GOODMAN LAW GROUP ROSS C. GOODMAN 520 South Fourth Street, 2nd Floor Las Vegas, NV 89101 Telephone: 702/383-5088 702-385-5088 (fax)
COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP SAMUEL H. RUDMAN DAVID A. ROSENFELD JOSEPH RUSSELLO 58 South Service Road, Suite 200 Melville, NY 11747 Telephone: 631/367-7100 631/367-1173 (fax)
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
ROBERT LOWINGER, Individually and On ) Case No. Behalf of All Others Similarly Situated, ) ) CLASS ACTION COMPLAINT FOR Plaintiff, ) VIOLATIONS OF FEDERAL SECURITIES ) LAWS vs. ) ) MGM MIRAGE, J. TERRENCE LANNI, ) JAMES J. MURREN, DANIEL J. D’ARRIGO ) and ROBERT H. BALDWIN, ) ) Defendants. ) )
Plaintiff alleges the following based upon the investigation of plaintiff’s counsel, which included a review of United States Securities and Exchange Commission (“SEC”) filings made by
MGM Mirage (“MGM” or the “Company”), as well as regulatory filings and reports, securities analysts’ reports and advisories about the Company, press releases and other public statements issued by the Company, and media reports about the Company, and believes that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery.
NATURE OF THE ACTION
1. This is a federal securities class action on behalf of purchasers of the common stock of MGM between August 2, 2007 and March 5, 2009, inclusive (the “Class Period”), seeking to pursue remedies under the Securities Exchange Act of 1934 (the “Exchange Act”).
JURISDICTION AND VENUE
2. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the
Exchange Act [15 U.S.C. §§78j(b) and 78t(a)] and Rule 10b-5 promulgated thereunder by the
Securities and Exchange Commission (“SEC”) [17 C.F.R. §240.10b-5].
3. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C.
§1331 and Section 27 of the Exchange Act [15 U.S.C. §78aa].
4. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28
U.S.C. §1391(b), as many of the acts and practices complained of herein occurred in substantial part in this District.
5. In connection with the acts alleged in this complaint, Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications and the facilities of the national securities markets.
PARTIES
6. Plaintiff Robert Lowinger, as set forth in the accompanying certification incorporated by reference herein, purchased the common stock of MGM during the Class Period and has been damaged thereby.
7. Defendant MGM is a Delaware corporation whose principal executive officers are located at 3600 Las Vegas Boulevard South, Nevada 89109. MGM describes itself as one of the world’s leading development companies with significant gaming and resort operations. MGM acts largely as a holding company and its operations are predominately conducted through its wholly- owned subsidiaries. The Company primarily owns and operates casino resorts, and offers gaming, hotel, dining, entertainment, retail and other resort amenities. MGM’s common stock is publicly traded on the New York Stock Exchange (the “NYSE”) under the symbol “MGM.”
8. (a) Defendant J. Terrence Lanni (“Lanni”) served as MGM’s Chairman of the
Board of Directors (the “Board”) and Chief Executive Officer (“CEO”) from the start of the Class
Period through December 1, 2008, when defendant James J. Murren (“Murren”) assumed those positions purportedly as a result of Lanni’s planned retirement, effective November 30, 2008. After his replacement, Lanni remained a member of the Board.
(b) Defendant Murren served as MGM’s President, Chief Financial Officer
(“CFO”), Treasurer and member of the Board from the start of the Class Period, and, on or about
August 21, 2007, ceased serving as the CFO and Treasurer and assumed the position of Chief
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Operating Officer (“COO”). In connection with Lanni’s retirement effective December 1, 2008,
Murren relinquished his other positions and replaced Lanni as Chairman and CEO.
(c) Defendant Daniel J. D’Arrigo (“D’Arrigo”) served as MGM’s Senior Vice
President (“SVP”) – Finance from the start of the Class Period, and, on or about August 21, 2007, ceased serving in that capacity and was named Executive Vice President and CFO.
(d) Defendant Robert H. Baldwin (“Baldwin”) served as President and CEO of
Mirage Resorts, Incorporated from June 1, 2000, and, on or about August 21, 2007, ceasing serving in that capacity and assumed the position of Chief Design and Construction Officer of the Company.
He has also served as President of Project CC, LLC, the managing member of CityCenter Holdings,
LLC, since March 2005, and as President and CEO of Project CC, LLC since August 2007. He
frequently participated in earnings conference calls with Defendants Lanni, Murren and D’Arrigo
during the Class Period, and was supposed to participate in those calls for which he was not present.
(e) Defendants Lanni, Murren, D’Arrigo and Baldwin are collectively referred to
herein as the “Individual Defendants,” and, together with MGM, as the “Defendants.”
9. Because of the Individual Defendants’ positions with the Company, they had access
to the adverse undisclosed information about the Company’s business, operations, operational
trends, financial statements, markets and present and future business prospects via access to internal
corporate documents (including the Company’s operating plans, budgets and forecasts and reports of
actual operations compared thereto), conversations and connections with other corporate officers and
employees, attendance at management and Board of Directors meetings and committees thereof and
via reports and other information provided to them in connection therewith.
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10. It is appropriate to treat the Individual Defendants as a group for pleading purposes
and to presume that the false, misleading and incomplete information conveyed in the Company’s
public filings, press releases and other publications as alleged herein are the collective actions of the narrowly defined group of defendants identified above. Each of the above officers of MGM, by virtue of their high-level positions with the Company, directly participated in the management of the
Company, was directly involved in the day-to-day operations of the Company at the highest levels and was privy to confidential proprietary information concerning the Company and its business, operations, growth, financial statements, and financial condition, as alleged herein. Said defendants were involved in drafting, producing, reviewing and/or disseminating the false and misleading statements and information alleged herein, were aware, or recklessly disregarded, that the false and misleading statements were being issued regarding the Company, and approved or ratified these statements, in violation of the federal securities laws.
11. As officers and controlling persons of a publicly-held company whose common stock was, and is, registered with the SEC pursuant to the Exchange Act, and was, and is, traded on the
New York Stock Exchange (“NYSE”), and governed by the provisions of the federal securities laws, the Individual Defendants each had a duty to disseminate promptly, accurate and truthful information with respect to the Company’s financial condition and performance, growth, operations, financial statements, business, markets, management, earnings and present and future business prospects, and to correct any previously-issued statements that had become materially misleading or untrue, so that the market price of the Company’s publicly-traded common stock would be based upon truthful and accurate information. The Individual Defendants’ misrepresentations and omissions during the Class Period violated these specific requirements and obligations.
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12. The Individual Defendants participated in the drafting, preparation, and/or approval
of the various public and shareholder and investor reports and other communications complained of
herein and were aware of, or recklessly disregarded, the misstatements contained therein and
omissions therefrom, and were aware of their materially false and misleading nature. Because of
their Board membership and/or executive and managerial positions with MGM, each of the
Individual Defendants had access to the adverse undisclosed information about MGM’s business
prospects and financial condition and performance as particularized herein and knew (or recklessly
disregarded) that these adverse facts rendered the positive representations made by or about MGM
and its business issued or adopted by the Company materially false and misleading.
13. The Individual Defendants, because of their positions of control and authority as
officers and/or directors of the Company, were able to and did control the content of the various SEC
filings, press releases and other public statements pertaining to the Company during the Class
Period. Each Individual Defendant was provided with copies of the documents alleged herein to be
misleading prior to or shortly after their issuance and/or had the ability and/or opportunity to prevent
their issuance or cause them to be corrected. Accordingly, each of the Individual Defendants is responsible for the accuracy of the public reports and releases detailed herein and is therefore primarily liable for the representations contained therein.
14. Each of the defendants is liable as a participant in a fraudulent scheme and course of
business that operated as a fraud or deceit on purchasers of MGM common stock by disseminating
materially false and misleading statements and/or concealing material adverse facts. The scheme:
(i) deceived the investing public regarding MGM’s business, operations, management and the
intrinsic value of its common stock; (ii) enabled certain of the Individual Defendants and other
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MGM insiders to sell nearly $91 million of their personally-held common stock to the unsuspecting
public; and (iii) caused Plaintiff and other shareholders to purchase MGM common stock at
artificially inflated prices.
CLASS ACTION ALLEGATIONS
15. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and 23(b)(3) on behalf of all those who purchased the common stock of MGM
during the Class Period and who were damaged thereby (the “Class”). Excluded from the Class are
defendants, the officers and directors of the Company, at all relevant times, members of their
immediate families and their legal representatives, heirs, successors or assigns and any entity in
which defendants have or had a controlling interest.
16. The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, MGM common shares were actively traded on the
NYSE. While the exact number of Class members is unknown to Plaintiff at this time and can only
be ascertained through appropriate discovery, plaintiff believes that there are hundreds or thousands of members in the proposed Class. Record owners and other members of the Class may be identified from records maintained by MGM or its transfer agent and may be notified of the pendency of this action by mail, using the form of notice similar to that customarily used in securities class actions.
17. Plaintiff’s claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by defendants’ wrongful conduct in violation of federal law that is complained of herein.
18. Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class and securities litigation.
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19. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a) whether the federal securities laws were violated by Defendants’ acts as
alleged herein;
(b) whether statements made by defendants to the investing public during the
Class Period misrepresented material facts about the business, operations and management of MGM;
and
(c) to what extent the members of the Class have sustained damages and the
proper measure of damages.
20. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the
damages suffered by individual Class members may be relatively small, the expense and burden of
individual litigation make it impossible for members of the Class to individually redress the wrongs
done to them. There will be no difficulty in the management of this action as a class action.
SUBSTANTIVE ALLEGATIONS1
21. The Class Period commences on August 2, 2007. On that date, MGM issued a press
release announcing “record” financial results for its second fiscal quarter, providing, in pertinent part, as follows:
1 All emphasis is added unless otherwise noted.
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LAS VEGAS, Aug 02, 2007 /PRNewswire-FirstCall via COMTEX News Network/ - - MGM MIRAGE (NYSE: MGM) today reported its second quarter 2007 financial results, achieving the Company’s highest ever second quarter diluted earnings per share from continuing operations of $0.62, a 27% increase over the $0.49 per share earned in 2006. Earnings benefited from strong revenue trends, solid operating margins, and profits from sales of Tower 3 of The Signature at MGM Grand.
Net income per share on a diluted basis, including discontinued operations, was $1.22 per share compared to $0.50 per share in 2006. During the second quarter, the Company recognized a pre-tax gain of $201 million on the sale of Primm Valley Resorts and a pre-tax gain of $63 million on the sale of its Laughlin Properties -- Colorado Belle and Edgewater.
Net revenues for the second quarter increased 10% to $1.9 billion, an all-time record quarter for the Company. In addition to the incremental revenue from Beau Rivage, which reopened in August 2006, the Company benefited from strong hotel revenues and the impact of new amenities at many of its Las Vegas Strip resorts.
22. Commenting on these results, Defendant Lanni stated, in pertinent part, as follows:
“Our targeted capital investments, particularly in our non-gaming operations, have led to strong returns and record earnings . . . The opening of MGM Grand Detroit and MGM Grand Macau later this year, and our recently announced joint venture project with Kerzner International, further illustrate the powerful momentum created by our accelerated growth platform.”
23. Defendant Murren also made positive comments regarding the financial results, as well as the construction of MGM’s CityCenter development, as follows:
“Our operating results this quarter once again prove the power of our portfolio to generate consistent cash flows . . . More exciting is the pace of future growth. We will continue to develop strategic relationships designed to create additional value from our significant real estate portfolio. Of course, CityCenter is at the heart of our growth strategy; we are very pleased with the quality of the development and the pace of residential sales, and we continue on track for a late 2009 opening.”
24. Following the issuance of the press release, Defendants Lanni and Murren, along with other MGM representatives, conducted an earnings conference call with analysts and investors during which they reiterated the Company’s financial results and expounded on its prospects.
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25. In his opening remarks, Defendant Lanni represented that MGM’s fundamentals were
“clearly strong,” and tied those remarks to the Company’s hotel results and cash flows, stating, in
pertinent part, as follows:
As far as operating results, net revenues increased 10% to $1.9 billion, up 4% excluding Beau Rivage, an all-time record revenue quarter for the Company. Our fundamentals are clearly strong, as evidenced by tremendous hotel results and excellent cash flow results across our portfolio of resorts. As mentioned in the release, we had all-time record second quarter property EBITDA of $686 mil-lion, which represents a 9% increase over the prior year. Las Vegas Strip occupancy percentage of 97.8% was our Company’s highest occupancy since 2000. Combined with a strong average room rate of $162 our Las Vegas Strip REVPAR was up 7%.
Demand has remained robust, and increased visitor volume to our Las Vegas trip resorts continues to drive revenues. MGM Grand Las Vegas earned $108 million of EBITDA, which is an all-time record for any quarter in that property’s history, and a 43% increase from the prior year.
26. He also noted that “construction is progressing nicely” at the CityCenter and that
MGM Grand Macau was “on-track for opening . . . later this year,” stating, in pertinent part, as follows:
On CityCenter, construction is progressing nicely. For those of you who have a chance to see it from time to time, it is really coming up and out of the ground with each of its property development portions of it. We have reached the 22nd floor at the CityCenter Hotel and Casino Tower, and the resorts, show room, convention center and parking garage are well underway.
* * *
MGM Grand Macau is on-track for opening as we have said all along later this year, and we will share more details on its opening on our next quarter’s conference call. We formed MGM Mirage Hospitality, which is headed up by Gamal Aziz, who remains as President of MGM Grand Las Vegas. Hospitality will oversee our Foxwoods and [Batelaan] Development Company, and the Diaoyutai Guest House partnerships, among its other activities. We are working on some very exciting projects and look forward to sharing those with you when we are able to, for this new development and new subsidiary.
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27. In his remarks, Defendant Murren also spoke positively about the Company’s ability to generate revenues from its portfolio of resort properties, and represented that 2007 would be “at least as good as 2006,” stating, in pertinent part, as follows:
EBITDA was $686 million, that was up 9% versus the prior year. Terry mentioned there were several records and highlights. But I think the key takeaways were that we generated significant cash flow increases across all market segments, even while we are making substantial improvements to resorts like Luxor, Monte Carlo, and Excalibur, we saw very strong traffic and profit right from the economy segment, and right up through our highest end properties from a volume perspective.
We believe that we can continue to generate very strong returns from these kind of investments, as evidenced by our margins, which are very strong still, they are 33% in the current quarter if you exclude out Beau Rivage and the Signature. I think now we have half the year underway, we can say with some confidence that 2007 looks like it is going to be a solid year in Las Vegas here, as we capitalize on its market’s increased popularity, and it looks like it is going to be at least as good as 2006.
28. Defendant Murren also made a host of claims about the positive conditions and trends the Company was experiencing. For example, he claimed that Las Vegas was “on-track to have a very solid year” and that MGM’s trends had “improved” and would continue to do so, investments in its properties continued to “yield immediate returns” and that it continued to work on “very exciting” and lucrative strategic partnerships. Specifically, Murren stated, in pertinent part, as follows:
We continue to believe, as looking out into the future here, that we will see strong operating trends, particularly here on the Las Vegas Strip, REVPAR we expect to be again strong in the current quarter. Operating margins we also believe will remain strong, to say with half a year under the belt, we feel more confident to say that Las Vegas is on-track to have a very solid year. We think that our trends have improved, second quarter was certainly better than the first, in terms of some important revenue and volume metrics, slot volume, occupancy, building of rate, all underlying demand metrics that we are very happy with.
We continued to invest in these properties, and the investments yield immediate returns. And therefore we believe that you will see the greatest delta in our property performance, at the properties that are getting the major investments, and a lot of those properties are the Mandalay Resort Group properties. We continue to work on some pretty exciting strategic partnerships, Terry mentioned the Kerzner one. That
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is an example of things that we can do and are working on. And we believe that we can significantly monetize the value of our brands and our substantial real estate holdings, in the quarters and years ahead.
John mentioned MGM Grand Detroit. It cannot be overemphasized how strong we are, and how excited we are about the opening of that property. And as well of the MGM Grand Macau property that also opens up in the fourth quarter, and we expect them to be the market leaders, and expect them to contribute significantly to our earnings in 2008.
29. During the question-and-answer session following the opening remarks, Murren and
Lanni both claimed that business was faring exceedingly well at that time and would continue to,
stating, in pertinent part, as follows:
Murren: “[T]he underlying business on the high end for us is still quite strong. * * * The fundamental business on the high end is still firm. We had very strong customer activity in the quarter.”
Lanni: “[W]e are holding our business very well with existing customers and historical customers. * * * And clearly Jim you are right. In the national business we are doing quite well and exceeding expectations, very frankly, in a very robust economy is helping us, but that is moving very much in that way.”
