Steve Wynn is suing James Chanos after the famed investor held a fiery speech on the activity of Chinese casinos.
If you’re familiar with the world of business investments, you’ve probably heard of James Chanos. A household name on Wall Street and head of Kynikos Associates hedge fund in New York, the expert decided to come forward with some interesting information on Chinese casinos last April.
During a conference at the University of California, Berkeley, Chanos told his audience that he was becoming increasingly concerned about bribery, corruption and other illegal activities in Macau, a Chinese region that has quickly grown to become the world’s largest gambling hub.
A few years ago, the investor said that stocks of large US casino companies operating in Macau would rise. But he came to change his opinion about Macau’s and China’s financial affairs.
Major investments and major risks
In a video obtained by US gambling news outlets earlier this week, Chanos says he became worried about his clients’ finances.
“Even I got a little nervous the deeper we dug into Macau,” he explained. “Although I was long the US casino operators, like Mr. Adelson and Mr. Wynn, I began to really get concerned about the risk I was taking with clients’ money under the Foreign Corrupt Practices Act.”
He was referring to a US federal anti-bribery law, which aims to do away with corrupt foreign payments made by American companies, and the two people he named are major casino company owners and billionaires Stephen Wynn, chief operating executive Wynn Resorts, and Las Vegas Sands chief Sheldon Adelson. Both of them operate luxury casinos in Las Vegas and Macau.
The conference where Chanos spoke focused on an upcoming documentary titled “The Gods of Gambling,” which reveals information about Macau’s gaming industry. It was produced by investigative reporter Lowell Bergman, and it’s scheduled to air this fall.
Although Chanos has now refused to make further comments on his previous statement, his words did not go unnoticed but reached the ears of Wynn, who decided to sue the financial expert last Thursday. The casino magnate’s lawyers described Chanos’ comments as defamatory and said they amounted to slander.
How gambling in Macau impacts the banking sector
A former Portuguese colony, Macau is a Special Administrative Regions and the only place where Chinese gambling laws do not forbid casinos. Its legal gambling industry allowed the region to grow. In fact, over the past decade, Macau has asserted itself as the largest gambling hub in the world. Official revenues reach almost $50 billion a year, while Las Vegas only generates $6 billion.
Steven Vickers, a business intelligence expert who also spoke at the conference, believes the region’s actual revenues are six times higher. Some financial experts say illegal gambling in Macau is worth almost $300 billion a year. At the heart of this underground industry, Vickers said, is a Chinese organized crime syndicate called the Triad.
Chanos managed to anger a lot of people with the statements he made at the conference in Berkeley. He said that even though junket companies bringing Chinese high-rollers to Macau meet certain legal requirements, the whole casino industry has become one of “legalized fraud”.
The expert said that, with property and currency values declining on the mainland and Chinese residents bringing their wealth to Macau, “we’re looking at the Macau situation as a wholesale conduit for capital flight out of China, which has implications for the banking sector and the credit system.”
Wynn vs. Chanos
The FBS Frontline documentary was supposed to come on Tuesday, but has been delayed. According to a description on Frontline’s web page, it “investigates the explosive growth of Macau as the gambling capital of the world, and how major American casinos conduct business there.”
The lawsuit filed by Wynn’s lawyers states that Chanos made a “false and defamatory statement concerning purported violation of the Foreign Corrupt Practices Act by Wynn and Wynn Resorts,” causing direct injury to the casino billionaire and his company’s reputation.
“As a direct and proximate result of the publication of the Statement, Wynn has suffered emotional distress to his general damage in a substantial amount,” the suit said. It added that the company was investigated by local regulators, who found no evidence suggesting that Wynn violated the Foreign Corrupt Practices Act was found.
Earlier in May, Chanos told CNBC that his company was “increasingly concerned that a crackdown’s looming in Macau”. However, the expert refused to elaborate, noting that the interview was being conducted in a casino hotel.