Mutual fund group looks to hold them financially responsible for securities fraud
LAS VEGAS — Just who are the Las Vegas Monorail’s “John Does 1-10”?
Currently unknown, they nevertheless are being sued — along with Citigroup — for alleged fraud in the monorail’s bond sales.
So says the September lawsuit filed by the Lord Abbett mutual fund group in New Jersey federal court.
According to the complaint, these “individuals and/or entities … are liable for damages suffered by” the fund group, but their “identities are presently unknown.”
What is the prospect that these “presently unknown” individuals or entities will ever be identified? Or — to ask the question a different way — what is this “John Doe” ploy, anyhow?
In securities litigation, naming of unknown “John Doe” defendants is common. It allows cases to proceed before all legally liable “individuals and/or entities” are fully identified — and before statutes of limitations allow such parties to escape responsibility.
A revealing example is a case currently in the national news. It names, not 1-10, but 1-5,000 John Doe defendants.
The complaint — filed by producers of the motion picture “The Hurt Locker” — is over alleged copyright infringement.
Targeted are all the currently unnamed individuals who used the BitTorrent peer-to-peer Internet protocol to illegally download the film, despite its copyright.
“The true names of Defendants are unknown to the Plaintiff at this time,” says the filmmakers’ complaint. “Each Defendant is known to the Plaintiff only by the Internet Protocol (‘IP’) address assigned to that Defendant by his or her Internet Service Provider on the date and at the time at which the infringing activity of each Defendant was observed.
“The Plaintiff believes that information obtained in discovery will lead to the identification of each Defendant's true name and permit the Plaintiff to amend this Complaint to state the same.”
Finding the John Does in the case of the Las Vegas Monorail appears similar: Legal discovery would be a prime route through which Lord Abbett could seek to identify the currently unknown “individuals or entities” it seeks.
For many other investors in the monorail bonds, however, their chances of recovering damages are probably low. That’s because of statutes of limitations.
Under current federal law, specifically Sarbanes Oxley, securities claims must be made within two years after the discovery of facts constituting the violation or five years after the violation actually occurred.
Additionally, for those inclined to seek arbitration, the window for claims for securities on both the NYSE and NASD exchanges is usually only open for, at most, six years.
The initial offering of the Las Vegas Monorail bonds to prospective investors took place in August and September of 2000, according to a deposition by a central player in the monorail project, Cam Walker. He was deposed by attorneys for AMBAC Assurance Corporation in early 2010.
AMBAC had insured monorail bonds in 2000, raising their attractiveness in investors’ eyes. However, after the monorail began defaulting on its bonds, AMBAC also failed, following the worldwide financial crisis.
The timing of the Las Vegas Monorail Company’s initial bond offering, 2000, suggests that for many immediate purchasers of the bonds, their losses are now most likely well beyond the statute of limitations.
Notably, the Lord Abbett complaint filed in September 2011 says that the firm purchased its second-tier monorail bonds well after the initial offering — “between September 21, 2006 and October 4, 2006.” That would put them within the five-year window.
Thus, if the Lord Abbett complaint can be relied on, John Does 1-10 were also actively involved in the selling of Las Vegas Monorail bonds in and around the fall of 2006.
The initial selling of the monorail bonds in 2000 was orchestrated by Citigroup and an MGM Grand executive, Scott Langsner, according to Walker’s deposition testimony.
Langsner, representing MGM Resorts, shared primary responsibility for managing the small monorail that in the late ’90s ran between the MGM Grand and Bally’s, with Mark Dodson, representing Park Place Entertainment (later, Caesar’s Entertainment).
The name of the casinos’ joint firm was the “MGM Grand Bally's Monorail Limited Liability Company.”
According to Walker, Langsner, as the LLC’s treasurer, controlled finance issues, while executives from Park Place oversaw legal issues.
From the beginning, the LLC’s declared goal was to expand the small system, via some kind of non-casino financing, into a larger one that the hotels’ customers could take all the way to the Las Vegas Convention Center on Paradise Road.
Because the monorail bond offering, testified Walker, “was unique and somewhat different, we wanted to make sure everyone was aware of what the MGM Grand Bally's Monorail, Limited Liability Company was putting together in the plan of finance.”
Also called the “road show,” the bond-selling effort entailed bringing in “potential investor groups from the different people that would be purchasing and acquiring the debt and the bond offerings.”
Langsner and Dodson addressed the groups, as did “Regional Transportation Commission individuals,” testified Walker. For example, Bruce Woodbury and Jacob Snow were brought in from the RTC to speak to prospective monorail bond investors “about the regional planning process of mass transit and transit in general.”
Showing up to explain and discuss Las Vegas demographics, said Walker, was Rossi Ralenkotter from the Las Vegas Convention and Visitors Authority or other LVCVA representatives.
Also appearing to speak to prospective investors was a representative of URS Greiner Woodward Clyde, the consulting firm that the LLC had hired to make ridership forecasts for the new Las Vegas Monorail Company it wanted bond investors to finance.
URS Greiner’s ridership projections would ultimately prove about three times too optimistic — estimating 20 million riders a year, when 7 million was the best the monorail ever achieved.
According to the Lord Abbett lawsuit against Citigroup, Citigroup only provided Lord Abbett with the URS Greiner ridership forecasts, and held back the ridership projections issued in 2000 by the Wendell Cox Consultancy out of Ohio.
The Cox analyses had already proven, over the intervening years, to be much more accurate.
The road-show presentations were emceed by Walker, who was in a partnership with Bob Broadbent, his father-in-law.
Their firm, Broadbent & Walker, Inc., had been on the payroll of the MGM Grand Bally's Monorail LLC since 1997 to help shepherd the new, larger bond-financed monorail into reality.
Whether or not John Does 1-10 ever will be publicly identified — revealing what casino or monorail executives, if any, must pay damages — will almost certainly hinge on legal discovery efforts pursued by Lord Abbett.
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