30. Moreover, Murren, with Lanni’s approval, represented that the Company freely had
access to sufficient financing to fund its portion of a joint venture with Kerzner International, stating,
in pertinent part, as follows:
We put that in our pocket, and that $1.2 billion equity, of land and cash equity, we believe will be more than sufficient to raise the bank debt capital that we expect will largely fund the project, and between Kerzner and MGM Mirage as sponsors, the ability for us to raise money in the bank market is I don’t think, I don’t think has any question. And we could do that today if we felt like it.
31. As reflected in the following exchange with an analyst, Murren further represented that the partners with which MGM was in talks could go through with any project under consideration because of their lack of exposure to the tightening (if not entirely dry) credit markets, which meant that any such project would not experience delays:
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FELICIA HENDRIX [Analyst, Lehman Brothers]: Okay, that is great. Along those lines as we try to forecast, or think about future projects that you might do domestically, given your experience, probably given the quality of the partners that you are going to be working with, even in light of this environment do you see risk or maybe timing delays, on any kind of future domestic JV projects you might have in the pipeline?
JIM MURREN: Well the folks we are talking to, Felicia, are not looking at the CMBS market. The folks we are talking to are very, very large strategic partners, nongaming strategic partners. And other investors that are not dependent upon the day-to-day fluctuation of the credit markets. The work that we are doing which is constant, has not abated whatsoever in the past month.
32. In addition, Murren reiterated this point several times later during the call, emphasizing the interest that various third-parties had in MGM, as well as the fact that the Company had sufficient sources of capital available to finance additional strategic ventures stating, as follows:
[W]hat we recognized through the original 13[D ]filing in the process that ensued from that, was there is an enormous amount of demand from a variety of sectors, on trying to partner up with us, whether that be passive money, insurance companies, pension money, and the financial segment, to other financial sponsors, whether it is PE money, or hedge funds, or otherwise, to the strategic side where we have been very encouraged, and actually quite surprised about the quality and size of companies in the nongaming arena. But large companies nonetheless, that are interested in perhaps partnering up with a company like MGM Mirage, given our position in the marketplace.
* * *
A lot of people very frankly who want to invest with us, there are a lot of people who want to work with us, and that is coming through very well.
* * *
So the tables have turned a little bit, where we are getting approached by people that are more than willing to put up capital, and they seem to be very successful once they do so, and it allows us to upgrade these properties at a much lower cost to us.
33. During the following exchange with an analyst, Murren also made it clear that the
Company, as well as its prospective partners, were, by design, not beholden to the credit markets and thus could accomplish additional projects without fear of a lack of financing:
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HARRY CURTIS [Analyst, JPMorgan Chase & Co.]: I try to do the opposite of Larry. If you could talk about where your cash might come from over the next couple of years, outside of cash flow from operations. You have talked a little bit about where it could be extracted from the Kerzner partnership, is there much that we could expect coming from those kinds of transactions? And also do you have any appetite for selling individual, or groups of assets? Could you see some cash coming in that way, and what do you do with if?
JIM MURREN: Well, we would like to say we planned perfectly for this day, and that we knew exactly what was going to happen in the credit markets over the past 3 weeks, but of course we didn’t. But we did want to make sure that we had enormous amount of financial flexibility going into 2007, because we knew we were going to spend about $3 billion this year.
That is why we were very active issuers of bonds through ‘06 throughout, and into ‘07 and doing a large deal in the second quarter. That put us in the position that we are in today. Which means we are not dependent upon nor expect to be in the bond market at all this year, and probably won’t see the bond market until some time next year, as I said we have substantial amount of bank capacity, and our banks love us. They should, we are good guys. We have a substantial relationship with our banks that is very productive on a going forward basis. Between our bank facility which is large, the largest in our industry, and our cash flows, we feel very comfortable about our financial needs over the coming period of time.
From a standpoint of joint ventures, these joint ventures you know we have put in the land as equity. We are getting cash back. If we do this a couple more times, which I expect that we will, we will get more cash back. These properties are unlevered. So when we go out and do deals, we are not the kind of joint venture partner, that needs to access the CMBS market, or the bond market.
We go out and talk to our friends the banks, and we go out and do nonrecourse bank deals, and they are lining up to do that with us even today. So joint ventures become immediately balance sheet positive, they provide us with a platform to provide bank financing, and provide us with an opportunity to grow quite rapidly.
As it relates to selling assets, we do that, too. We sold two major groups of assets last quarter alone. And we are constantly getting pinged by people that want to buy some of our properties. And I would bet that there will be properties that we do sell, small ones over time. As we continue to do what good portfolio managers should do. That is emphasize your winners, and cut your smaller properties away.
In terms of existing major properties, there has been a major initiative underway, where people have approached us about partnering up with existing resorts, or existing development projects. Both of which we are open-minded to. So we look at the opportunities today, as not just simply greenfield construction opportunities, of
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which we are working on a few others. But also more broadly within our asset spectrum.
So I think we have got a little bit lucky in the sense that, there is a lot of interest in gaming from a variety of investors that we had not anticipated a year ago. We made some luck by buying land at the right time and buying companies at the right time. And we have been very, I think fortunate in our timing of accessing the credit markets, so as to give us an awful lot of latitude and time, to see how this whole market shakes out.
34. In response to this highly positive news, MGM’s stock price rose 3.58% to $74.89 per share on unusually high volume of nearly 4 million shares traded. Moreover, as the market digested this information, the Company’s stock price periodically rose over the next several days, increasing
1.23% to $75.81 per share, and 4.43% to $77.80 per share, on August 3 and 7, 2007, respectively.
35. The August 2, 2007 statements set forth above were materially false and misleading because, inter alia: (i) it was becoming increasingly less likely that the Company would be able to line up sufficient financing to fund its portion of the CityCenter project, as a result of tightening credit markets; (ii) MGM was not insulated from the deterioration in the credit markets; (iii) MGM’s transaction partners were not insulated from the day-to-day fluctuations in the credit markets; and
(iv) MGM’s prospects and financial condition were contingent on servicing the massive amounts of debt that it had coming due and the continued prosperity of the Las Vegas market, which was beginning to show signs of weakness.
36. On August 22, 2007, MGM issued a press release announcing its formation of a long- term relationship with Dubai World, an investment holding company which had agreed to invest approximately $5 billion in MGM. Specifically, the investment was to consist of: a $2.7 billion investment in CityCenter, which would give Dubai World a 50% interest in a holding company that owned CityCenter; and up to $2.4 billion in purchases of MGM common stock, through a public
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tender offer and direct purchases from the Company, which would give Dubai World a 9.5% equity stake in the Company at $84.00 in cash per share. Defendant Lanni commented on the transaction as follows:
“This is a transforming event for MGM MIRAGE and Las Vegas . . . This partnership with Dubai World brings us a relationship with an internationally- respected developer of large- scale luxury properties that attract an international clientele. Dubai World’s proficiency in real estate, combined with our company’s operational expertise, strong brands and world-renowned resorts, creates competitive advantages that we believe will benefit all of our stakeholders. We are extremely pleased to be working with Dubai World. We have a tremendous amount of respect for Sultan Bin Sulayem and all that his company has accomplished.”
“This transaction is immediately accretive to long term earnings and will have a profound impact on our balance sheet. Dubai World is making a significant investment in our company that will greatly increase our growth and earnings. We welcome Dubai World’s long term commitment to our company through the joint venture and these share purchases . . . .”
37. In response to this news, the price of MGM common stock rose 8.91% to $80.94 per share on extremely heavy volume of more than 8 million shares traded. The stock price also rose
2.3%, to $82.80 per share, the following day.
38. Then, on October 1, 2007, MGM issued a press release announcing “several major personnel changes and promotions” at the Company’s resorts “in preparation for the November 2009 opening of CityCenter . . . .” With news that CityCenter’s opening was still on track, the price of
MGM’s stock increased 3.81% to $92.85 per share on volume of more than 2 million shares traded.
The stock price also rose 2.21%, to $94.90 per share, the following day.
39. On October 30, 2007, MGM issued a press release announcing “record” financial results for its third fiscal quarter, providing, in pertinent part, as follows:
LAS VEGAS, Oct. 30 /PRNewswire-FirstCall/ -- MGM MIRAGE (NYSE: MGM) today reported record third quarter 2007 financial results, achieving diluted earnings per share from continuing operations of $0.62, a 17% increase over the $0.53 per
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share earned in 2006. Earnings benefited from continued year-over-year growth in net revenues and income recognized during the quarter from Hurricane Katrina insurance recoveries.
Net revenues increased 6% to $1.9 billion, a record third quarter for the Company. The Company continues to generate significant increases in revenues from its non- gaming operations as activity at the Company’s restaurants, nightclubs, and shows accelerated across the board and room rates remain strong.
40. Commenting on the results and the Company’s “growth initiatives,” Defendant Lanni stated, in pertinent part, as follows:
“Our growth initiatives, including strategic relationships with Dubai World and Kerzner International, reflect our ability to leverage our tremendous assets and creative energy to grow the Company . . . Our all-new MGM Grand Detroit is the clear market leader right out of the gate. We are well underway in creating the most important Las Vegas development ever, CityCenter, and we believe our MGM Grand Atlantic City project will have a similarly profound impact on the Atlantic City market.”
41. Defendant Murren also made positive comments regarding the financial results, current operations and growth initiatives, as follows:
“Key volume indicators that we have come to rely on to gauge our Las Vegas business remain strong. These metrics suggest continued growth over the upcoming quarters . . . We have many opportunities to increase our future profits through initiatives deployed throughout the remainder of this year and into 2008. The opening of our Detroit resort has been a tremendous success and we are only a couple of months away from opening in Macau. Both of these resorts will substantially add to our future cash flows and earnings.”
42. Defendant D’Arrigo, MGM’s Executive Vice President and CFO, also emphasized the Company’s growth initiatives and added that the Company’s had ample access to capital under its existing credit facility, stating, in pertinent part, as follows:
“Our recent strategic transactions will have a profound impact on our financial position and allow us to execute our many growth initiatives . . . Following the transactions with Dubai World, we will have significant borrowing capacity under our senior credit facility and no significant debt maturities in 2008.”
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43. Following the issuance of the press release, Defendants Lanni, Murren and D’Arrigo,
along with other MGM representatives, conducted an earnings conference call with analysts and
investors during which they reiterated the Company’s financial results and expounded on its
prospects.
44. In his opening remarks, Defendant Lanni focused on MGM’s current financial
condition and growth prospects, particularly with respect to CityCenter, stating, in pertinent part, as
follows:
Top-line performance for the company was strong, as net revenues increased 6% to an all-time record of $1.9 billion. Hotel and nongaming results led the increase in revenue this quarter. Las Vegas Strip RevPAR for the company was up 6% versus 2006. That represents our 17th consecutive quarter of RevPAR increases on the strip here in Las Vegas. Many of our Las Vegas Strip properties had record third quarter hotel revenues, which is a very strong indicator of the strength of this market and the continued effectiveness of our operations and the management of those operations.
* * *
On CityCenter, we entered into a joint venture agreement with Dubai World for 50% of City-Center. It should be noted that we will continue to be the developer of that project. Once again, we will operate CityCenter, and we will receive a management fee for doing that. This transaction truly represents a paradigm in our growth strategy. With us joining a strategic financial partner in Dubai World to leverage our management ability and real estate asset is the most effective way possible that we could even think of.
45. At the same time, however, Lanni was forced to acknowledge rising construction costs associated with CityCenter, although he attributed the increase to the complexity and quality of the construction, as follows:
At CityCenter, the construction budget has increased as we noted today approximately $400 million, from $7.4 billion to $7.8 billion. It’s always our goal to build the finest and the best, and yes, the projects do tend to increase in cost, may increase in costs, but we want to be sure that that is an iconic structure at a series of structures. The cost increase is largely due to other factors, though--the complexity
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of the hotel casino podium, the fair buildings, and the Libeskind-designed roof structure over the crystals retail area, which required additional steel, concrete and fabrication, along with additional design changes for exterior lighting and water features and site utility costs.
46. Lanni further represented that “[c]onstruction has made substantial progress during the third quarter” with respect to CityCenter and that its Harmon Residences located there were already on sale and would be opened to the public starting “in early 2008.” However, in response to a separate question, he conceded that the $100 million bonus associated with the timely completion of CityCenter was “in flux, but it’s certainly not off the table.” Notwithstanding City Center’s increasing budget, Lanni assured that the Macau resort was not affected by the cost increases and was still “expected to open by the end of this year.”
47. In turn, Defendant D’Arrigo represented that MGM’s trends continued to remain strong, stating that “[w]e also believe [that] our operating trends, nongaming revenues and operating margins will remain strong.” He also highlighted the Company’s ongoing investments, stating, in pertinent part, as follows:
Our continued investments in our Las Vegas resorts are providing excellent returns, and we anticipate the planned additional investments in our properties will lead to further increases in property cash flows. We are currently going through our capital allocation process for 2008 and have many exciting high-return projects on the table.
48. Defendant Murren also indicated that management had “very aggressively” managed
MGM’s balance sheet, and had identified capital investment opportunities, stating, in pertinent part, as follows:
We have been very aggressive acquirers of our stock. For example, in the past, we have managed the balance sheet very aggressively and, I think, prudently from a standpoint of risk, and we’ve been able to plant some significant development seeds over time. So we’re going to go to our board once Terry approves, first, of course, our budgets for ‘08. And we’re going to our board in January. It would be a career-
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threatening move to give you numbers now before we present it to our board. But I would say that our opportunities are better than they’ve been before.
49. The October 30, 2007 statements set forth above, as well as the other positive statements detailed above that Defendants made at or about that time, were materially false and misleading for all of the reasons that the August 2, 2007 statements were. These statements were also materially false and misleading because, inter alia: (i) Defendants had not prudently managed
MGM’s balance sheet from a standpoint of risk, because they unduly exposed the Company to an unreasonable degree of risk in connection with financing the CityCenter project; and (ii) MGM’s financial performance was not a reasonable indicator of future trends in the industry.
50. Then, on December 5, 2007, MGM issued a press release announcing that the Board had approved a share repurchase program pursuant to which the Company would purchase up to 20 million shares of its common stock. MGM also announced that it had “repurchased 5.08 million shares in the current quarter to date, thereby leaving 420,000 shares outstanding under the previous share repurchase program approved in July 2004.”
51. In response to this news, the Company’s stock price rose, after previous declines, over the next two days, increasing 2.74% to $87.86 per share, and 3.48% to $90.92 per share, on
December 5 and 6, 2007, respectively. As intended, the share purchase had the effect of assuring the market that the Company’s financial condition was strong and could endure the increasing volatility in the financial markets and the resultant tightening of the credit markets.
52. Subsequently, on January 9, 2008, MGM issued a press release announcing that it, together with an affiliate of Dubai World, would jointly make a cash tender offer for up to 10 million shares of the Company’s common stock at a price per share of not less than $75.00 and not greater than $80.00. In response, Jefferies & Co. (“Jefferies”) issued a positive research report concerning
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MGM, in which it noted that the share purchases “should limit the downside on this stock.”
[Emphasis in original.] Thus, once again, the market was assured that the Company’s financial condition was strong, and Dubai World’s willingness to engage in the joint tender offer reinforced that impression. After a string of consecutive declines in the Company’s stock price, the price rose
5.44% to $73.79 per share on this news on heavy volume of nearly 4.4 million shares traded.
53. Thereafter, MGM’s stock price again suffered a string of consecutive declines, losing
10.73% in the three-day trading period between January 11 and 15, 2008. However, on January 16,
2008, MGM issued a press release announcing that it and Dubai World’s affiliate would increase their offer to purchase 15 million, as opposed to 10 million, shares of the Company’s common stock.
They also announced that they had set the “tender price,” at which they would pay for the shares, at
$80.00 per share, as opposed to the previously announced range of between $75.00 and $80.00 per share. Yet again, the market reacted positively, and, in response to this announcement, the
Company’s stock price rose 6.17% to $70.57 per share on extremely heavy volume of more than 8 million shares traded.
54. On February 7, 2008, MGM issued a press release announcing its preliminary results for the fourth fiscal quarter of 2007, providing, in pertinent part, as follows:
Excluding the CityCenter gain [then expected to be approximately $1 billion, before income taxes], the Company expects fourth quarter diluted earnings per share (EPS) from continuing operations to be in the range of $0.60 to $0.65, compared to $0.68 in the prior year. Including $2.10 to $2.25 of expected EPS from the CityCenter gain, the Company expects to report EPS in the $2.70 to $2.90 range.
55. In addition, the press release, which noted that Defendant D’Arrigo had “commented on the trends noted in the fourth quarter and into the first quarter,” quoted him, in pertinent part, as follows:
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“We experienced solid volumes in highend gaming play led by a 17% increase in our baccarat volume during the fourth quarter, and achieved our 18th consecutive increase in REVPAR (revenue per available room) at our Las Vegas Strip resorts . . . Overall, composite fourth quarter operating results at our Las Vegas Strip resorts were comparable to the prior year. Our estimated earnings for the month of January 2008 are a few cents per share below those achieved in the month of January 2007, with estimated Las Vegas Strip REVPAR a few percent lower than January 2007.”
