Penn National Gaming Inc. has asked a Maryland federal court to dismiss a lawsuit brought against the company for alleged securities violations inherent to its failed buyout deal earlier this year, claiming the legal action is an attempt by the plaintiffs to recover on bad investment decisions.
Besides demanding dismissal based on various claimed deficiencies in the complaint, the motion also refutes accusations PNGI held undisclosed termination discussions with two private equity firms seeking to buy the company’s holdings for $8.9 billion, and charges that executives tipped off certain outsiders of the deal’s demise.
PNGI claims the deal, which was announced in June 2007, ultimately collapsed for a variety of reasons related to a deteriorating national economy hampered by a credit crisis, and a general downturn in the gaming industry.
“Amid these conditions, the market began to have substantial doubts as to whether the Penn buyout would close,” the dismissal motion claimed. “Having made the wrong investment decision, plaintiffs now seek to hold Penn responsible for their investment losses.”
The lawsuit, which was originally filed in July by Maryland attorney and PNGI shareholder Herman W. Braude, seeks class-action certification. Since the original filing, Braude has withdrawn as a plaintiff – being replaced by three other shareholders – but remains lead counsel. It’s unclear from court filings if others have joined the action.
PNGI claims through press releases it continually “disclosed the risks concerning the closing of the merger and the fact that the merger could be terminated at any time by consent of the parties.”
The dismissal motion also refutes allegations that PNG insiders leaked information about the deal termination to “favored, close associates,” sparking increased trading of the company’s stock.
“But conspicuously absent from the complaint are any particularized allegations concerning: which ‘defendants’ or ‘other parties’ leaked the alleged ‘inside information’; what specific ‘inside information’ was leaked; which ‘favored, close associates’ received such information; when such ‘inside information’ was leaked; and when and in what amounts these ‘favored, close associates’ traded in Penn stock,” the motion said. “This sort of wild and baseless speculation is wholly insufficient to support a ‘strong inference’ of fraudulent intent.”
In a telephone interview, Braude said he was still analyzing the particulars of the motion to dismiss, which was filed Nov. 24, but stood firm on his assertions that PNGI and the buyers had negotiated a termination to the deal a few months before it was announced in July.
“This is about what happened in May, or possibly April, and not what happened in July,” said Braude, who claimed in his original lawsuit he suffered damages of at least $500,000. “If the deal was supposed to fall through, it was incumbent for PNGI to reveal to the investment public that a recorded buyout that was unconditionally financed was about to deteriorate – and not be kept secret for two or three months.”
An attorney affiliated with PNGI wasn't immediately available for comment.
The deal was terminated July 3 before stock market trading began. PNGI reported it received a termination fee of $225 million, and $1.25 billion in what the lawsuit calls an interest-free loan, in exchange for 12,500 shares of “newly-issued” preferred stock as security.
In addition to Hollywood Casino at Penn National in Grantville, Pa., PNGI includes among its holdings Thoroughbred racing operations Charles Town Races & Slots in Charles Town, W.Va.; and Black Gold Casino at Zia Park in Hobbs, N. M. It owns a total of 19 gaming facilities and/or racing operations in 14 states and Ontario.