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TheStreet Open House

Tiny Chinese Enclave Remakes Gambling World

Stocks in this article: LVSWYNNMGMCZR

MGM got into trouble with New Jersey regulators when the company opened a Macau casino with Pansy Ho, the daughter of a gambling kingpin allegedly linked to Chinese gangs. The state found the partnership "unsuitable" in a 2010 report, and forced MGM to sell its stake in an Atlantic City casino. MGM denied that there was anything inappropriate about the relationship, began the process of selling its stake, and did not cut ties with Macau.

Two years later, MGM CEO Jim Murren stands by that choice, saying: "The Macau market is now larger than the entire U.S. gaming market."

Last winter, New Jersey agreed to consider MGM's application for a renewed license.

The Sands inquiries stem from a pending wrongful termination case brought by former Sands executive Steve Jacobs in 2010. Jacobs claims that Sands' China subsidiary did business with known gangsters, tacitly condoned prostitution and made inappropriate payments to an attorney who was also a Macau lawmaker. Jacobs claims Sands paid the lawmaker to help settle various regulatory issues in Sands' favor.

Sands has denied all claims, but recently said in an SEC filing that an internal audit had found possible breaches of a section of the FCPA that requires public companies to file proper financial statements and maintain a system of internal controls.

Justice Department spokesman Michael Passman declined to comment on the inquiry. Sands says it is cooperating with federal prosecutors. Spokesman Ron Reese said the company is diligent wherever it operates.

Sands opened for business in Macau in 2004, at the beginning of a massive boom in China's economy. The company now earns two-thirds of its revenue there. Wynn Resorts now makes nearly three-quarters of its revenue in Macau.

But like early Las Vegas, Macau has a long history of ties to crime syndicates -- in this case secretive brotherhoods called triads.

The history and regulations governing the enclave continue to make it tricky for modern casinos to avoid gangs, illegal money transfers and at least the appearance of bribery.

Businesses operating there can expect allegations against them, true or not, said Bill Weidner, who was president of Sands until 2009.

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