56. As the press release further noted, D’Arrigo “also provided an update on the construction budget for CityCenter,” stating, in pertinent part, as follows:
“We are still in the process of finalizing guaranteed maximum price contracts with our general contractor for several elements of the project . . . Based on the current status of these negotiations, we expect the construction costs of CityCenter to be $300 million to $600 million higher than our previous estimate of $7.8 billion.”
57. Although the Company’ stock price rose 3.04% to $71.81 per share that day, it declined 5.40% to $67.93 per share the following day, on volume of nearly 6.1 million shares traded
– approximately 2.6 times the trading volume of the previous trading day. In addition, on February
8, 2008, Wachovia issued an analyst research report concerning MGM, in which it highlighted the
$300 million increase in CityCenter costs and lowered its full-year estimates for 2008 and 2009 to
$2.5 billion and $2.6 billion, respectively, as compared to $2.7 billion and $2.9 billion, previously.
Wachovia indicated that it “remain[ed] somewhat cautious on the outlook for MGM” and noted that the Company “is also continuing to support the stock price with its own repurchases.”
58. On February 15, 2008, MGM issued a press release announcing the preliminary results of its joint tender offer with Dubai World’s affiliate, indicating that a preliminary count had resulted in “an updated estimated proration factor of approximately 13.7% instead of 14.7%.” In response, MGM’s stock price declined 6.01% to $66.14 per share on volume of more than 4 million shares traded.
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59. Then, on February 21, 2008, MGM issued a press release announcing “record” financial results for the fourth quarter and full year of fiscal 2007, which largely confirmed the preliminary results that it had announced on February 7, 2008. The press release provided, in pertinent part, as follows:
LAS VEGAS, Feb. 21 /PRNewswire-FirstCall/ -- MGM MIRAGE (NYSE: MGM) today reported record fourth quarter and full year 2007 financial results. The Company earned $2.85 per diluted share from continuing operations in the fourth quarter, compared to $0.68 in the prior year. The current quarter included a significant gain, $1.03 billion before income taxes, on the contribution of CityCenter to a joint venture on November 15, 2007.
60. The press release also disclosed that pre-opening costs had continued to climb, particularly with respect to the Macau resort, as follows:
In addition, the Company incurred higher preopening expense -- $38 million in the current quarter versus $9 million in 2006. Preopening and start-up expenses in the 2007 quarter included $25 million related to the Company’s share of preopening expenses at MGM Grand Macau, $7 million related to MGM Grand Detroit, and $5 million related to CityCenter.
61. Nevertheless, commenting on the results, Defendant Lanni continued to highlight the
Company’s positioning, prospects and growth initiatives, stating, in pertinent part, as follows:
“Even while closing on the most historic transaction in our Company’s history -- the CityCenter joint venture and strategic relationship with Dubai World -- our dedicated employees delivered exceptional operating results . . . Our Company is ideally positioned to excel domestically and internationally. We have the premier resorts in our markets and a focused management team, and we continue moving forward on substantial growth initiatives.”
62. Defendant Murren also commented favorably on the Company’s results and growth prospects, stating, in pertinent part, as follows:
“In the fourth quarter, our overall business remained solid, and we continue to look for opportunities to maximize both customer volume and operating margins . . . Our strategy of executing profitable targeted capital investments can be seen across our resorts. Luxor now features an array of dining, nightclub and entertainment
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options, all opened within the past few months. Mandalay Bay has an entirely new standard room product. We believe our customers are very discriminating, and appreciate the difference in strategy between our company and our competitors -- a difference which will likely only become more pronounced over time.”
63. Finally, Defendant D’Arrigo likewise made highly positive statements, commenting, in pertinent part, as follows:
“Our Company is financially well positioned to carry out planned growth initiatives, including reinvestment in our existing resorts, while at the same time maintaining a strong balance sheet . . . Our capital allocation strategy remains sound, and will allow us to prudently expand our brands both domestically and in international markets, while maximizing shareholder value.”
64. Following the issuance of the press release, Defendants Lanni, Murren, D’Arrigo and
Baldwin, as well as other MGM representatives, conducted an earnings conference call with analysts and investors during which they reiterated the Company’s financial results and expounded on its prospects.
65. In his opening remarks, Lanni represented that the Company’s “industry-leading operating margins remain very strong excluding, obviously, the items discussed in the [press] release.” He also stated that “[a]s a result of continued revenue growth and stable margins, we earned record profits in each of the four quarters last year.” Lanni further addressed the Company’s growth prospects, stating, in pertinent part, as follows:
We entered into several new joint ventures and strategic partnerships with world class organizations which will truly set this framework for near term and long-term growth. Our future in this year 2008 and well beyond is very bright, and our management team will remain focused on expanding our operations domestically and internationally, and operating our existing resorts to maximize their appeal to our visitors.
66. In concluding his opening remarks, Lanni represented that the Company had access to capital in connection with the development of a second site on the Cotai Strip in Macau, stating that
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“[o]ur joint venture recently amended the bank credit facility to provide for an additional $400 million to fund expansion and provide seed money for our second site on the Cotai Strip.”
67. Likewise, during his opening remarks, Defendant Murren spoke positively of MGM’s prospects, even while acknowledging that challenging economic conditions were adversely impacting the Company:
So on balance, we’re pleased with the fourth quarter results. We are well aware of what’s happening in the economy . . . .
We’re well prepared to handle these challenges. Certainly, more so than any of our competitors here in Las Vegas or in the industry. And we feel like we have some good momentum, particularly as the year progresses as we get into the third and fourth quarter . . . .
68. In turn, Defendant Baldwin represented that the development and construction of
CityCenter remained “on schedule”:
Update on CityCenter, construction continues and remains on schedule with an anticipated opening in late 2009. We currently have 5,600 construction workers on the site. The number of construction workers on the site is expected to peak later this summer and a total of 7,000. The hotel casino tower at CityCenter is expected to top out in September of this year. The concrete structure currently is up to level 36.
Drywall stud framing is ongoing through level 27, structural steel is completed in the west podium and 65% complete in the east podium, and 60% complete in the convention center. Vdara is expected to top out in August. Concrete structure is complete through level 42. Currently, curtain wall installation is complete to level 31. The Mandarin Oriental Tower is expected to top out in September. Concrete’s through level 24 and curtain walls through level 15.
Concrete structure for the Veer Towers is complete through level 6 with one tower, at level 2 with the other while concrete decks have been placed through level 4 at the Harmon Hotel. Structural steel for Crystals retail area is approximately 80% complete. CityCenter residential sales up-date, despite a tightening housing and credit environment that Jim’s been discussing we continue to be satisfied with our residential sales results.
In the fourth quarter, 97 units were sold for a total of $141 million. To date, we have now sold 1,336 units for over $1.67 billion with an average sales price of $1,269 per square foot. We’re also encouraged that we have not yet received any contract
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rescissions as second deposits are now being received. This demonstrates the high quality and financial stability of our customers.
69. Commenting on the Company’s maturing debt and the capital available under its
senior credit facility, Defendant D’Arrigo also spoke positively, stating, in pertinent part, as follows:
In February this year, 2008, we repaid $180 million of senior notes using our credit facilities and have only approximately $200 million in maturities remaining this year, so that gives us a lot of financial flexibility in 2008. After giving effect to the recent tender, we have approximately $2.9 billion of availability under our senior credit facility.
70. He also represented that “[o]ur larger resorts are faring better than people give them
credit” and that “[p]re-opening expenses will be minimal in the quarter.”
71. During the question-and-answer session, Lanni continued to claim that the Company
was relatively immune from market conditions, as a result of its balance sheet and “well he[e]led,
very loyal and supportive partners.” Specifically, he represented that, “given our balance sheet,
which is obviously uniquely strong in our industry right now and our flexibility on capital, we feel very comfortable that we have all the flexibility that we need.” He also represented that “[w]e have a unique position here with our great balance sheet and the fact that we have two extraordinarily well healed [sic], very loyal and supportive partners in the form of Tracinda and Dubai World. It afford [sic] us many opportunities to look at any type of corporate structure in the future.”
72. Although the price of MGM common stock slightly declined in response to this news, it climbed a total of 4.6%, to $67.34 per share, during the three trading days thereafter (i.e., February
22, 25 and 26, 2008).
73. The February 21, 2008 statements set forth above, as well as the other positive statements detailed above that Defendants made at or about that time, were materially false and misleading for all of the reasons that the October 30, 2007 statements were. These statements were
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also materially false and misleading because, inter alia: (i) MGM did not have sufficient “financial
flexibility” to weather deteriorating economic conditions, because the availability of capital under
MGM’s credit facility was contingent on the Company’s financial results, which were vulnerable to
an industry slowdown; (ii) rising costs associated with the CityCenter construction would only
continue to constrain the amount of capital available to MGM in the future; and (iii) the CityCenter’s
development was hampered by widespread construction defects, particularly those affecting The
Harmon, whose scope and significance Defendants concealed from the market and which would
prevent that portion of the CityCenter from opening by the end of 2009.
74. On April 15, 2008, Morgan Stanley issued an analyst research report concerning
MGM, in which it lowered 2008 estimates for the Company and warned that “[i]f debt markets dry
up, MGM will have a difficult time getting cheap capital needed to develop projects and private
investors interested in MGM will be put off by the lower potential returns.” In response, MGM’s
stock price declined 4.32% to $49.58 on volume of 4.2 million shares traded.
75. On May 6, 2008, MGM issued a press release announcing its financial results for the
first fiscal quarter of 2008, which provided, in pertinent part, as follows:
LAS VEGAS, May 6 /PRNewswire-FirstCall/ -- MGM MIRAGE (NYSE: MGM) today reported its first quarter 2008 financial results. The Company earned $0.40 per diluted share from continuing operations in the first quarter, compared to $0.55 in the prior year. The Company experienced low-single digit percentage decreases in both gaming and non-gaming revenues on a quarter-over-quarter basis, while earnings were also negatively impacted by the temporary closure of Monte Carlo and ramp-up costs related to the recent opening of two major resorts.
76. Commenting on the results, Defendant Lanni advised that “[o]ur business should be evaluated in the context of the state of the economy” and took an optimistic tone, stating as follows:
“The gaming industry and our company have seen considerable growth within the last several years, and even with near-term weaker economic conditions our resorts
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are still attracting premium customers and generating tremendous cash flow. We are focused on our fundamental strategies which have consistently produced positive results.”
77. Defendant Murren also took a positive stance on MGM’s performance and prospects, stating, in pertinent part, as follows:
“We must continue to concentrate on our customers and the celebrated experiences we provide at our resorts . . . Additionally, we have always been committed to operating our resorts at maximum efficiency. Over the past several months we have been implementing various new revenue enhancement and cost savings initiatives. We will continue to make substantial long-term investments in our people and resorts.”
78. In the press release, the Company further disclosed that, while each of MGM and
Dubai World had paid $200 million in construction costs for CityCenter during the quarter ($400 million, in total), they were in the process of securing additional funding for CityCenter:
During the quarter, the Company repaid $180 million of its senior notes at maturity, and the Company and Dubai World each funded $200 million of construction costs for CityCenter. The Company and Dubai World are currently in discussions with several financial institutions with regard to bank financing for the project.
79. In an attempt to assuage investor concerns that MGM could not finance CityCenter or that the project would fail for lack of funding, Defendant D’Arrigo once again assured that the
Company had adequate access to capital, stating, in pertinent part, as follows:
“Our company continues to generate strong cash flow and has significant debt capacity under our credit facilities . . . This combination provides ample capital flexibility to meet all of our strategic growth initiatives and maintain our strategic focus during a difficult time in the credit markets.”
80. Following the issuance of the press release, Defendants Lanni, Murren, D’Arrigo and
Baldwin conducted an earnings conference call with analysts and investors during which they reiterated the Company’s financial results and expounded on its prospects.
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81. In his opening remarks, Defendant Lanni acknowledged the onset of the challenging economic environment, but assured the market that MGM had anticipated and was well poised to weather the conditions, stating, in pertinent part, as follows:
The first quarter was obviously challenging. It was clearly impacted by the economy. We did expect this, and certainly had already discussed our experience in January and part of February during our last earnings call. We still reported solid results and cash flows at all of our resorts. We have been continually adjusting to the environment and ensuring that we really maximize the volume of guests in each of our resorts. And we continue to look for areas of revenue growth through marketing and other initiatives, as well as areas for managing expenses as evidenced by our recent reduction in management positions.
It’s relatively difficult for us to forecast trends into the next few quarters but so far in the second quarter we are seeing much of the same as it relates to customer volumes and our job is to manage within the context to maximize profitability in what will surely be a challenge alleging year.
82. In his opening comments, Defendant Murren largely echoed Lanni’s positive remarks, stating, in pertinent part, as follows:
As Terry mentioned, there’s no doubt that we are in a tough economic environment. We continue to react to that. We are focused in on areas where we can drive revenues, and more efficiently improve our cost structure throughout the whole organization. On the revenue side, many of these efforts are already underway. We’ve implemented them several quarters ago, and they are starting to hit their stride right now . . . .
* * *
We as a company continue to be positioned we believe very strongly in this market. We’ve been here before in tough economic times. We have positioned ourselves to be the market leader, to operate more efficiently and effective in a tough environment that we are in. We are making solid profits right now, and when the time comes when the economy does pick up, which it will obviously, eventually, we’ll be in a position to again, as we are right now, outperform our peers in terms of profitability . . . .
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83. In turn, Defendant Baldwin represented that construction on the CityCenter project was proceeding according to plan, and that “[t]otal project costs are expected to be . . . between $8.1 billion and $8.4 billion, excluding pre-opening expense of about $200 million.”
84. Finally, in his opening remarks, Defendant D’Arrigo spoke positively about MGM’s efforts to finance the CityCenter project, stating, in pertinent part, as follows:
As relates to our balance sheet, in February, we repaid $180 million of senior notes using our availability under our credit facility, and had minimal debt maturities over the next 12 months. At quarter end, we have approximately $1.9 billion available under our bank credit facility, with roughly 60% of our debt being figured and 40% of our outstanding debt being floating, as of the end of the quarter. We are currently in the marketplace talking to our lead group of banks with regards to securing financing for CityCenter. We recently held a bank meeting in Dubai with our partners there, and these leading institutions, which was extremely well attended. The feedback has been very positive from this initial group of banks, and we look forward to progressing this financing here in the second quarter. The project is progressing quite well as Bobby pointed out, and given the sponsorship and the progress we are making on the construction front and on the residential sales program, this is coming together quite nicely right now for us and our partners, Dubai World.
Our balance sheet is quite strong, as of the end of March, with ample bank capacity, which affords us the ability to continue to significantly invest in our properties and plant the seeds for growth, while at the same time providing us with the ability to be more opportunistic in how we access capital in these more difficult times . . . .
85. During the question-and-answer session, D’Arrigo confirmed that funding CityCenter cost $100 million a month until MGM could put appropriate financing in place:
LAWRENCE KLATZKIN [Analyst, Jefferies & Co., Inc.]: Last question, Dan, really for you, for you [and] Dubai, funding City-Center until you have a bank loan, it’s about 100 million a month each?
DAN D’ARRIGO: That’s roughly about right. And I think for the full year, CityCenter, for the full 2008, CityCenter was looking at about $2.5 billion of total construction cost for this year. But like I said, we are in the market talking to our lead banks right now, and the initial response has been pretty positive.
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86. Later during the call, Murren added that securing the necessary financing was a foregone conclusion, noting that “[i]t won’t be a matter, in our view, of getting the deal done. It will be a matter of pricing.” He also represented that “[t]he demand is quite high, not only because
MGM is a good credit [risk] but, frankly, a lot of our banks are welcoming the opportunity to develop a relationship with our partner Dubai World.”
87. Separately, Baldwin expounded on the Company’s joint venture prospects and purported ability to outperform its competitors, stating, in pertinent part, as follows:
The key for us is, with the balance sheet that we have and the way we want reinvest our business, how do we build on that growth? We are capital-intensive business, and we think we can out-think our competitors in that area. We have in the past, and our cash flows and our existing casino resorts, we believe, will continue to increase over a period of many years.
88. In response to this news, and as Defendants continued to conceal the true condition facing MGM and its prospects, the price of MGM common stock increased 6.64% to 51.85 per share on unusually heavy volume of more than 6.6 shares traded.
89. The May 6, 2008 statements set forth above, as well as the other positive statements detailed above that Defendants made at or about that time, were materially false and misleading for all of the reasons that the February 21, 2008 statements were. Moreover, because of the Company’s exposure to the credit market markets and the rising costs associated with the CityCenter project,
MGM was not a good credit risk.
