Bringing Down the House: Court Rejects Defendants’ Motion to Dismiss in In re MGM Mirage Securities Litigation
On September 26, 2013, United States District Judge Gloria M. Navarro issued an order denying in full defendants’ motion to dismiss a shareholder action relating to MGM’s disastrous CityCenter project, a luxury hotel, condominium and casino project on the Las Vegas Strip.
Beginning as early as August 2007 and continuing until March 5, 2009, MGM and its senior officers and directors artificially inflated the price of MGM’s securities by issuing a series of optimistic but false and misleading statements about the company’s liquidity and its development of the massive multi-billion dollar CityCenter project. Among other things, defendants failed to disclose the “pervasive construction problems” afflicting the CityCenter project or the true condition of MGM’s finances until early 2009, when it (1) notified the SEC that it had delayed filing its annual financial report and was facing potential default on its senior credit facility because of “severe liquidity problems”; (2) revealed to the market that “substantial doubt” existed as to its ability to continue as a going concern; and (3) disclosed that, contrary to its repeated positive class period statements, CityCenter was not on track to open in late 2009, was suffering from severe design defects, was way over budget, and had received several significant construction Notices of Violation from Clark County authorities.
In response to these disclosures concerning MGM’s precarious financial condition, the company’s securities prices plummeted for five consecutive trading days, beginning on February 27, 2009 and continuing through March 5, 2009.
In rejecting defendants’ dismissal efforts, Judge Navarro found actionable defendants’ misstatements and omissions (1) regarding MGM’s financial security and access to credit; (2) that CityCenter was on budget; and (3) that CityCenter was on schedule, noting that the project was completed at an inflated cost only because of significant modifications and a delayed opening of one of the development’s central features, the soon-to-be demolished Harmon building.
Plaintiffs will now proceed to the discovery and class certification phase of the litigation, during which plaintiffs will develop evidence supporting their claims in preparation for trial.
In re MGM Mirage Sec. Litig., No. 2:09-cv-01558, 2013 U.S. Dist. LEXIS 139356 (D. Nev. Sept. 26, 2013).