LAS VEGAS — Critics of the selling of the Las Vegas Monorail project and the State of Nevada’s role in it have long predicted that someday the whole affair would end up in court, the subject of fraud litigation.
That day has come.
Citigroup — which the State of Nevada hired to be lead underwriter for the issuance of the monorail’s state-approved bonds — is being sued for fraud.
According to the complaint, Citigroup’s official prospectus for the $600 million-plus bond offering in 2000 failed to disclose a highly material report — one that “seriously undermined the reliability of” ridership projections that Citigroup and monorail backers were using to convince investors that the monorail was a sound investment.
At the same time, Citigroup did include with the monorail prospectus a highly optimistic projection of ridership numbers, for which monorail backers had paid.
Under U.S. securities law, underwriters are responsible for the accuracy and completeness of representations made to bond purchasers.
Bringing the legal action is one of the oldest mutual-fund companies in the United States, Lord Abbett, based in Maryland.
The firm is charging that Citigroup defrauded it of $13 million in 2006 by selling it second-tier monorail bonds while knowingly concealing highly material expert information about the monorail’s poor prospects.
“As a secondary market offeror and seller of the Second Tier Bonds to the Lord Abbett Fund,” says the complaint, filed in U.S. District Court in New Jersey, Sept. 23, “Citigroup was responsible for making full and fair disclosure to Lord Abbett of all material facts that it was aware of at the time the Bonds were sold to the Lord Abbett Fund.”
Citigroup, say the complaint’s authors, quite willingly provided Lord Abbett’s analysts with rosy ridership predictions from the monorail’s own hired consultants, URS Greiner Woodward Clyde.
But the highly authoritative analysis done by the Wendell Cox Consultancy, which Citigroup had possessed since 2000 and which Citigroup knew had proven itself much more reliable, was knowingly concealed from them and the public, say the mutual fund attorneys.
“Citigroup provided Lord Abbett with the 2000 Official Statement with the URS Study, LVMC's 2005 audited financial statements and the Presentation of the 2006 Budget. Citigroup did not, however, disclose the existence or content of the Cox Report to Lord Abbett.”
Citigroup was not the only defendant named in the Sept. 23 complaint. Also listed were “JOHN DOES 1-10.”
According to the complaint, “John Does 1-10 are individuals and/or entities who are liable for damages suffered by the Lord Abbett Fund but whose identities are presently unknown to the Lord Abbett Fund.”
In an effort to learn more specifically what “individuals or entities” might be liable for such damages, Nevada Journal consulted several attorneys. However, none had responded by press time.
Significantly, however, it was the State of Nevada that issued the monorail bonds, with Citigroup serving as the state’s agent.
It is conceivable, therefore, that the state may be targeted for damages suffered, not only by the Lord Abbett Fund, but by every investor who can testify that he or she relied upon Citigroup’s offering prospectus for the disclosure of relevant facts.
Likewise, individuals and firms that were active in the “road show” in the initial selling of the monorail bonds could, arguably, be liable. That could include not only individual board members of the Las Vegas Monorail Company, but also the predecessor firm, where members of the board were executives of ParkPlace/Bally's (now Caesars Entertainment Corporation) and the MGM Grand (now MGM Resorts International).
Attorneys for the Lord Abbett Fund are seeking damages, repayment of lost interest, costs, punitive damages, attorney’s fees and “any other relief which the Court deems proper.”
They also demand a jury trial.