90. Then, on May 14, 2008, MGM issued a press release announcing that the Board had approved another share repurchase program pursuant to which the Company would purchase up to an additional 20 million shares of its common stock. MGM also announced that it had “repurchased
1.27 million shares in the current quarter to date, thereby leaving 1.36 million shares outstanding
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under the previous share repurchase program approved in December 2007.” In response to this announcement, which again assured the market that the Company’s finances were in order, the price of MGM common stock increased 2% to $51.46 per share on that date, and further increased 3.32% to $53.17 per share on the following day, on volume of more than 2.5 million shares traded each day.
91. Thereafter, the Company’s stock price steadily declined, as concern mounted about
MGM’s ability to finance CityCenter, as well as the Company’s actual financial condition.
However, on July 3, 2008, analyst Deutsche Bank issued a highly positive research report on MGM based on meetings that it had hosted in New York with Defendant Murren. In the report, entitled
“Thoughts from mgmt meetings; maintain Buy rating,” Deutsche Bank maintained a price target of
$74.00 per share (the stock then traded at half of that) and indicated that Murren’s reassurances made it “come away feeling more encouraged about current volumes, pricing and visibility in Las Vegas, and City Center financing which is overhang for the MGM shares.” Moreover, based on those meetings and Defendants’ previous comments, Deutsche Bank expressed its belief that MGM would easily secure the necessary CityCenter financing:
Pending Catalyst: Concern about City Center financing is overhang in the MGM shares as the market is generically concerned about sizeable demand for credit being met by a struggling financial sector. MGM is looking to raise more than $3B to finalize City Center, which is an $8.8B project at the high end of the aggregate GMPs. The company has $1.9B in availability via its credit facility which is currently at an attractive LIBOR +0.625%. MGM appears to have a plethora of debt- related options for this balance, including some use of the facility. We suspect numerous bank debt structures may be presenting MGM with more favorable rate options than equity investors anticipate and management expects to finalize the financing by the end of July. This seems due to the attractive credit for the JV (should have more equity than debt in City Center once complete), and our sense that both Dubai World and MGM Mirage represent the ‘gifts that keep on giving’ on the financing front for interested banks. It should be noted that MGM is not close to covenant caps, currently leveraged at a favorable 5.5x, peaking at 6.5x immediately before City Center opens (Q409)-better if cash flow inflects positively, then moderating along with cash flow generation at the property.
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92. Notably, in the report’s “valuation and risks” section, Deutsche Bank did not list as a risk the possibility that MGM would be unable to secure financing.
93. In response to this report, and after a week of previous declines, the Company’s common stock price rose 7.55% to $30.76 per share, and 2.18% to $31.43 per share, on July 7 and 8,
2008, respectively.
94. The music stopped on July 10, 2008, however, when the Nevada Gaming Control
Board revealed that Las Vegas strip casino revenue fell 16% in May 2008, the fifth straight monthly decline. Notwithstanding Defendants’ largely positive remarks (or perhaps because of them), which remained alive in the market, the price of MGM common stock plummeted 21.77% to $23.14 per share on extraordinarily high volume of nearly 14.8 million shares traded.
95. Despite this enormous stock drop, Jefferies issued a positive research report on MGM on July 14, 2008, based in part on a July 11, 2008 meeting that it had hosted with MGM management. In the report, entitled Reassurance From Mgt During Tough Market-Thoughts From
Our Meeting,” Jefferies maintained its “buy” rating and reiterated its $102 per share price target.
According to Jefferies, “[management] was transparent on their [sic] outlook for the short and long- term, and we believe MGM’s future remains bright.” In the report, Jefferies disclosed that management “believes investors will be ‘pleasantly surprised’ at the performance of many of its properties,” and further revealed the following regarding CityCenter:
City Center - Mgt. Expects Over a 10% ROI at Minimum: MGM signed its final fixed price contract keeping the project at $9.2bb. However, mgt. believes it has hundreds of millions of potential cost savings it can realize. MGM is close to closing on a $3bb non-recourse City Center loan at LIBOR +/- 4% with the largest outstanding issue with the banks being the distribution of the condo sale proceeds (MGM wants both its and Dubai’s recent loans to be repaid before the banks). Condo sales remain strong despite two recent price increases as new sales are being
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generated at the recently opened Dubai sales office. City Center will employ 12,000+ after opening with a multiplier effect on area employment.
96. On August 5, 2008, MGM issued a press release announcing its financial results for the second fiscal quarter of 2008, in which it disclosed that “[t]he Company earned $0.40 per diluted share from continuing operations in the 2008 second quarter, compared to $0.62 in the prior year second quarter.” The press release also disclosed that MGM was had incurred another $300 million in construction costs associated with the CityCenter project, and that it was still in the process of obtaining financing to fund the rest of construction, providing, in pertinent part, as follows:
During the quarter, the Company and Dubai World each funded $300 million of construction costs for CityCenter. The Company and Dubai World are currently working with several relationship lenders regarding a $3 billion financing package for the joint venture. To date, CityCenter has received commitments totaling $1.65 billion from the lead banks -- Bank of America, Royal Bank of Scotland, UBS, BNP Paribas, and Sumitomo Mitsui. In addition, CityCenter has received commitments from Deutsche Bank, Morgan Stanley, and the Bank of Nova Scotia.
97. Commenting on the results, Defendant Lanni claimed that the financial results were representative of the Company’s ability to “successfully navigate” the challenging economic environment, stating, in pertinent part, as follows:
“Our resorts were near capacity and we believe our market share increased, as discriminating customers seek the best resort and entertainment experiences . . . Our track record of successfully navigating through changing economic conditions is solid and is reinforced by our results this quarter.”
98. Defendant Murren once again echoed Lanni’s sentiment, adding that Defendants expected improvements as soon as the fourth quarter of 2008:
“Our resorts are clearly positioned to be the standard of quality in our industry, and our results reflect that competitive position . . . While we had mixed results, some of our properties generated increases in cash flow in this challenging environment, and our cost reduction efforts continue to gain traction without impacting guest service; we expect these initiatives will benefit us well into the future. We believe in the durability of the Las Vegas market and that over time it will
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continue to grow in line with historical trends. Our own forward booking trends show improvement in the fourth quarter of 2008 and into 2009.”
99. In turn, Defendant D’Arrigo claimed that MGM had secured half of the funding necessary to finance the CityCenter project, stating that “[i]n an unprecedented credit market,
CityCenter has received to date well over half of the financing committed from these institutions and anticipates finalizing its bank financing this quarter . . . .”
100. Following the issuance of the press release, Defendants Lanni, Murren, D’Arrigo,
Baldwin and another MGM representative conducted an earnings conference call with analysts and investors during which they reiterated the Company’s financial results and expounded on its prospects. During the call, Defendants maintained the positions they had staked out in previous calls and public disclosures: that MGM was faring well despite the downturn in the economy, business was trending positively, and the CityCenter project was proceeding according to schedule.
101. In his opening remarks, Defendant Lanni once again represented that the Company could weather the challenging economic climate, stating that “[w]e are very pleased actually with our second quarter results, and though the economy certainly remains challenging, we believe we’re very successful at generating revenues very near prior-year levels.”
102. In turn, Defendant Murren indicated during his introductory remarks that “we see improvement in the fourth quarter and in most revenue items and certainly in a profit picture as well.”
103. In addition, referencing his previous comments, Defendant Baldwin once again represented that CityCenter was on track, as follows:
I said on the last call that everything is on schedule. If you’ve been by CityCenter lately, you can see that most of the buildings are approaching full height. In fact, all of the buildings will be full height by the end of February of next year.
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104. And, yet again, Defendant D’Arrigo claimed during his extensive comments that the
Company had adequate access to capital under its credit facility and could otherwise secure financing for its share of the CityCenter project, whose construction and pre-opening costs he now estimated at approximately $9.1 billion, as follows:
Regarding our long-term debt, we borrowed net debt of just over $200 million in the quarter. At quarter end, we had approximately $1.7 billion available under our bank credit facility. And here in early August, we had some senior notes that matured, so after giving effect to roughly that $200 million of senior notes, our credit facility availability is approximately $1.5 billion in early August. In the quarter, we repurchased 2.6 million shares at a cost of $134 million. That completed our 2007 authorization and in May of 2008, our Board had authorized another 20 million share repurchase program which we have not utilized to date.
On the CityCenter update, on the CityCenter financing, we have -- once the financing is in place, we’ll have spent approximately $4.2 billion of the estimated $9.1 billion of gross cash construction and preopening costs and, therefore, that will leave just under $5 billion left to spend to complete the construction of the project.
As we said in the release, the joint venture is seeking a $3 billion financing package which we’re working on with our lending group right now. We believe that bank portion will be completed this quarter and as highlighted, in this very difficult credit environment, but we have already received firm commitments of over $1.65 billion of this package. We continue to work with several domestic and international relationship banks to complete this financing.
Based on these expectations, the partners will be committed to funding the difference, which will be just under $2 billion after financing is in place, split evenly between MGM and Dubai World. We anticipate that the timing of these remaining funds would be approximately half throughout the remainder of ‘08 and into early ‘09 and the remainder towards the end of construction as needed. I’d highlight that these numbers are before the application of any condo proceeds or any future debt financing that may be done at the joint venture level.
From an MGM Mirage perspective, we have ample capacity to fund our share of these costs through our available credit lines and available free cash flow from our operations and as most of you know, our credit facility can actually be expanded from $7 billion to $8 billion with additional commitments from lenders as well. So we’re well in good shape there to fund these costs.
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105. As reflected in the following exchange which occurred during the question-and- answer session, D’Arrigo expounded on his comments and represented that condo sales associated with the CityCenter project could offset funding costs associated with its construction, and that the impending 2011 maturity of MGM’s credit facility could be handled with bond issuances:
LAWRENCE KLATZKIN [Analyst, Jefferies & Co., Inc.]: . . . You’re saying you need $2 billion for the -- for CityCenter, you have $1.7 billion of condo sales. Is there a chance some of those condo sales will be applied toward some of the final needs and you actually won’t need to put in your share of the on poll -- on balance $1 billion, that you’ll be able to take out some of the money from the condo sales?
DAN D’ARRIGO: That’s correct. As I pointed out, some of the requirement is due at the end of -- and near completion of construction and we start actually -- we’re about -- I think about a year away from Vdara being completed, so we will start receiving condo proceeds in August of ‘09. So that is before the application of any condo proceeds, which we’re expecting, obviously, based on our track record thus far.
LAWRENCE KLATZKIN: And will the banks let you apply the condo proceeds to -- toward the $2 billion needed?
DAN D’ARRIGO: Yes.
LAWRENCE KLATZKIN: Okay. So if you end up selling $2 billion of condos, the odds are you won’t have to come up with the bulk of that money?
DAN D’ARRIGO: That’s correct.
LAWRENCE KLATZKIN: Okay. You have a big bank maturity next year. Anything going on with the banks on that?
DAN D’ARRIGO: We had -- our bank credit facility doesn’t mature until 2011. I think you might be referring to -- we have a couple of bond issuances that come due in July -- kind of around July and October of next year that I think –
LAWRENCE KLATZKIN: Right. I saw that, the bond.
DAN D’ARRIGO: -- that total about $1.3 billion in total next year, so we’ll be -- after CityCenter, we’ll be working on extending those maturities and being proactive on that front.
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106. In a subsequent exchange, Murren validated D’Arrigo’s statements and reiterated that
MGM would have the financing in place for CityCenter that quarter, downplaying the immense
public interest in the Company’s ability to secure financing:
LAWRENCE KLATZKIN: So basically if I have this right, if your condo sales are over $2 billion, and you really -- you really don’t need to raise any additional money for CityCenter and you’ll end up with more than $1 billion of increased free cash over the next 18 months?
JIM MURREN: I think you’re on the right track, Larry. I mean it –
LAWRENCE KLATZKIN: All right. Thanks, guys.
JIM MURREN: It’s been a remarkable commentary around CityCenter financing. We’ve done dozens of bank financings over the past decade and there’s an incredible amount of interest in this particular one, and it’s taken a little bit longer than we would have liked because we’ve been having healthy discussions on rate and also on structure. But we’re over halfway there, we’re going to get it done this quarter, we wanted it done last quarter, but we’re going to get it done this quarter and in the meantime we’re funding CityCenter with our partners and we have a tremendous amount of optionality with this in terms of other joint venture financings and other bank financings. We think it’s been completely overdone in terms of the interest on this, but nonetheless, it’s, topical.
107. Murren also later confirmed that the $1.65 billion in funding was the product of a firm commitment by “the top five banks and we have more committed than that, nicely more than that,” claiming “that’s why we believe we’re going to close this deal in this quarter because we’re in the home stretch.”
108. In turn, Lanni represented that the turbulence in the credit markets was an advantage, claiming that “it allows us to get much more detailed into the drawings and when we do eventually begin construction on these properties, we’ll be in much better understanding of what the actual cost will be and a chance of having overruns and what have you, obviously, would be mitigated.”
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Murren also cast the condition of the credit markets in a positive light, representing that it would
prevent competitors from developing properties in Las Vegas, to MGM’s benefit:
[W]e’ve pushed off joint ventures, we’ve canceled some, many projects that had been announced will just never be built and the reality is if you’re not here right now, if you’re not fully financed or have the balance sheets to do projects, you’re just not going to do anything over the next several years. And that, we think, is a profound positive for our competitors that are here today and ourselves.
109. In response to this news, the price of MGM common stock increased 15.65% to
$35.85 per share on that date, on volume of more than 8.8 million shares traded. On August 11,
2008, the Company filed its Form 10-Q for the second quarter of 2008, which largely repeated the
results announced on August 5, 2008. In response to this filing, MGM’s stock price further
increased 9.21%, to $36.52 per share, on volume of nearly 7.1 shares traded.
110. The August 5, 2008 statements set forth above, as well as the other positive
statements detailed above that Defendants made at or about that time, were materially false and
misleading for all of the reasons that the May 6, 2008 statements were. These statements were also
materially false and misleading because, inter alia: (i) MGM did not have abundant opportunities
available to secure the rest of the financing needed to fund CityCenter; (ii) MGM’s transaction
partners were not immune from the effects of the credit markets, and the Company could not rely
upon them to ensure that its various transactions would receive sufficient funding; and (iii) the
CityCenter’s development was hampered by widespread construction defects, particularly those
affecting The Harmon, whose scope and significance Defendants concealed from the market even as
they increased in magnitude. In fact, as later media reports revealed, MGM had received multiple
Notices of Violation from Clark County which prohibited ongoing construction work at The Harmon
and other CityCenter sites, both before and after Defendants made these optimistic statements –
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including one such notice on August 5, 2008, the same day that Defendants made these statements.
Moreover, these construction defects, which Defendants concealed from the market, required the
Company to abandon its plans to open The Harmon, which meant that it could not pay down its credit facility with the proceeds from the condominium sales as Defendants had represented they would do.
111. On October 6, 2008, MGM issued a press release announcing that CityCenter had
“successfully completed the first phase of its $3.0 billion financing package by securing a $1.8 billion senior bank credit facility.” According to the press release, the facility would mature in April
2013 and would “be increased to a total amount of $3.0 billion as additional commitments are received.” Defendant D’Arrigo spoke positively about this development, as well as MGM’s financial condition:
“Even in the current difficult lending environment, strong well-conceived projects attract financing - CityCenter is such a project. We appreciate the strong support CityCenter has received from these participating financial institutions . . . We and our partner are actively in discussions with additional financial institutions to obtain the additional funding of the credit facility and are receiving strong interest in the syndication process set to launch this week.”
“MGM’s strong balance sheet and long track record of superior financial performance combined with the substantial financial resources of our partner uniquely position CityCenter in an obviously difficult credit market.”
112. The same day, MGM issued a separate press release announcing an amendment to its senior bank credit facility, which “increases the maximum total leverage ratio, modifies drawn and undrawn pricing levels as well as revises certain definitions and limitations on secured indebtedness.” Commenting on the amendment, D’Arrigo reiterated his previous remarks about the
Company’s financial condition:
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“We are pleased by the overwhelming support our financial partners have shown in our Company . . . MGM enjoys one of the strongest balance sheets in our industry and although we have remained comfortably within all of our financial requirements, we believe it is a prudent course of action to maintain greater financial flexibility in these uncertain credit markets.”
113. In response to this news, which revealed that the Company had secured additional substantial debt associated with the CityCenter project, the price of MGM common stock declined
9.52% to $19.00 per share on volume of more than 10 million shares traded.
114. On October 29, 2008, MGM issued a press release announcing its financial results for the third fiscal quarter of 2008, noting that the Company “earned $0.22 per diluted share from continuing operations for the 2008 third quarter compared to $0.62 in the prior year third quarter.”
