New Documents Filed by Blumenthal, Nordrehaug & Bhowmik in MGM Lawsuit Allege MGM Defrauded Investors Out of Millions While Reaping Over $200 Million In Profits

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New documents filed in the MGM lawsuit claim that MGM Mirage, a.k.a. MGM Resorts International ("MGM") misled investors into purchasing hotel units in the MGM Signature Suites by allegedly misrepresenting the target market, ambience, revenue split, rental rate, and operating principles.

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During 2007 and 2006, [MGM] recognized our share of profits from the sale of condominium units at the Signature at MGM Grand. We recognized $93 million and $117 million (pre-tax) of such income in 2007 and 2006 respectively.

On June 18, 2013, the law firms of Blumenthal, Nordrehaug & Bhowmik and Gerard & Associates filed an emergency motion in the Nevada State Supreme Court alleging that MGM Resorts International ("MGM") defrauded investors into purchasing units in the MGM Signature Suites at the MGM Grand in Las Vegas. KJH & RDA Investor Group, LLC v. Turnberry/MGM Grand Towers, LLC, Case No. A547024.

    The new documents allege that the sales force employed by MGM were scripted by MGM to promote the positive cash flow that would be generated from the high-end clientele under the MGM Rental Program of these MGM Signature units as luxury units. MGM allegedly represented to potential buyers that the "luxury" units would "demand rental rates comparable to the highest end luxury units in Las Vegas such as the Four Seasons and Bellagio, starting at $200 to $500 per night" from high-end clientele as stated in the recently filed documents. The documents filed also allege that MGM misled the buyers to believe that they would be entitled to a 60% share of the revenues under the MGM Rental Program when allegedly MGM knew the owners’ share of revenues under the MGM Rental Program was only a 30% share. The filing alleges that MGM kept the true facts secret from the investors until after the purchase closed.

    The recently filed papers also allege that the investors were promised in writing that the condominium property would be operated under “democratic principles” only to later discover the condominium property was being operated as an “autocracy.” As a result, a portion of the condominium property was transferred without consideration to MGM Grand Hotel, LLC to build the “Wet Republic” day pool to compete with the “rehab scene” originated by the Hard Rock Hotel with loud music and a pool party scene. Indeed, the filing alleges that the music from the Wet Republic is so loud that the “windows of units rattle and floors vibrate from decibel levels 8 times greater than Clark County’s legal limit,” eliminating any hope of higher rates or a higher resale market due to the ambiance created by the “Wet Republic.” Notably, the emergency motion also claims that "[w]hen the Wet Republic opened in May of 2008 there was no longer any doubt that the target market of rentals by MGM for the Signature Suites would be to a young, raucous crowd at economy rates" of $99 or less per night.

    Further, the motion alleges that "[a]s a result, most Claimants lost their property through foreclosure or a short sale as values plummeted in lock step with rental rates. In return, MGM has reaped hundreds of millions of dollars from their fraudulent scheme." The documents filed in the case corroborate this fact that was disclosed in MGM's 2007 Annual 10-K filing with the SEC that states "During 2007 and 2006, [MGM] recognized our share of profits from the sale of condominium units at the Signature at MGM Grand. We recognized $93 million and $117 million (pre-tax) of such income in 2007 and 2006 respectively."

    For more information regarding this case please contact Norman B. Blumenthal, the founding partner of Blumenthal, Nordrehaug & Bhowmik at (858) 551-1223.

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