Thursday, July 31, 2008

Macau Casinos and Stanley Ho Tied To Atlantic City Cheating Probe!

MACAU IPO Adds Fuel TO Atlantic City Casino Cheating Probe

Macau's oldest gambling company acknowledges its policies to prevent money laundering may not be working. It admits the possibility its patrons, in collusion with employees, may be cheating or committing fraud. And it says if it fails to establish effective internal controls, it may not be able to accurately report its financial results.

These are not your typical corporate disclosures. Then again, SJM Holdings isn't your typical casino company. It's controlled by Stanley Ho, a colorful and controversial Asian gambling magnate who for years has fought allegations he has ties to the Chinese mob.

Earlier this month, SJM, which is based in the Chinese enclave of Macau, started trading on the Hong Kong Stock Exchange, and its 350-page initial public offering lays out, for the first time, a casino operation that for years remained in the shadows.

Now, the filing has become the latest in a long list of items New Jersey investigators are scrutinizing as they determine whether to sign off on MGM Mirage's partnership with Ho's daughter, Pansy, for a $1.25 billion Macau casino. MGM is licensed by New Jersey regulators because it co-owns the Borgata casino in Atlantic City and has plans for another casino in A.C.

Although Stanley Ho is not the focus of the New Jersey probe, he looms large as investigators examine his relationship with his eldest daughter and the heir apparent to his empire. Pansy Ho is a director of her father's main corporation, Sociedade de Turismo e Diversoes de Macau, or STDM, which owns a controlling interest in his gambling company. And she is a top executive in another business in his expansive holdings.

The question before regulators: Is Pansy Ho truly independent from her father?

MGM says she is. But New Jersey investigators have spent three years trying to answer that question in what is shaping up to be one of the longest casino probes in state history. Meanwhile, Mississippi and Nevada regulators have cleared the partnership, the MGM Grand Macau has opened and MGM has announced plans for both a Macau expansion and a $5 billion resort in Atlantic City.

MGM spokesman Alan Feldman said the company and Pansy Ho continue to cooperate with New Jersey investigators.

"Pansy's track record as an independent businesswoman is impeccable and impressive," he said. "We expect a positive outcome whenever the (division) is ready to give it."

Josh Lichtblau, director of the state Division of Gaming Enforcement, declined comment through Peter Aseltine, a spokesman for the attorney general's office, which oversees the division.


New Jersey regulators have a mandate to ensure companies and executives doing business in A.C. are free from "inimical associations." As with any sensitive investigation, the state attorney general's office is expected to sign off on the division's probe before it decides whether to ask for a hearing before the Casino Control Commission, which acts as a judge in licensing cases.

The commission could approve the partnership, impose penalties or restrictions, or force MGM to choose between Macau and A.C., where it co-owns the Borgata with Boyd Gaming.

A heck of a lot is at stake. Macau has quickly surpassed Las Vegas in revenue, raking in $10 billion last year, and is on track to hit $15 billion in 2008 -- more than Las Vegas and A.C. combined.

MGM, one of the world's largest gambling companies, owns 11 Las Vegas casinos and is nearing completion of the $8 billion CityCenter resort there. In Atlantic City, it has plans for what would be one of the country's most expensive casino projects.

Some critics have questioned whether MGM announced its A.C. casino plans last fall to put pressure on regulators at a time when the city has struggled. Casino revenue fell 5.7 percent in 2007; it's down 6 percent so far this year.

"Is this being dangled as a means of getting regulators not to do their job completely?" asked state Assemblyman Richard Merkt (R-Morris), a former deputy attorney general for the gaming division.

"It raises questions as to whether it's appropriate to be talking about those kinds of numbers, and whether it's an attempt to improperly influence a regulatory decision," Merkt said.

MGM officials bristle at the charge, and have been quick to point out they have paid half of the $1.7 billion it took to build Borgata and expand it.


Stanley Ho is Macau's wealthiest businessman. His empire includes hotels, real estate, a ferry route and an airline, although since his 40-year gambling monopoly in Macau was broken six years ago, his casino market share has plunged to 40 percent.

He has been courted by American politicians, and yet for years he has been suspected of having mob ties. In 1988, the U.S. Justice Department listed him as an associate of an unknown Chinese mob, or triad, that operated in Macau's casino VIP rooms. More recently, the U.S. State Department's 2007 narcotics control report said the triads continue to control the VIP rooms of Macau's casinos through activities like racketeering, loan sharking and prostitution.

Ho repeatedly has denied having anything to do with triads.

VIP rooms represent a majority of Macau's casino business. And for years, the Macau casinos have hired outside promoters to bring wealthy patrons to gamble in the rooms. SJM, in its initial public offering, said it could not provide assurance the activities of the promoters or their patrons comply with "applicable laws and regulations, such as usury or anti-money laundering laws or regulations."

The filing also acknowledged Macau's casino industry is "prone to potential money laundering and other illegal activities." SJM said while it has an anti-money laundering system in place, and it hired Deloitte & Touche to review its procedures, they may not be enough to prevent all money-laundering activities.

Merkt, the state assemblyman, said what he found most troubling was Ho's ties to North Korea. STDM, Ho's main company, owns a stake in a North Korean casino, according to the SJM public offering document. The son of the country's dictator, Kim Jong Il, has been known to take residence at a hotel partially owned by a company Pansy Ho oversees, according to the South China Morning Post. And a bank Stanley Ho controls was reported to be under investigation by U.S. agencies for possible connections to an illegal fundraising network believed to be financing North Korea's nuclear program.

In addition, Stanley Ho's name has been attached to violent incidents. In 1987, his chief assistant was hacked to death by a professional killer in what police said was payback from an Asian gambling syndicate. In addition, two lawyers for Ho's estranged sister, Winnie, have been brutally attacked.

But no allegation has ever been proven, and Stanley Ho has never been charged with a crime.


In 2002, Macau, a former Portuguese colony, decided it was time to break Stanley Ho's monopoly over Macau's casinos and open the market to outside competition.

Initially, MGM lost out to other operators in its bid for a Macau casino. But it found a way in by partnering with Pansy Ho, who agreed to compete against her father's gambling business.

Now, Pansy Ho's dealings with her father are the focus of the New Jersey probe.

"It's a case of, are the sins of the father automatically passed on to the children?" said Bill Eadington, the director for the Institute and Study of Gambling and Commercial Gaming.

Pansy Ho and MGM paid Stanley Ho $200 million to get in on Macau. And Pansy Ho and her sister, Daisy, who also is involved, told Nevada regulators a major portion of their $80 million investment in the deal came from their father through a trust fund.

Pansy and Daisy Ho work for their father as executives of Shun Tak Holdings, which owns a shipping business and hotels, among other things.

In addition, Pansy Ho is a director in STDM, which along with Stanley Ho has the ability to exercise "substantial influence or control" over her father's gambling company "in ways that may not be in the interests of (SJM's) other shareholders," according to SJM's public offering.

Despite the business dealings, regulators in Nevada, where MGM has a huge presence, cleared the partnership last year.

Eadington said Nevada regulators "were willing to take Pansy's word she had adequate independence financially and in terms of decision-making."

"Obviously, there weren't any smoking guns," he said. "But I think it still is eyebrow-raising, and the fact that New Jersey has been so slow is perhaps a reinforcement of that."