In addition, the Company’s net revenue decreased 6% to $1.8 billion, property EBITDA was $502 million in the quarter compared to $705 million in 2007, and Consolidated EBITDA was $442 million compared to $635 million in 2007.
115. Commenting on the results, Defendant Lanni represented that “[o]ur performance was impacted by the global economic environment, a trend that is not unique to our industry, but we continue to generate strong cash flows.” Defendant Murren made similar remarks, noting that
“[w]hile our margins have held up well in a difficult environment, we continue to make permanent improvements to our cost structure which will benefit us now and into the future . . . .”
116. However, in a “projects update,” Defendants were forced to disclose in the press release that MGM had shelved its development of the MGM Grand Atlantic City, after having made
“extensive progress on design and other pre-development activities[,]” because “[c]urrent economic conditions and the impact of the credit market environment have caused the Company to reassess timing for the project.” Commenting on this development, Lanni also indicated that MGM’s joint
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venture with Kerzner would postpone its development of a major resort complex on the Las Vegas
Strip, stating, in pertinent part, as follows:
“We continue to believe that Atlantic City represents an important market for further development . . . We intend to resume development at such time as economic conditions and capital markets are sufficiently improved to enable us to go forward on a reasonable basis. Likewise, with respect to our joint venture with Kerzner International and Istithmar announced in September 2007 for the development of a major resort complex on the southwest corner of the Las Vegas Strip and Sahara Avenue in Las Vegas, we have agreed with our joint venture partners that we should defer additional design and pre-construction activities and have amended our joint venture agreement accordingly. These actions reflect the Company’s commitment to maximize our financial resources in this environment.”
117. Even in light of this adverse news, Defendant D’Arrigo spoke positively about the
Company’s financial condition and prospects, claiming that “[s]ecuring $1.8 billion of financing at
CityCenter and amending our $7.0 billion senior credit facility provide the Company with significant
additional financial flexibility,” and representing that “[w]e intend to further access the capital markets, and aggressively manage our liquidity and financial position.”
118. Nevertheless, Defendants closed the press release by disclosing that it was
“reasonably possible” MGM would record a non-cash impairment charge to goodwill and indefinite- lived intangible assets during the fourth quarter of 2008 as a result of the substantial decline in the
Company’s market capitalization.
119. Following the issuance of the press release, Defendants Lanni, Murren, D’Arrigo and
Baldwin conducted an earnings conference call with analysts and investors during which they reiterated the Company’s financial results and expounded on its prospects.
120. During his comments, Baldwin represented that “[a]ll the buildings at CityCenter are on schedule to be opened late next year in 2009” and that construction underwent “great strides
during the third quarter . . . .” Specifically, he noted that construction at The Harmon was on track,
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stating that “structural concrete decks ha[d] been placed through level 22[, e]xterior curtain wall installations were up to 14[, and p]odium structural steel has been erected, and has been completed, and metal deck and concrete installations are ongoing.”
121. D’Arrigo represented that MGM had taken steps to shore up its liquidity positions, stating, in pertinent part, as follows:
By amending our credit facility, securing a portion of our CityCenter financing, and managing our property capital, we believe our actions have solidified our near-term liquidity and we intend to further access the capital markets to manage our long- term financial position.
122. During the question-and-answer session, Murren reassured analysts and investors that
Defendants were confident about their ability to access the capital markets and withstand the challenging economic environment:
CELESTE BROWN [Analyst, Morgan Stanley]: In terms of the announcement you guys made this morning, if you can raise the capital -- or I guess the red, it’s not quite an announcement -- if you can raise the capital that you’re attempting to raise, do you feel that you’re safe through the end of 2009, even in a worst-case, the way you look at things today?
JIM MURREN: As you know, Dan said it. We can’t comment under SEC rules about anything that I think you’re referring to. But we have access, and always have, to capital markets of every type. And we are very confident that we have the ability to manage this business and manage our balance sheet through the economic storm that we’re in.
123. In fact, after commenting that “we are more comfortable that we can add to th[e credit] facility than we were even a month, month and a half ago,” Murren added that the Company had so many financing options available to it that it simply could not fail, stating, in pertinent part, as follows:
In addition, I think people have lost sight of the fact that this Company at the parent level has many options to raise capital, which gets to the third issue that you mentioned, the liquidity issue. This company will not allow itself to be in any type of
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financial jeopardy because we have too many options available to us in too many areas and we have too strong of a series of relationships with financial partners, whether they be banks, bond equity partners, and JV partners. And we feel like we have the tools available to us to improve our liquidity in this very difficult time.
124. In response to these developments, MGM’s stock price increased 33.11% to $13.75 per share on October 29, 2008, on extraordinarily high volume of nearly 21.2 million shares traded; increased 11.78% to $15.37 per share on October 30, 2008, on nearly 9 million shares traded; and increased 7.09% to $16.46 per share on October 31, 2008 on more than 8.7 shares traded.
125. The October 29, 2008 statements set forth above, as well as the other positive statements detailed above that Defendants made at or about that time, were materially false and misleading for all of the reasons that the August 5, 2008 statements were. Moreover, once again,
Defendants failed to disclose the pervasive construction problems afflicting the CityCenter project, including those with respect to The Harmon.
126. On December 15, 2008, MGM issued a press release announcing that it had agreed to sell Treasure Island Hotel & Casino for $775 million, consisting of $500 million in cash and $275 million in secured notes bearing 10% interest. Commenting on the sale, Defendant Murren stated, in pertinent part, that “[t]his transaction creates value to our stakeholders through significantly increased liquidity and enhanced financial flexibility.” In response, several analysts opined that the proceeds from the sale would ease MGM’s liquidity issues. The transaction eventually closed on
March 20, 2009, and, presumably because of MGM’s dire financial condition, the Company received
$600 million in cash and a $175 million secured note bearing 10% interest.
127. Then, on January 7, 2009, MGM issued a press release announcing significant changes to the scope of CityCenter. These changes, which were related to The Harmon Hotel &
Spa, “include[d] postponing the opening of the hotel to late 2010 and cancelling The Harmon
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residential condominium component.” As the press release indicated, The Harmon would have had
200 residential units, of which 88 were under contract to be sold; in connection with the cancellation, purchasers would receive refunds or the choice of purchasing units at other MGM properties.
Commenting on the scope changes, Baldwin blamed “contractor construction errors” but noted that cancelling The Harmon would “avoid the need for substantial redesign . . . .” MGM also announced that these scope changes would translate to hundreds of millions of dollars in cost savings, as follows:
With the cancellation of The Harmon residential component as well as other additional cost savings the company now anticipates total cost savings of approximately $600 million up from its previously stated $400 million. In addition, by postponing The Harmon Hotel by one year CityCenter will defer approximately $200 million in construction costs to complete the interior fit out of The Harmon.
128. While some analysts viewed these scope changes as a positive development because of these cost savings, liquidity concerns became paramount. For example, in a January 7, 2009 research report, Deutsche Bank noted that “increased leverage against continued financing needs point to the need of MGM management to raise equity or equity like capital, raise capital via a senior secured notes offering or sell another asset.” [Emphasis in original.]
129. In response to this adverse news, the price of MGM common stock declined 9.02% to
$14.52 per share on nearly 3.6 million shares traded. Moreover, the disclosure of this negative development sparked the disclosure of other adverse news – and a corresponding string of significant stock price declines for six of the next eight trading days, on heavy trading volume: 1.52%, 6.36% and 7.39% on each trading day between January 8 and 12, 2009; 17.67% and 5.98% on January 14 and 15, 2009; and 9.77% on January 20, 2009, leaving the stock at just $8.96 per share.
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130. For example, in a January 8, 2009 article entitled “How did CityCenter tower flaws persist?,” the Las Vegas Sun reported additional details regarding the construction defects which suggested that MGM knew or should have known about CityCenter problems as early as July 2008.
The article provided, in pertinent part, as follows:
Clark County is investigating the consultants hired by CityCenter owner MGM Mirage to inspect the structural integrity of construction work at the site, after faulty rebar caused massive problems in the project’s Harmon tower.
Ron Lynn, the county’s director of development services, said Wednesday that engineering consulting firm Converse Consultants repeatedly filed rebar inspection reports indicating there were no problems with The Harmon.
However, an employee of the engineer of record for the tower, Halcrow Yolles, walking the site in July, discovered rebar deficiencies. By that point, much of the reinforcing iron had been buried in concrete.
Those concerns prompted a more detailed county inspection that halted construction on the project and led to the decision Wednesday by MGM Mirage to top off the building – originally planned as a 49-story tower – at 28 floors.
131. The article also reported that Clark County inspectors issued a Notice of Violation on
August 5, 2008, providing that “‘it had been found in the field that the link beams reinforcing has severely deficient items, such as reinforcing torch cut, misaligned and missing cap ties’ on floors 5 through 20.” In addition, the Notice of Violation ordered the site shut down. In a separate article that reported on these issues, Murren was quoted as saying that “[t]hese projects are extremely well- documented,” further suggesting that MGM knew or should have known about the construction defects earlier than the January 7, 2009 disclosure.
132. As the news media later reported, MGM had received several Notices of Violation from Clark County beginning in July 2008, as follows: (i) July 15, 2008 Correction Notice, No.
31283, identifying various structural deficiencies; (ii) July 18, 2008 Notice of Violation, N.O.V. No.
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24844, ordering the contractor to “stop structural construction above the level already attained” and
noting that “construction may resume upon approval by Clark County Development Services
[Department]”; (iii) August 5, 2008 Notice of Violation, N.O.V. No. 24831, as described above; (iv)
September 8, 2008 Notice of Violation, N.O.V. No. 24874, reporting on additional violations
identified through “field observations and destructive testing”; (v) an additional Notice of Violation
on September 8, 2008, N.O.V. No. 24876, identifying similar deficiencies; and (vi) September 17,
2008 Notice of Violation, N.O.V. No. 22322, providing that “[n]umerous deficiencies have been
found in reinforcing of link beams from floor 6 thru [sic] 20” and that “[n]o new construction shall
continue from the bottom of 23rd level deck and up.” Moreover, violations at CityCenter persisted even after Clark County issued these notices, and, on February 9, 2009, an inspector issued a
Correction Notice indicating that a contractor was “working without Clark County approved plans,”
reportedly referencing all building permits at the site.
133. In addition, in a letter dated October 27, 2008, Frank Martinovic, a professional
engineer employed by the project’s engineering firm Halcrow Yolles, advised an MGM architect,
Bill Bradley of AAI Architects, that “[t]he current status of link beam repair is such that it does not
appear the contractor can execute the repair as detailed in a timely manner. Given this fact I see no
recourse but to abandon the repair as currently being executed once level 15 is done.”
Nevertheless, MGM did not announce its CityCenter scope changes to The Harmon until January 7,
2009 – nearly six months after the Company’s receipt of the first Correction Notice on July 15, 2008.
134. In a January 9, 2009 Form 8-K, MGM disclosed that it had completed its 2008 annual
impairment tests of goodwill and indefinite-lived intangible assets on January 7, 2009. As a result of
these tests, the Company indicated that it would “recognize a non-cash impairment charge of
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approximately $1.2 billion related to goodwill and certain indefinite-lived intangible assets in the
fourth quarter of 2008.” According to the Company, the impairment charge related solely to the
goodwill and assets associated with the 2005 acquisition of Mandalay Resort Group, and represented
substantially all of the goodwill recognized at the time of the acquisition. MGM further disclosed
that “[t]he impairment charge resulted from factors impacted by current market conditions,
including, inter alia, “higher discount rates resulting from turmoil in the credit and equity markets”
and “current cash flow forecasts for the affected resorts.” As noted above, the Company’s stock
price declined 6.36% in response to this news.
135. Then, on January 15, 2009, the Las Vegas Sun published another article concerning the CityCenter construction, adding that the engineer of record on the project had discovered in July
2008 that contractors had wrongly installed structural rebar on floors 6 through 15 of The Harmon.
136. On February 3, 2009, Moody’s Investors Service (“Moody’s”) downgraded MGM to
B1 from Ba3 and indicated that the Company’s ratings remained on review for further downgrades.
Moody’s indicated that the downgrade “reflect[s] the probability that earnings in 2009 will fall more
than previously expected . . . . and indicated that the Company “has been unable to raise the targeted
$3.0 billion in capital for its CityCenter development, and so its cash needs have increased . . . .”
Moody’s further disclosed that MGM’s debt/EBITDA level was “inconsistent with its prior rating”
and observed that “MGM’s liquidity remains weak.” In fact, Moody’s expressed its belief “that
availability under the company’s $4.5 billion revolving credit facility could drop below $300 million
by year-end and would be insufficient to cover maturing bond debt of $1.1 billion in 2010.” As
Moody’s noted, MGM’s “ratings remain[ed] on review for further possible downgrade[,]” indicating
that “[t]he review will focus on MGM’s plans to shore-up its liquidity position and its ability to
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maintain a credit profile and financial flexibility appropriate for a B1 rating . . . .” Also on that date,
Oppenheimer issued an analyst research report concerning MGM, in which it identified as a primary
issue “funding for CityCenter's completion” and noted that “we remain focused on liquidity,
CityCenter funding and looming maturities.”
137. In response to this news, the price of MGM’s stock declined 14.51% to $6.95 per
share on extremely heavy volume of more than 7.7 million shares traded.
138. In a February 27, 2009 Form 8-K, MGM disclosed that it had “submitted a request to
borrow $842 million under its $4.5 billion senior revolving credit facility, which amount
represented, after giving effect to $93 million in outstanding letters of credit, the total amount of
unused borrowing capacity available under its $7.0 billion senior credit facility.” In the filing, the
Company indicated that the request “was made in light of the continuing instability in the capital
markets and uncertain state of the global economy.” In view of this development, the three major
ratings agencies – Moody’s, S&P and Fitch – each downgraded MGM and adopted a highly cautious
outlook with respect to MGM’s ability to obtain access to capital or meet its future liquidity needs.
As detailed below, the disclosure of these negative developments sparked a massive decline in
MGM’s stock price, which continued as further adverse news, also detailed herein, emerged.
139. On March 3, 2009, MGM filed a Form 12b-25 with the SEC, indicating that it had
delayed filing its Annual Report on Form 10-K due to severe liquidity problems and an evaluation of its financial condition and liquidity needs, all of which contributed to the inability to finalize its financial statements. The Company also disclosed that it could default under its senior credit facility as a result of its potential noncompliance with the financial covenants thereunder, and that it would seek a waiver or amendment of such provisions. As the Company noted, however, “[i]f the
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Registrant is unable to negotiate such a waiver or amendment, a majority of the lenders under the
senior credit facility could accelerate repayment of borrowings under the senior credit facility and,
under certain circumstances, cross defaults could be triggered under the Registrant’s other debt
instruments.” MGM further disclosed that its financial statements for the year ended 2008 could
contain a “going concern” qualification as a result of doubt concerning its ability to continue as a
viable entity.
140. The significance of the March 3, 2009 SEC filing was immediately recognized by the
media. In a March 3, 2009 article entitled “MGM Mirage’s cash crunch; With credit line tapped out,
bonds and loans coming due, Chapter 11 seen as risk,” the Las Vegas Sun reported that analysts
believed that the Company was at risk for filing for bankruptcy protection, while the ratings agencies believed that the Company was “likely to default on its bank loan this year because [its] debts are too high, relative to earnings.” The article also reported that MGM “may have few options if it is unable to secure $1.2 billion in financing needed to complete the [CityCenter] project and 50 percent owner
Dubai World . . . is unwilling or unable to put in more equity.”
141. Likewise, in a March 4, 2009 article entitled “SEC FILING: MGM Mirage in talks with lenders; Company says it will be in default if it can’t alter payment structure,” the Las Vegas
Review-Journal reported that MGM “could be facing a bankruptcy filing if it can’t renegotiate better repayment terms with its lenders covering some $7 billion in loans.” The article also reported that a default under the senior secured credit facility “could filter down and put all of MGM Mirage’s debt, which totals roughly $13.5 billion, into default.” The article further reported that “Wall Street has begun speculating that MGM Mirage might have to file for Chapter 11 bankruptcy protection to force a restructuring of its bank loans and corporate debt.”
