Crown Resorts Settles Lawsuit Over China Arrest Scandal for $94M
Posted on: October 29, 2021, 08:05h.
Last updated on: April 29, 2022, 09:52h.
Embattled Australian casino operator Crown Resorts will pay A$125 million (US$94.25 million) to settle a shareholder class-action lawsuit linked to the 2016 arrests of 19 staff members in China.
Crown shares plunged nearly 14 percent in a day on October 17, 2016, after news of the arrests. Shareholders argued that the company had a duty to inform them that it was illegally marketing its services in China. It also knew it was placing staff at risk, but did nothing, the lawsuits claimed.
The incident was “one of the most serious and comprehensive breakdowns in corporate governance in Australian history,” according to legal firm Maurice Blackburn, which brought the suit on behalf of shareholders.
Sixteen of the Crown Resorts employees would go on to serve between nine and 10 months in a Shanghai prison for “gambling crimes” and organizing casino excursions for high rollers. Among them was the executive vice president of Crown’s VIP International Division, Jason O’Connor.
“Crown’s board of directors determined that the agreement to settle the proceeding was a commercial decision made in the best interests of Crown and its shareholders,” the company said in an ASX statement Friday.
Crown expects to recover a significant portion of the settlement amount from its insurers, but cannot, at this stage, be certain about the outcome of negotiations with insurers, or the outcome of any necessary formal steps for recovery it may need to take,” the statement continued.
The arrests had a significant impact on Crown’s operations. VIP revenues dropped nearly 50 percent in the months that followed, and the company opted to abandon its international expansion strategy, canceling a planned Las Vegas resort and relinquishing its interests in Macau.
Late last year, Crown was rebuked for its conduct in the matter during a regulatory investigation in New South Wales. That ultimately stripped it of its Sydney gaming license. Commissioner Patricia Bergin highlighted the company’s “disastrous failures” of corporate governance and risk management in relation to the arrests.
She also criticized Crown for publicly attacking the integrity of former employee Jenny Jiang, who was the first detainee to break her silence.
Jiang told Australian current affairs show 60 Minutes that she had refused a $60,000 payment from the company to keep quiet about her ordeal.
Incredibly, the inquiry also learned Crown had never conducted an internal review into the incident. That’s because it was worried the findings would harm its defense in the shareholder lawsuit.
Earlier this week, the company learned it had been found unsuitable by another regulatory inquiry, this time to hold a license in Victoria, home to its flagship Melbourne property. However, the state will allow Crown Melbourne to continue to operate while the company fixes its shortcomings.
Both inquiries found the company facilitated money laundering in pursuit of profits and allowed itself to be infiltrated by organized crime via its junket operations.
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