Crown Resorts Vows to Defend Against Class Action on China Arrests

A new lawsuit alleges Crown Resorts Ltd. misled investors about the risks involved in its efforts to woo lucrative Chinese high-rollers, the latest fallout for the Australian casino operator after its employees were arrested in China for gambling crimes last year.

The class action was filed in the Federal Court of Australia by law firm Maurice Blackburn on behalf of shareholders who purchased Crown stock between Feb. 6, 2015, and Oct. 16, 2016. Michael Donelly, senior associate at Maurice Blackburn, said hundreds of shareholders had registered to participate and that the case is similar to others that were settled for more than 100 million Australian dollars (US$76 million).

In a brief statement, Crown, which booked revenue of about A$3.2 billion in the most recent fiscal year, acknowledged the lawsuit had been filed and promised to "vigorously defend" itself against the allegations.

Crown shares fell 14% on Oct. 17, 2016, when Crown said that some employees in China had been detained. The episode sent chills through the global casino industry, which had targeted Chinese VIP in recent years, and Crown's VIP revenue in Australia ended up falling 49% in the fiscal year. Other casino companies in the region said their VIP revenue also fell after the detentions.

Jason O'Connor, an Australian who was Crown's head of international VIP operations, was charged and pleaded guilty along with 18 other current and former employees, including two other Australians and one Malaysian. Mr. O'Connor and four others received 10-month sentences and 11 were given nine-month sentences. That group of 16 were fined an equivalent of A$1.7 million. Mr. O'Connor was released in August.

Gambling is illegal in China, except in the special administrative region of Macau, and foreign companies aren't allowed to market their casinos specifically, although they can advertise their resorts more generally. Still, perks to entice VIPs could include free food and drink, Chinese-speaking service staff and complimentary hotel suites.

Given that the Chinese trial of Crown employees was closed to the public, "this will be the first time that the events that occurred in China will be publicly examined in open court," Mr. Donelly said.

After the arrests, Crown, controlled by Australian billionaire James Packer, signaled it would pull back from its global ambitions. It dialed back it efforts to lure Chinese VIPs to its resorts, sold its stake in a Macau casino operator and exited a Las Vegas casino project.

Crown shares have recovered somewhat over the past year, trading Monday afternoon at A$12.08, compared with the A$11.15 closing price on Oct. 17, 2016. Though the previous trading day, on Oct. 14, 2016, shares had closed at A$12.95.

The lawsuit says Crown should have notified investors that its Chinese operations were risky, especially given that employees of South Korean casino operators had been arrested by Chinese authorities in mid-2015.

Mr. Donelly said he hoped the case against Crown and other companies would prompt firms to provide more "accurate and timely disclosures to the market."

(END) Dow Jones Newswires

December 04, 2017 00:54 ET (05:54 GMT)