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142. In response to these disclosures concerning MGM’s precarious financial condition,
the Company’s stock price plummeted for five consecutive trading days, beginning on February 27,
2009 and continuing through March 5, 2009, as the following chart demonstrates:
Date Price Volume Change 2/27/09 $3.50 8,098,087 -21.35% 3/2/09 $3.05 9,183,185 -12.86% 3/3/09 $2.62 9,734,884 -14.10% 3/4/09 $2.21 9,916,307 -15.65% 3/5/09 $1.89 7,418,728 -14.48%
143. In addition, an affiliate of Dubai World – MGM’s transaction partner and a
significant shareholder of the Company – commenced an action in the Delaware Court of Chancery on March 22, 2009, entitled Infinity World Development Corp. v. MGM Mirage, et al., Civil Action
No. 4438, alleging that MGM had breached the terms of their joint venture agreement. Just several days earlier, during MGM’s March 17, 2009 earnings conference call for the fourth fiscal quarter of
2008, Defendant Murren had described the Company’s relationship with Dubai World as
“outstanding” and noted that it “has been since August ‘07 when we consummated the joint venture.” The complaint filed in the Delaware action (the “Delaware Complaint”), however, painted a far different picture.
144. In essence, the Delaware Complaint alleged that MGM’s admissions of the dire nature of its financial condition, as detailed in its March 17, 2009 Form 10-K for the year ended
December 31, 2008, constituted an “Event of Default” under the joint venture agreement. In fact, as
the Delaware Complaint alleges, MGM disclosed in the Form 10-K that “substantial doubt” existed
as to its ability to continue as a going concern, as follows:
“There is substantial doubt about our ability to continue as a going concern. (emphasis in original) The uncertainties described above regarding 1) our ability to meet our financial commitments, and 2) our potential noncompliance with financial
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covenants under our senior credit facility, raise a substantial doubt about our ability to continue as a going concern. . . . As a result, the report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2008 contains an explanatory paragraph with respect to our ability to continue as a going concern.”
145. The Delaware Complaint also quoted a statement from the Form 10-K in which
Deloitte & Touche, LLP, MGM’s independent auditor, confirmed its substantial doubt about the
Company’s ability to continue as a going concern, as follows:
“We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2008. Our report dated March 17, 2009 expressed an unqualified opinion on those financial statements and financial statement schedule and included . . . an explanatory paragraph expressing substantial doubt about the Company’s ability to continue as a going concern.”
146. Moreover, the Delaware Complaint alleged that MGM made “misrepresentations and
[exhibited] a lack of candor regarding its financial well-being” and misrepresented the accuracy of
CityCenter’s construction budget. The Delaware Complaint further alleged that MGM grossly underestimated “costs, available financing, and project size[,]” as well as its “estimates of revenue and EBITDA.”
147. For example, according to the Delaware Complaint, “MGM provided an estimate of
$7.488 billion to complete CityCenter” in August 2007, which it later increased to $8.8 billion. It also “anticipated a financing package for CityCenter of $5 billion, subsequently revised it to $3 billion, and then ultimately raised only $1.8 billion.” The Delaware Complaint further alleged:
Despite repeated concerns expressed by Plaintiff about the escalating costs of the CityCenter project, MGM has continued to push forward excessively spending without regard to appropriate accountability. The increases described above are substantially higher than MGM originally presented to Infinity, even though the project has been materially scaled back from what was originally presented to Infinity. These cost overruns, many of which were not shared with Plaintiff prior to
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their incurrence, demonstrate MGM’s lack of candor in the management of the development of the CityCenter project.
148. The Delaware Complaint also provided examples of Defendants’ misrepresentations
concerning their estimates of revenue EBITDA. For example, according to the Delaware Complaint,
“MGM estimated total revenue of $2.173 billion with total EBITDA of $716 million and EBITDA
after capital expenditure of $674 million” in October 2008, as compared to “MGM’s March [2009]
estimates of revenue of $1.640 billion (down $533 million), EBITDA of $501 million (down $215
million) and EBITDA after capital expenditures of $459 million (down $215 million).”
149. Moreover, CityCenter’s development issues persisted even after the announcement of the scope changes. For example, a Las Vegas Review-Journal investigation revealed that The
Harmon had a 69% unresolved discrepancies rate as of February 13, 2009, while other CityCenter
buildings had similarly high rates of unresolved problems. In addition, MGM reportedly received a
Notice of Correction on February 9, 2009, which provided that a contractor was working without
plans approved by Clark County. Other similar violations were also exposed as a result of the Las
Vegas Review-Journal investigation.
150. The market for MGM’s common stock was open, well-developed and efficient at all
relevant times. As a result of these materially false and misleading statements and failures to
disclose, MGM’s common stock traded at artificially inflated prices during the Class Period.
Plaintiff and other members of the Class purchased or otherwise acquired MGM common stock
relying upon the integrity of the market price of MGM’s common stock and market information
relating to MGM, and have been damaged thereby.
151. During the Class Period, Defendants materially misled the investing public, thereby
inflating the price of MGM’s common stock, by publicly issuing false and misleading statements and
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omitting to disclose material facts necessary to make Defendants’ statements, as set forth herein, not
false and misleading. Said statements and omissions were materially false and misleading in that they failed to disclose material adverse information and misrepresented the truth about the Company, its business and operations, as alleged herein.
152. At all relevant times, the material misrepresentations and omissions particularized in this Complaint directly or proximately caused or were a substantial contributing cause of the damages sustained by plaintiff and other members of the Class. As described herein, during the
Class Period, defendants made or caused to be made a series of materially false or misleading statements about MGM’s business, prospects and operations. These material misstatements and omissions had the cause and effect of creating in the market an unrealistically positive assessment of
MGM and its business, prospects and operations, thus causing the Company’s common stock to be overvalued and artificially inflated at all relevant times. Defendants’ materially false and misleading
statements during the Class Period resulted in Plaintiff and other members of the Class purchasing
the Company’s common stock at artificially inflated prices, thus causing the damages complained of
herein.
Additional Scienter Allegations
153. As alleged herein, Defendants acted with scienter in that they knew that the public
documents and statements issued or disseminated in the name of the Company were materially false and misleading; knew that such statements or documents would be issued or disseminated to the investing public; and knowingly and substantially participated or acquiesced in the issuance or dissemination of such statements or documents as primary violations of the federal securities laws.
As set forth elsewhere herein in detail, Defendants, by virtue of their receipt of information
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reflecting the true facts regarding MGM, their control over, and/or receipt and/or modification of
MGM’s allegedly materially misleading misstatements and/or their associations with the Company
which made them privy to confidential proprietary information concerning MGM, participated in the
fraudulent scheme alleged herein.
154. In addition, during the Class Period, certain of the Defendants and other Company
insiders sold shares of their personally-held common stock for proceeds of nearly $91 million.
These insider sales were unusual and suspicious in timing and amount. These insiders were: (i)
Defendant Baldwin, who has served as Chief Design and Construction Officer since August 2007;
President and CEO of Project CC, LLC, the managing member of CityCenter Holdings, LLC, since
August 2007; and President of Project CC, LLC since March 2005; (ii) Alan Feldman, SVP of
Public Affairs, who regularly made public statements concerning the Company during the Class
Period; (iii) Bruce Gebhardt, SVP of Global Corporate Security; (iv) Alexis Herman, who has served
as a member of the Board since 2002; (v) Gary N. Jacobs, Executive Vice President (“EVP”),
General Counsel, Secretary and, since 2000, member of the Board; (vi) Phyllis A. James, SVP and
Senior Counsel; (vii) Defendant Lanni, who served as Chairman and CEO when he made the trades
detailed herein; (viii) Defendant Murren, who served as President and COO when he made the
trades detailed herein; (ix) Punam Mathur, SVP of Corporate Diversity and Community Affairs; (x)
Rose McKinney-James, who has served as a member of the Board since 2005; and (xi) Bryan
Wright, who has served as SVP and Assistant General Counsel.
155. The Class Period sales that these insiders made are depicted in the following chart:
Last First Position Date Shares Price Proceeds Baldwin Robert Chief Design / 8/30/2007 9,970 $83.10 $828,507 Construction 8/30/2007 8,691 $83.09 $722,135 Officer 8/30/2007 6,882 $83.14 $572,169
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Last First Position Date Shares Price Proceeds 8/30/2007 6,632 $83.12 $551,252 President, 8/30/2007 6,100 $82.35 $502,335 Project CC, 8/30/2007 5,600 $83.13 $465,528 LLC 8/30/2007 5,462 $83.07 $453,728 8/30/2007 5,300 $83.06 $440,218 8/30/2007 5,200 $82.33 $428,116 8/30/2007 5,100 $83.04 $423,504 8/30/2007 4,899 $83.11 $407,156 8/30/2007 4,521 $82.58 $373,344 8/30/2007 4,300 $82.31 $353,933 8/30/2007 4,000 $82.54 $330,160 8/30/2007 3,888 $83.15 $323,287 8/30/2007 3,700 $82.30 $304,510 8/30/2007 3,339 $82.38 $275,067 8/30/2007 3,200 $82.15 $262,880 8/30/2007 3,100 $82.21 $254,851 8/30/2007 3,100 $82.55 $255,905 8/30/2007 3,000 $82.32 $246,960 8/30/2007 3,000 $82.40 $247,200 8/30/2007 2,900 $83.17 $241,193 8/30/2007 2,700 $82.96 $223,992 8/30/2007 2,499 $82.57 $206,342 8/30/2007 2,432 $83.05 $201,978 8/30/2007 2,325 $83.01 $192,998 8/30/2007 2,308 $82.45 $190,295 8/30/2007 2,301 $82.61 $190,086 8/30/2007 2,300 $82.36 $189,428 8/30/2007 2,300 $83.03 $190,969 8/30/2007 2,221 $82.41 $183,033 8/30/2007 2,204 $82.51 $181,852 8/30/2007 2,200 $82.25 $180,950 8/30/2007 2,100 $82.42 $173,082 8/30/2007 2,000 $82.34 $164,680 8/30/2007 2,000 $82.39 $164,780 8/30/2007 1,979 $82.59 $163,446 8/30/2007 1,896 $82.47 $156,363 8/30/2007 1,800 $82.28 $148,104 8/30/2007 1,800 $82.29 $148,122 8/30/2007 1,800 $83.11 $149,598 8/30/2007 1,700 $82.13 $139,621 8/30/2007 1,700 $82.60 $140,420 8/30/2007 1,700 $83.03 $141,151 8/30/2007 1,700 $83.18 $141,406 8/30/2007 1,600 $83.15 $133,040 8/30/2007 1,500 $82.50 $123,750 8/30/2007 1,500 $83.02 $124,530 8/30/2007 1,500 $83.04 $124,560
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Last First Position Date Shares Price Proceeds 8/30/2007 1,400 $82.26 $115,164 8/30/2007 1,400 $82.44 $115,416 8/30/2007 1,400 $82.99 $116,186 8/30/2007 1,400 $83.00 $116,200 8/30/2007 1,400 $83.10 $116,340 8/30/2007 1,400 $83.12 $116,368 8/30/2007 1,396 $82.46 $115,114 8/30/2007 1,381 $83.08 $114,733 8/30/2007 1,200 $82.16 $98,592 8/30/2007 1,200 $82.27 $98,724 8/30/2007 1,200 $82.48 $98,976 8/30/2007 1,161 $82.43 $95,701 8/30/2007 1,100 $82.56 $90,816 8/30/2007 1,100 $82.62 $90,882 8/30/2007 1,100 $83.02 $91,322 8/30/2007 1,100 $83.14 $91,454 8/30/2007 1,100 $83.16 $91,476 8/30/2007 1,075 $82.49 $88,677 8/30/2007 1,000 $82.22 $82,220 8/30/2007 900 $82.37 $74,133 8/30/2007 900 $83.02 $74,718 8/30/2007 800 $82.52 $66,016 8/30/2007 800 $82.53 $66,024 8/30/2007 800 $83.12 $66,496 8/30/2007 700 $83.06 $58,142 8/30/2007 600 $82.23 $49,338 8/30/2007 600 $82.95 $49,770 8/30/2007 600 $83.05 $49,830 8/30/2007 600 $83.10 $49,860 8/30/2007 600 $83.11 $49,866 8/30/2007 500 $82.12 $41,060 8/30/2007 500 $82.14 $41,070 8/30/2007 500 $82.17 $41,085 8/30/2007 500 $82.20 $41,100 8/30/2007 400 $82.11 $32,844 8/30/2007 400 $82.97 $33,188 8/30/2007 400 $83.01 $33,204 8/30/2007 400 $83.05 $33,220 8/30/2007 400 $83.06 $33,224 8/30/2007 400 $83.08 $33,232 8/30/2007 300 $82.18 $24,654 8/30/2007 300 $82.24 $24,672 8/30/2007 300 $82.98 $24,894 8/30/2007 300 $82.98 $24,894 8/30/2007 300 $83.03 $24,909 8/30/2007 300 $83.07 $24,921 8/30/2007 300 $83.08 $24,924
