the junket business.
Sands China has filed a criminal complaint against Jacobs in Macau, citing defamation and extortion, and the company maintains that any claims by Jacobs must be litigated in Macau, not Las Vegas.
It will be interesting to see what Sands did prior to the investigations by the SEC and the Department of Justice. It is clear that Sands knew about allegations of wrongdoing at least as early as October, and it is likely management knew about the allegations prior to that. Jacobs appears to be a whistleblower, and the government expects companies to take those types of allegations seriously, to not retaliate against the whistleblower, to thoroughly examine the allegations, and to correct any problems found.
Did management take any steps to investigate the allegations of bribery and corruption prior to the government investigations? An independent investigation would have been the most prudent action, and likely would help the company if the government finds wrongdoing. Companies can get lighter punishments if they have effective compliance programs in place, and independent investigations are a crucial part of a good compliance program. Companies need to show that they take allegations of wrongdoing seriously, will investigate them immediately, and take corrective action if wrongdoing is found.
If management instead chose to ignore the allegations, this could be problematic if the SEC and/or Department of Justice ultimately find that bribery and corruption did occur. The government will want to know why management didn’t take the accusations seriously and why they did not conduct a full internal investigation into the allegations. Any fines or other punishment could be more severe if the government believes Las Vegas Sands wasn’t doing enough to ensure compliance with regulations.