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Last First Position Date Shares Price Proceeds 8/30/2007 300 $83.13 $24,939 8/30/2007 300 $83.13 $24,939 8/30/2007 200 $82.19 $16,438 8/30/2007 200 $82.48 $16,496 8/30/2007 200 $82.61 $16,522 8/30/2007 200 $83.01 $16,602 8/30/2007 200 $83.04 $16,608 8/30/2007 200 $83.05 $16,610 8/30/2007 200 $83.08 $16,616 8/30/2007 200 $83.09 $16,618 8/30/2007 200 $83.09 $16,618 8/30/2007 200 $83.13 $16,626 8/30/2007 200 $83.15 $16,630 8/30/2007 100 $82.56 $8,256 8/30/2007 100 $82.59 $8,259 8/30/2007 100 $82.95 $8,295 8/30/2007 100 $83.07 $8,307 8/30/2007 100 $83.09 $8,309 8/30/2007 100 $83.15 $8,315 8/30/2007 100 $83.18 $8,318 12/11/2007 9,100 $90.72 $825,552 12/11/2007 8,900 $90.50 $805,450 12/11/2007 6,500 $90.70 $589,550 12/11/2007 5,100 $90.61 $462,111 12/11/2007 4,600 $90.74 $417,404 12/11/2007 4,400 $90.60 $398,640 12/11/2007 4,400 $90.75 $399,300 12/11/2007 4,300 $91.39 $392,977 12/11/2007 4,300 $91.42 $393,106 12/11/2007 3,400 $91.50 $311,100 12/11/2007 2,700 $90.51 $244,377 12/11/2007 2,200 $90.71 $199,562 12/11/2007 1,800 $90.54 $162,972 12/11/2007 1,600 $90.76 $145,216 12/11/2007 1,500 $91.43 $137,145 12/11/2007 1,500 $91.47 $137,205 12/11/2007 1,212 $90.78 $110,025 12/11/2007 1,200 $90.56 $108,672 12/11/2007 1,100 $91.48 $100,628 12/11/2007 1,000 $91.40 $91,400 12/11/2007 900 $91.46 $82,314 12/11/2007 900 $91.59 $82,431 12/11/2007 867 $91.44 $79,278 12/11/2007 800 $91.45 $73,160 12/11/2007 800 $91.55 $73,240 12/11/2007 600 $90.77 $54,462 12/11/2007 600 $91.41 $54,846
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Last First Position Date Shares Price Proceeds 12/11/2007 500 $90.59 $45,295 12/11/2007 500 $90.69 $45,345 12/11/2007 500 $91.49 $45,745 12/11/2007 400 $90.50 $36,200 12/11/2007 400 $90.80 $36,320 12/11/2007 300 $90.73 $27,219 12/11/2007 300 $91.51 $27,453 12/11/2007 200 $90.58 $18,116 12/11/2007 200 $90.79 $18,158 12/11/2007 200 $91.64 $18,328 12/11/2007 100 $90.83 $9,083 12/11/2007 100 $90.84 $9,084 12/11/2007 100 $91.53 $9,153 12/11/2007 100 $91.57 $9,157 12/11/2007 100 $91.60 $9,160 12/11/2007 88 $90.52 $7,966 12/12/2007 15,035 $90.00 $1,353,150 12/12/2007 12,830 $90.83 $1,165,349 12/12/2007 10,500 $90.10 $946,050 12/12/2007 5,000 $90.85 $454,250 12/12/2007 4,900 $90.09 $441,441 12/12/2007 4,000 $90.30 $361,200 12/12/2007 4,000 $90.04 $360,160 12/12/2007 4,000 $90.75 $363,000 12/12/2007 3,900 $90.05 $351,195 12/12/2007 3,400 $90.31 $307,054 12/12/2007 3,200 $90.84 $290,688 12/12/2007 3,100 $90.35 $280,085 12/12/2007 2,970 $90.80 $269,676 12/12/2007 2,600 $90.32 $234,832 12/12/2007 2,600 $90.96 $236,496 12/12/2007 2,398 $90.90 $217,978 12/12/2007 2,200 $90.21 $198,462 12/12/2007 2,200 $90.87 $199,914 12/12/2007 2,125 $90.03 $191,314 12/12/2007 2,000 $90.92 $181,840 12/12/2007 1,900 $90.25 $171,475 12/12/2007 1,400 $90.20 $126,280 12/12/2007 1,375 $90.07 $123,846 12/12/2007 1,300 $90.89 $118,157 12/12/2007 1,268 $90.27 $114,462 12/12/2007 1,002 $90.88 $91,062 12/12/2007 1,000 $90.01 $90,010 12/12/2007 1,000 $90.34 $90,340 12/12/2007 1,000 $90.21 $90,210 12/12/2007 800 $90.82 $72,656 12/12/2007 700 $90.65 $63,455
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Last First Position Date Shares Price Proceeds 12/12/2007 600 $90.95 $54,570 12/12/2007 500 $90.33 $45,165 12/12/2007 500 $90.24 $45,120 12/12/2007 500 $90.77 $45,385 12/12/2007 465 $90.02 $41,859 12/12/2007 400 $90.12 $36,048 12/12/2007 400 $90.72 $36,288 12/12/2007 300 $90.20 $27,060 12/12/2007 300 $90.67 $27,201 12/12/2007 232 $90.25 $20,938 12/12/2007 200 $90.14 $18,028 12/12/2007 200 $90.15 $18,030 12/12/2007 200 $90.69 $18,138 12/12/2007 200 $90.86 $18,172 12/12/2007 100 $90.06 $9,006 12/12/2007 100 $90.13 $9,013 12/12/2007 100 $90.73 $9,073 12/12/2007 100 $90.91 $9,091 12/13/2007 16,200 $89.55 $1,450,710 12/13/2007 13,000 $89.80 $1,167,400 12/13/2007 7,000 $89.79 $628,530 12/13/2007 5,000 $89.85 $449,250 12/13/2007 4,800 $89.89 $431,472 12/13/2007 4,000 $89.57 $358,280 12/13/2007 3,900 $89.78 $350,142 12/13/2007 3,300 $89.90 $296,670 12/13/2007 3,200 $89.87 $287,584 12/13/2007 3,200 $89.93 $287,776 12/13/2007 2,800 $89.92 $251,776 12/13/2007 2,100 $89.91 $188,811 12/13/2007 2,000 $89.60 $179,200 12/13/2007 2,000 $89.71 $179,420 12/13/2007 2,000 $89.73 $179,460 12/13/2007 2,000 $89.81 $179,620 12/13/2007 2,000 $89.82 $179,640 12/13/2007 1,300 $89.58 $116,454 12/13/2007 1,020 $89.84 $91,637 12/13/2007 1,000 $89.68 $89,680 12/13/2007 1,000 $89.69 $89,690 12/13/2007 1,000 $89.70 $89,700 12/13/2007 700 $89.75 $62,825 12/13/2007 300 $89.76 $26,928 12/13/2007 200 $89.86 $17,972 12/13/2007 100 $89.88 $8,988 12/14/2007 8,400 $89.01 $747,684 12/14/2007 5,700 $89.29 $508,953 12/14/2007 2,000 $89.33 $178,660
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Last First Position Date Shares Price Proceeds 12/14/2007 1,200 $89.30 $107,160 12/14/2007 800 $89.23 $71,384 12/14/2007 500 $89.22 $44,610 12/14/2007 413 $89.03 $36,769 502,962 $43,841,498
Feldman Alan SVP, Public 9/4/2007 2,500 $84.00 $210,000 Affairs 11/2/2007 3,400 $90.27 $306,918 11/2/2007 500 $90.16 $45,080 11/2/2007 400 $90.17 $36,068 11/2/2007 200 $90.26 $18,052 11/2/2007 200 $90.28 $18,056 11/2/2007 100 $90.18 $9,018 11/2/2007 100 $90.20 $9,020 11/2/2007 100 $90.25 $9,025 5/12/2008 2,810 $51.15 $143,732 5/12/2008 2,400 $51.18 $122,832 5/12/2008 2,350 $51.16 $120,226 5/12/2008 2,090 $51.16 $106,924 5/12/2008 1,300 $51.24 $66,612 5/12/2008 1,100 $51.23 $56,353 5/12/2008 800 $51.22 $40,976 5/12/2008 700 $51.19 $35,833 5/12/2008 600 $51.17 $30,702 5/12/2008 600 $51.19 $30,714 5/12/2008 450 $51.20 $23,040 5/12/2008 300 $51.20 $15,360 5/12/2008 200 $51.17 $10,234 5/12/2008 200 $51.18 $10,236 5/12/2008 100 $51.23 $5,123 23,500 $1,480,134
Gebhardt Bruce SVP, Global 6/7/2007 2,600 $80.50 $209,300 Corporate 6/7/2007 2,100 $80.51 $169,071 Security 6/7/2007 800 $80.54 $64,432 6/7/2007 200 $80.62 $16,124 6/7/2007 100 $80.59 $8,059 6/7/2007 100 $80.52 $8,052 6/7/2007 100 $80.55 $8,055 11/7/2007 10,200 $91.75 $935,850 11/7/2007 300 $91.78 $27,534 11/7/2007 100 $91.80 $9,180 11/7/2007 100 $91.81 $9,181 11/7/2007 100 $91.81 $9,181 11/7/2007 400 $91.85 $36,740 11/13/2007 1,000 $87.80 $87,800
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Last First Position Date Shares Price Proceeds 12/7/2007 7,800 $91.75 $715,650 26,000 $2,314,209
Herman Alexis Member of the 12/14/2007 1,100 $87.45 $96,195 Board 12/14/2007 1,100 $89.10 $98,010 12/14/2007 900 $89.11 $80,199 12/14/2007 800 $88.98 $71,184 12/14/2007 700 $88.97 $62,279 12/14/2007 700 $89.00 $62,300 12/14/2007 600 $87.60 $52,560 12/14/2007 600 $89.01 $53,406 12/14/2007 600 $89.06 $53,436 12/14/2007 500 $87.44 $43,720 12/14/2007 500 $88.95 $44,475 12/14/2007 500 $89.05 $44,525 12/14/2007 400 $87.59 $35,036 12/14/2007 400 $88.03 $35,212 12/14/2007 400 $88.11 $35,244 12/14/2007 400 $88.28 $35,312 12/14/2007 400 $88.39 $35,356 12/14/2007 400 $88.92 $35,568 12/14/2007 400 $88.94 $35,576 12/14/2007 400 $88.99 $35,596 12/14/2007 400 $89.02 $35,608 12/14/2007 400 $89.03 $35,612 12/14/2007 400 $89.08 $35,632 12/14/2007 400 $89.13 $35,652 12/14/2007 300 $87.52 $26,256 12/14/2007 300 $87.57 $26,271 12/14/2007 300 $87.64 $26,292 12/14/2007 300 $87.65 $26,295 12/14/2007 300 $87.68 $26,304 12/14/2007 300 $88.16 $26,448 12/14/2007 300 $88.20 $26,460 12/14/2007 300 $88.90 $26,670 12/14/2007 300 $88.93 $26,679 12/14/2007 300 $89.07 $26,721 12/14/2007 200 $87.31 $17,462 12/14/2007 200 $87.34 $17,468 12/14/2007 200 $87.35 $17,470 12/14/2007 200 $87.37 $17,474 12/14/2007 200 $87.63 $17,526 12/14/2007 200 $87.69 $17,538 12/14/2007 200 $87.73 $17,546 12/14/2007 200 $87.86 $17,572 12/14/2007 200 $88.21 $17,642 12/14/2007 200 $88.77 $17,754
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Last First Position Date Shares Price Proceeds 12/14/2007 200 $89.04 $17,808 12/14/2007 100 $87.53 $8,753 12/14/2007 100 $87.54 $8,754 12/14/2007 100 $87.55 $8,755 12/14/2007 100 $87.58 $8,758 12/14/2007 100 $87.61 $8,761 12/14/2007 100 $87.71 $8,771 12/14/2007 100 $87.85 $8,785 12/14/2007 100 $88.10 $8,810 12/14/2007 100 $88.45 $8,845 12/14/2007 100 $88.47 $8,847 12/14/2007 100 $88.83 $8,883 12/14/2007 100 $88.96 $8,896 19,800 $1,750,967
Jacobs Gary EVP, General 8/24/2007 4,500 $82.75 $372,375 Counsel, 8/24/2007 3,800 $82.90 $315,020 Secretary, 8/24/2007 3,500 $82.91 $290,185 Member of the 8/24/2007 2,925 $82.93 $242,570 Board 8/24/2007 2,700 $82.58 $222,966 8/24/2007 2,525 $82.89 $209,297 8/24/2007 2,380 $82.94 $197,397 8/24/2007 2,100 $82.61 $173,481 8/24/2007 2,100 $82.76 $173,796 8/24/2007 2,075 $82.92 $172,059 8/24/2007 2,000 $82.59 $165,180 8/24/2007 1,600 $83.01 $132,816 8/24/2007 1,500 $82.80 $124,200 8/24/2007 1,200 $82.52 $99,024 8/24/2007 1,200 $82.62 $99,144 8/24/2007 1,200 $82.67 $99,204 8/24/2007 1,000 $82.56 $82,560 8/24/2007 900 $82.84 $74,556 8/24/2007 900 $82.53 $74,277 8/24/2007 800 $83.00 $66,400 8/24/2007 700 $82.81 $57,967 8/24/2007 700 $82.57 $57,799 8/24/2007 600 $82.86 $49,716 8/24/2007 600 $82.88 $49,728 8/24/2007 600 $82.77 $49,662 8/24/2007 600 $82.78 $49,668 8/24/2007 500 $82.96 $41,480 8/24/2007 500 $82.65 $41,325 8/24/2007 500 $82.66 $41,330 8/24/2007 500 $82.70 $41,350 8/24/2007 400 $82.85 $33,140 8/24/2007 400 $82.51 $33,004
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Last First Position Date Shares Price Proceeds 8/24/2007 400 $82.71 $33,084 8/24/2007 300 $82.79 $24,837 8/24/2007 300 $82.82 $24,846 8/24/2007 300 $83.04 $24,912 8/24/2007 300 $82.50 $24,750 8/24/2007 200 $82.95 $16,590 8/24/2007 200 $82.68 $16,536 8/24/2007 200 $82.71 $16,542 8/24/2007 100 $82.98 $8,298 8/24/2007 100 $82.53 $8,253 8/24/2007 75 $82.83 $6,212 8/24/2007 20 $82.97 $1,659 11/1/2007 4,500 $90.70 $408,150 11/1/2007 3,900 $90.60 $353,340 11/1/2007 3,700 $90.77 $335,849 11/1/2007 3,000 $90.80 $272,400 11/1/2007 2,500 $90.70 $226,750 11/1/2007 2,100 $90.82 $190,722 11/1/2007 2,000 $90.90 $181,800 11/1/2007 1,900 $90.68 $172,292 11/1/2007 1,700 $90.76 $154,292 11/1/2007 1,600 $90.62 $144,992 11/1/2007 1,570 $90.61 $142,258 11/1/2007 1,400 $90.51 $126,714 11/1/2007 900 $90.54 $81,486 11/1/2007 900 $90.55 $81,495 11/1/2007 800 $90.96 $72,768 11/1/2007 800 $90.56 $72,448 11/1/2007 750 $90.72 $68,040 11/1/2007 700 $90.31 $63,217 11/1/2007 600 $90.91 $54,546 11/1/2007 600 $90.95 $54,570 11/1/2007 600 $90.98 $54,588 11/1/2007 600 $90.32 $54,192 11/1/2007 600 $90.45 $54,270 11/1/2007 600 $90.47 $54,282 11/1/2007 600 $90.50 $54,300 11/1/2007 600 $90.52 $54,312 11/1/2007 600 $90.53 $54,318 11/1/2007 500 $90.78 $45,390 11/1/2007 500 $90.99 $45,495 11/1/2007 500 $91.15 $45,575 11/1/2007 500 $90.30 $45,150 11/1/2007 400 $90.83 $36,332 11/1/2007 400 $90.84 $36,336 11/1/2007 400 $90.95 $36,380 11/1/2007 400 $90.41 $36,164
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Last First Position Date Shares Price Proceeds 11/1/2007 400 $90.49 $36,196 11/1/2007 300 $90.66 $27,198 11/1/2007 300 $90.71 $27,213 11/1/2007 300 $90.75 $27,225 11/1/2007 300 $90.81 $27,243 11/1/2007 300 $90.87 $27,261 11/1/2007 300 $90.33 $27,099 11/1/2007 300 $90.35 $27,105 11/1/2007 200 $90.64 $18,128 11/1/2007 200 $90.67 $18,134 11/1/2007 200 $90.74 $18,148 11/1/2007 200 $90.85 $18,170 11/1/2007 200 $90.92 $18,184 11/1/2007 200 $90.93 $18,186 11/1/2007 200 $90.97 $18,194 11/1/2007 200 $91.00 $18,200 11/1/2007 200 $90.36 $18,072 11/1/2007 200 $90.42 $18,084 11/1/2007 200 $90.43 $18,086 11/1/2007 200 $90.46 $18,092 11/1/2007 150 $91.00 $13,650 11/1/2007 130 $90.65 $11,785 11/1/2007 100 $90.79 $9,079 11/1/2007 100 $90.80 $9,080 11/1/2007 100 $90.86 $9,086 11/1/2007 100 $90.87 $9,087 11/1/2007 100 $90.99 $9,099 11/1/2007 100 $91.01 $9,101 11/1/2007 100 $91.03 $9,103 11/1/2007 100 $90.27 $9,027 11/1/2007 100 $90.29 $9,029 11/1/2007 100 $90.37 $9,037 11/1/2007 100 $90.59 $9,059 12/7/2007 2,400 $91.00 $218,400 12/7/2007 2,300 $91.03 $209,369 12/7/2007 1,800 $91.13 $164,034 12/7/2007 1,500 $91.03 $136,545 12/7/2007 1,450 $91.07 $132,052 12/7/2007 1,400 $91.06 $127,484 12/7/2007 1,300 $91.02 $118,326 12/7/2007 1,300 $91.04 $118,352 12/7/2007 1,150 $91.05 $104,708 12/7/2007 1,100 $91.10 $100,210 12/7/2007 1,000 $91.15 $91,150 12/7/2007 1,000 $91.30 $91,300 12/7/2007 900 $91.01 $81,909 12/7/2007 775 $91.20 $70,680
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Last First Position Date Shares Price Proceeds 12/7/2007 700 $91.09 $63,763 12/7/2007 600 $91.08 $54,648 12/7/2007 600 $91.28 $54,768 12/7/2007 500 $91.27 $45,635 12/7/2007 400 $91.16 $36,464 12/7/2007 300 $91.22 $27,366 12/7/2007 300 $91.24 $27,372 12/7/2007 300 $91.29 $27,387 12/7/2007 200 $91.11 $18,222 12/7/2007 200 $91.20 $18,240 12/7/2007 200 $91.25 $18,250 12/7/2007 200 $91.32 $18,264 12/7/2007 200 $91.33 $18,266 12/7/2007 200 $91.35 $18,270 12/7/2007 100 $91.06 $9,106 12/7/2007 100 $91.12 $9,112 12/7/2007 100 $91.15 $9,115 12/7/2007 100 $91.23 $9,123 12/7/2007 100 $91.26 $9,126 12/7/2007 100 $91.31 $9,131 12/7/2007 100 $91.40 $9,140 12/7/2007 25 $91.21 $2,280 12/10/2007 4,900 $92.48 $453,152 12/10/2007 4,400 $92.56 $407,264 12/10/2007 4,100 $92.49 $379,209 12/10/2007 2,619 $92.50 $242,258 12/10/2007 2,081 $92.51 $192,513 12/10/2007 1,600 $92.53 $148,048 12/10/2007 1,100 $92.52 $101,772 12/10/2007 1,100 $92.56 $101,816 12/10/2007 900 $92.45 $83,205 12/10/2007 900 $92.54 $83,286 12/10/2007 800 $92.58 $74,064 12/10/2007 300 $92.55 $27,765 12/10/2007 200 $92.57 $18,514 150,000 $13,264,281
James Phyllis SVP, Senior 8/6/2007 2,500 $73.04 $182,600 Counsel 8/6/2007 2,300 $73.23 $168,429 8/6/2007 1,700 $73.24 $124,508 8/6/2007 1,600 $73.18 $117,088 8/6/2007 1,484 $73.31 $108,792 8/6/2007 1,400 $73.06 $102,284 8/6/2007 1,200 $73.08 $87,696 8/6/2007 1,200 $73.17 $87,804 8/6/2007 1,200 $73.25 $87,900 8/6/2007 1,100 $73.28 $80,608
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Last First Position Date Shares Price Proceeds 8/6/2007 1,000 $73.15 $73,150 8/6/2007 1,000 $73.20 $73,200 8/6/2007 1,000 $73.22 $73,220 8/6/2007 1,000 $73.30 $73,300 8/6/2007 965 $73.32 $70,754 8/6/2007 900 $73.18 $65,862 8/6/2007 900 $73.21 $65,889 8/6/2007 800 $73.38 $58,704 8/6/2007 600 $73.21 $43,926 8/6/2007 600 $73.34 $44,004 8/6/2007 600 $73.35 $44,010 8/6/2007 500 $73.07 $36,535 8/6/2007 500 $73.11 $36,555 8/6/2007 500 $73.12 $36,560 8/6/2007 400 $73.29 $29,316 8/6/2007 400 $73.31 $29,324 8/6/2007 300 $73.12 $21,936 8/6/2007 300 $73.32 $21,996 8/6/2007 200 $73.16 $14,632 8/6/2007 200 $73.17 $14,634 8/6/2007 200 $73.26 $14,652 8/6/2007 200 $73.28 $14,656 8/6/2007 200 $73.33 $14,666 8/6/2007 200 $73.36 $14,672 8/6/2007 200 $73.40 $14,680 8/6/2007 200 $73.46 $14,692 8/6/2007 135 $73.14 $9,874 8/6/2007 100 $73.05 $7,305 8/6/2007 100 $73.10 $7,310 8/6/2007 100 $73.11 $7,311 8/6/2007 100 $73.19 $7,319 8/6/2007 100 $73.20 $7,320 8/6/2007 100 $73.31 $7,331 8/6/2007 100 $73.35 $7,335 8/6/2007 100 $73.47 $7,347 8/24/2007 2,500 $83.73 $209,325 8/24/2007 900 $83.75 $75,375 8/24/2007 600 $83.74 $50,244 9/12/2007 9,500 $84.00 $798,000 11/1/2007 7,500 $91.50 $686,250 3/13/2008 5,000 $63.00 $315,000 6/12/2008 3,400 $41.76 $141,984 6/12/2008 900 $41.77 $37,593 6/12/2008 400 $41.83 $16,732 6/12/2008 300 $41.82 $12,546 6/12/2008 200 $41.79 $8,358 6/12/2008 100 $41.78 $4,178
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Last First Position Date Shares Price Proceeds 6/12/2008 100 $41.80 $4,180 6/12/2008 100 $41.81 $4,181 8/7/2008 1,000 $33.57 $33,570 8/7/2008 1,000 $33.64 $33,640 8/7/2008 800 $33.41 $26,728 8/7/2008 500 $33.62 $16,810 8/7/2008 500 $33.68 $16,840 8/7/2008 500 $33.76 $16,880 8/7/2008 500 $33.78 $16,890 8/7/2008 500 $33.80 $16,900 8/7/2008 500 $33.82 $16,910 8/7/2008 306 $33.47 $10,242 8/7/2008 300 $33.50 $10,050 8/7/2008 200 $33.50 $6,700 8/7/2008 100 $33.46 $3,346 8/7/2008 94 $33.48 $3,147 8/29/2008 1,000 $33.00 $33,000 69,784 $4,857,285
Lanni J. Terrence Chairman of 12/7/2007 5,400 $91.58 $494,532 the Board, 12/7/2007 5,000 $91.88 $459,400 CEO 12/7/2007 3,670 $91.59 $336,135 12/7/2007 3,600 $91.60 $329,760 12/7/2007 3,504 $92.05 $322,543 12/7/2007 3,100 $92.01 $285,231 12/7/2007 3,000 $91.51 $274,530 12/7/2007 2,400 $92.00 $220,800 12/7/2007 2,130 $91.56 $195,023 12/7/2007 1,800 $91.57 $164,826 12/7/2007 1,300 $91.74 $119,262 12/7/2007 1,200 $91.69 $110,028 12/7/2007 1,200 $91.72 $110,064 12/7/2007 1,100 $91.50 $100,650 12/7/2007 1,000 $91.54 $91,540 12/7/2007 1,000 $91.61 $91,610 12/7/2007 1,000 $91.62 $91,620 12/7/2007 900 $91.52 $82,368 12/7/2007 887 $92.06 $81,657 12/7/2007 800 $91.55 $73,240 12/7/2007 800 $92.11 $73,688 12/7/2007 700 $91.73 $64,211 12/7/2007 700 $92.04 $64,428 12/7/2007 609 $92.16 $56,125 12/7/2007 600 $91.71 $55,026 12/7/2007 500 $91.70 $45,850 12/7/2007 400 $91.63 $36,652 12/7/2007 400 $92.08 $36,832
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Last First Position Date Shares Price Proceeds 12/7/2007 300 $91.53 $27,459 12/7/2007 300 $91.68 $27,504 12/7/2007 300 $92.02 $27,606 12/7/2007 300 $92.03 $27,609 12/7/2007 100 $91.64 $9,164 50,000 $4,586,974
Mathur Punam SVP, 8/29/2007 2,000 $82.50 $165,000 Corporate 2/27/2008 200 $65.72 $13,144 Diversity and 2/27/2008 200 $65.90 $13,180 Community 2/27/2008 200 $65.92 $13,184 Affairs 2/27/2008 200 $65.95 $13,190 2/27/2008 200 $65.96 $13,192 2/27/2008 200 $65.98 $13,196 2/27/2008 200 $66.02 $13,204 2/27/2008 200 $66.13 $13,226 2/27/2008 200 $66.09 $13,218 2/27/2008 200 $66.21 $13,242 2/27/2008 200 $66.23 $13,246 2/27/2008 100 $65.79 $6,579 2/27/2008 100 $65.80 $6,580 2/27/2008 100 $66.37 $6,637 5/12/2008 2,500 $50.50 $126,250 8/7/2008 500 $31.96 $15,980 8/7/2008 500 $31.90 $15,950 8/7/2008 500 $31.88 $15,940 8/7/2008 500 $31.93 $15,965 8/7/2008 500 $31.85 $15,925 8/7/2008 400 $31.76 $12,704 8/7/2008 100 $31.83 $3,183 10,000 $551,915
McKinney-James Rose Member of the 8/24/2007 3,000 $82.84 $248,520 Board 9/11/2007 2,000 $83.88 $167,760 12/4/2007 1,000 $85.02 $85,020 6,000 $501,300
Murren James President, 9/4/2007 10,400 $84.00 $873,600 COO, 9/4/2007 8,200 $83.90 $687,980 Member of the 9/4/2007 5,700 $84.20 $479,940 Board 9/4/2007 5,400 $84.05 $453,870 9/4/2007 5,300 $83.91 $444,723 9/4/2007 4,900 $84.30 $413,070 9/4/2007 4,600 $83.93 $386,078 9/4/2007 4,300 $84.11 $361,673 9/4/2007 3,900 $84.06 $327,834
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Last First Position Date Shares Price Proceeds 9/4/2007 3,900 $84.10 $327,990 9/4/2007 3,600 $84.07 $302,652 9/4/2007 3,200 $84.04 $268,928 9/4/2007 3,000 $84.15 $252,450 9/4/2007 2,800 $83.96 $235,088 9/4/2007 2,800 $84.02 $235,256 9/4/2007 2,600 $84.12 $218,712 9/4/2007 2,400 $84.01 $201,624 9/4/2007 2,400 $84.08 $201,792 9/4/2007 2,400 $84.21 $202,104 9/4/2007 2,200 $83.92 $184,624 9/4/2007 1,900 $84.13 $159,847 9/4/2007 1,800 $83.97 $151,146 9/4/2007 1,400 $84.17 $117,838 9/4/2007 1,400 $84.18 $117,852 9/4/2007 1,300 $83.98 $109,174 9/4/2007 1,100 $84.22 $92,642 9/4/2007 1,100 $84.25 $92,675 9/4/2007 1,000 $84.03 $84,030 9/4/2007 1,000 $84.23 $84,230 9/4/2007 800 $83.99 $67,192 9/4/2007 800 $84.09 $67,272 9/4/2007 700 $84.16 $58,912 9/4/2007 600 $83.94 $50,364 9/4/2007 600 $84.27 $50,562 9/4/2007 400 $83.95 $33,580 9/4/2007 100 $84.32 $8,432 11/2/2007 7,700 $90.37 $695,849 11/2/2007 6,900 $90.25 $622,725 11/2/2007 6,800 $90.00 $612,000 11/2/2007 4,300 $90.03 $387,129 11/2/2007 3,900 $90.38 $352,482 11/2/2007 2,600 $90.02 $234,052 11/2/2007 2,500 $90.40 $226,000 11/2/2007 1,900 $90.24 $171,456 11/2/2007 1,200 $90.35 $108,420 11/2/2007 1,000 $90.26 $90,260 11/2/2007 1,000 $90.36 $90,360 11/2/2007 1,000 $90.47 $90,470 11/2/2007 900 $90.42 $81,378 11/2/2007 800 $90.29 $72,232 11/2/2007 800 $90.39 $72,312 11/2/2007 700 $90.06 $63,042 11/2/2007 700 $90.19 $63,133 11/2/2007 700 $90.41 $63,287 11/2/2007 700 $90.45 $63,315 11/2/2007 600 $90.09 $54,054
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Last First Position Date Shares Price Proceeds 11/2/2007 600 $90.08 $54,048 11/2/2007 500 $90.32 $45,160 11/2/2007 400 $90.23 $36,092 11/2/2007 400 $90.28 $36,112 11/2/2007 300 $90.01 $27,003 11/2/2007 300 $90.07 $27,021 11/2/2007 200 $90.18 $18,036 11/2/2007 200 $90.20 $18,040 11/2/2007 100 $90.04 $9,004 11/2/2007 100 $90.17 $9,017 11/2/2007 100 $90.21 $9,021 11/2/2007 100 $90.44 $9,044 12/6/2007 4,300 $91.45 $393,235 12/6/2007 3,900 $91.49 $356,811 12/6/2007 3,622 $90.81 $328,914 12/6/2007 2,700 $90.69 $244,863 12/6/2007 2,400 $91.50 $219,600 12/6/2007 2,178 $90.80 $197,762 12/6/2007 2,100 $90.83 $190,743 12/6/2007 1,900 $90.75 $172,425 12/6/2007 1,700 $90.77 $154,309 12/6/2007 1,600 $90.71 $145,136 12/6/2007 1,600 $90.72 $145,152 12/6/2007 1,600 $91.51 $146,416 12/6/2007 1,500 $91.01 $136,515 12/6/2007 1,500 $91.46 $137,190 12/6/2007 1,400 $90.88 $127,232 12/6/2007 1,400 $91.48 $128,072 12/6/2007 1,300 $90.56 $117,728 12/6/2007 1,300 $90.86 $118,118 12/6/2007 1,200 $91.47 $109,764 12/6/2007 1,100 $91.05 $100,155 12/6/2007 1,000 $90.85 $90,850 12/6/2007 900 $90.82 $81,738 12/6/2007 700 $90.84 $63,588 12/6/2007 600 $90.79 $54,474 12/6/2007 600 $91.43 $54,858 12/6/2007 600 $91.52 $54,912 12/6/2007 600 $91.54 $54,924 12/6/2007 500 $90.87 $45,435 12/6/2007 400 $90.78 $36,312 12/6/2007 400 $90.91 $36,364 12/6/2007 400 $90.94 $36,376 12/6/2007 400 $91.02 $36,408 12/6/2007 400 $91.12 $36,448 12/6/2007 300 $90.57 $27,171 12/6/2007 300 $91.53 $27,459
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Last First Position Date Shares Price Proceeds 12/6/2007 300 $91.61 $27,483 12/6/2007 200 $90.70 $18,140 12/6/2007 200 $90.73 $18,146 12/6/2007 200 $91.57 $18,314 12/6/2007 200 $91.58 $18,316 12/6/2007 100 $90.58 $9,058 12/6/2007 100 $90.66 $9,066 12/6/2007 100 $90.67 $9,067 12/6/2007 100 $90.92 $9,092 12/6/2007 100 $91.56 $9,156 200,000 $17,470,585
Wright Bryan SVP, 8/24/2007 800 $83.51 $66,808 Assistant 8/24/2007 700 $83.46 $58,422 General 8/24/2007 600 $83.56 $50,136 Counsel 8/24/2007 500 $83.59 $41,795 8/24/2007 400 $83.35 $33,340 8/24/2007 300 $83.55 $25,065 8/24/2007 200 $83.53 $16,706 8/24/2007 200 $83.64 $16,728 8/24/2007 100 $83.57 $8,357 8/24/2007 100 $83.58 $8,358 8/24/2007 100 $83.63 $8,363 4,000 $334,078
1,062,046 $90,953,225
156. Moreover, these sales were relatively substantial in comparison to the insiders’ respective prior trading histories, as well as the number of shares that the insiders retained after the sales.
Applicability of Presumption of Reliance: Fraud on the Market Doctrine
157. At all relevant times, the market for MGM’s common stock was an efficient market for the following reasons, among others:
(a) MGM stock met the requirements for listing, and was listed and actively traded on the NYSE, a highly efficient and automated market;
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(b) As a regulated issuer, MGM filed periodic public reports with the SEC and the
NYSE;
(c) MGM regularly communicated with public investors via established market
communication mechanisms, including through regular disseminations of press releases on the
national circuits of major newswire services and through other wide-ranging public disclosures, such
as communications with the financial press and other similar reporting services; and
(d) MGM was followed by securities analysts employed by major brokerage firms
who wrote reports that were distributed to the sales force and certain customers of their respective
brokerage firms. Each of these reports was publicly available and entered the public marketplace.
158. As a result of the foregoing, the market for MGM’s common stock promptly digested
current information regarding MGM from all publicly available sources and reflected such
information in MGM’s stock price. Under these circumstances, all purchasers of MGM’s common
stock during the Class Period suffered similar injury through their purchase of MGM’s common
stock at artificially inflated prices and a presumption of reliance applies.
NO SAFE HARBOR
159. The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this complaint.
Many of the specific statements pleaded herein were not identified as “forward-looking statements”
when made. To the extent there were any forward-looking statements, there were no meaningful
cautionary statements identifying important factors that could cause actual results to differ materially from those in the purportedly forward-looking statements. Alternatively, to the extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein, Defendants are
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liable for those false forward-looking statements because at the time each of those forward-looking statements was made, the particular speaker knew that the particular forward-looking statement was false, and/or the forward-looking statement was authorized and/or approved by an executive officer of MGM who knew that those statements were false when made.
COUNT I
Violation of Section 10(b) of the Exchange Act and Rule 10b-5 Against All Defendants
160. Plaintiff repeats and realleges each and every allegation above as if fully set forth herein.
161. During the Class Period, Defendants disseminated or approved the materially false and misleading statements specified above, which they knew or deliberately disregarded were misleading in that they contained misrepresentations and failed to disclose material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.
162. Defendants: (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements not misleading; and (c) engaged in acts, practices, and a course of business which operated as a fraud and deceit upon the purchasers of the Company’s common stock during the Class Period.
163. Plaintiff and the Class have suffered damages in that, in reliance on the integrity of the market, they paid artificially inflated prices for MGM common stock. Plaintiff and the Class would not have purchased MGM common stock at the prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by Defendants’ misleading statements.
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164. As a direct and proximate result of these Defendants’ wrongful conduct, Plaintiff and the other members of the Class suffered damages in connection with their purchases of MGM common stock during the Class Period.
COUNT II
Violation of Section 20(a) of the Exchange Act Against the Individual Defendants
165. Plaintiff repeats and realleges each and every allegation above as if fully set forth herein.
166. The Individual Defendants acted as controlling persons of MGM within the meaning of Section 20(a) of the Exchange Act as alleged herein. By reason of their positions as officers and/or directors of MGM, and their ownership of MGM stock, the Individual Defendants had the power and authority to cause MGM to engage in the wrongful conduct complained of herein.
167. By reason of such conduct, the Individual Defendants are liable pursuant to Section
20(a) of the Exchange Act.
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
A. Determining that this action is a proper class action, designating Plaintiff as Lead
Plaintiff and certifying Plaintiff as a class representative under Rule 23 of the Federal Rules of Civil
Procedure and Plaintiff’s counsel as Lead Counsel;
B. Awarding compensatory damages in favor of Plaintiff and the other Class members against all Defendants, jointly and severally, for all damages sustained as a result of Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
C. Awarding Plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and
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D. Awarding such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury on all claims and issues so triable.
DATED: August 17, 2009 GOODMAN LAW GROUP ROSS C. GOODMAN
ROSS C. GOODMAN
520 South Fourth Street, 2nd Floor Las Vegas, NV 89101 Telephone: 702/383-5088 702/385-5088 (fax)
COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP SAMUEL H. RUDMAN DAVID A. ROSENFELD JOSEPH RUSSELLO 58 South Service Road, Suite 200 Melville, NY 11747 Telephone: 631/367-7100 631/367-1173 (fax)
ABRAHAM FRUCHTER & TWERSKY LLP JACK G. FRUCHTER One Penn Plaza, Suite 2805 New York, NY 10119 Telephone: 212/279-5050 212/279-3655 (fax)
Attorneys for Plaintiff
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