New Questions about Sheldon Adelson’s Casino Operations in Macau

by Lowell Bergman, and Stephen Engelberg
Matt Isaacs and Lowell Bergman reported on this story for the Investigative Reporting Program of the University of California and FRONTLINE. Some of their work was underwritten by a grant from the Nathan Cummings Foundation. Stephen Engelberg is managing editor of ProPublica. Read their previous stories: “His Man in Macau: Inside the Investigation Into Sheldon Adelson’s Empire” and “Echoes of a Clinton-Era Scandal in a Las Vegas Sands Email.”

A few days after Las Vegas Sands fired the president of its Macau casinos in July 2010, the company copied the hard drives of his office computers and moved the data to its headquarters in Las Vegas. In the months that followed, the company now acknowledges, its lawyers reviewed those records as they prepared to defend the casino giant against a civil suit by the executive for wrongful termination.

But when the executive, Steven Jacobs, asked in court for copies of his documents, a lawyer for the Las Vegas Sands subsidiary in Macau said it could not move files out of the Chinese enclave without permission from local authorities. The lawyer did not mention that copies of the documents were already in the United States.

Federal investigators examining Jacobs’ claims that he had been ordered to overlook illegal activity in Macau faced the same roadblock, the lawyer told a Nevada judge.

In little-noticed court filings earlier this month, however, Las Vegas Sands disclosed for the first time that the copies of Jacobs’ emails and other documents had been transferred nearly two years ago to the United States without notifying Macau authorities.

The filings did not explain the company’s previous statements to the court, noting only that the transfer of records from Macau to the United States had been done “in error.” The company also informed the judge it had destroyed at least some original files when it reused one of Jacobs’ computers in Macau.

The owner of Las Vegas Sands, Sheldon Adelson, has been in the national spotlight as the largest individual donor to Republican candidates in the 2012 campaign. Last month, Adelson and his wife gave $10 million to a super PAC supporting Mitt Romney, which amounted to half of its receipts for June. The New York Times reported that Adelson is funding an effort to target pro-Romney Jewish voters in battleground states and is reportedly planning to meet with Romney in Israel on Monday.

Questions about Las Vegas Sands’ business practices in Macau have emerged as a political issue in the campaign. Democrats recently seized on an allegation in Jacobs’ legal pleadings — that Adelson tolerated prostitution at the Macau casinos — and issued press releases attacking Republican congressional candidates who accepted contributions from a PAC he supports.

Adelson adamantly denied the charge and his lawyer threatened to sue the Democratic Congressional Campaign Committee for libel for advancing the claim.

The company’s recent court filings raise questions about whether Las Vegas Sands has been fully cooperative with the federal investigations of the company.

At a July 2011 hearing before the Nevada judge on the Jacobs case, Patricia Glaser, a lawyer for the Las Vegas Sands subsidiary, said Macau law posed a “stone wall” to federal investigators seeking documents. Glaser said the company had not provided investigators records from its Macau operations “in any way, shape or form.”

People familiar with the federal inquiries said that Las Vegas Sands continued to make similar arguments to federal officials over the past year. The slow flow of documents hampered the case, delaying interviews of key witnesses, those people said.

A spokesman for Las Vegas Sands said the company would not respond to questions about the case, including whether it has turned over any documents since Glaser made her statements last year. The spokesman, Ron Reese, said, “These questions will be answered in due course in the most appropriate forum — namely the courtroom.”

Judge Elizabeth Gonzalez, who is hearing Jacobs’ civil suit, is now weighing financial sanctions against Las Vegas Sands for its conduct in the civil case. Gonzalez told lawyers in the case at a recent hearing that she wants to learn more about “the lack of forthrightness with respect to these documents that were taken out of Macau many years ago and which nobody’s told me about during the entire litigation.”

Gonzalez has allowed Jacobs’ lawyers to take further testimony on the handling of the Macau documents from company officials, perhaps including Adelson, before a scheduled hearing at the end of August on possible sanctions.

The company, which disclosed to investors that the federal investigations involve possible violation of U.S. laws banning bribery of overseas officials, has said it is cooperating with authorities.

It is difficult to assess precisely how delays in turning over documents have affected the federal inquiries, which involve both the Department of Justice and the Securities and Exchange Commission (SEC). Jacobs’ lawyers have said their client turned over copies of some of his documents to federal investigators in response to requests from the Justice Department.

But federal prosecutors and SEC attorneys in such cases typically seek to assemble a complete set of files from the company and its executives before they question witnesses.

Adelson is among the world’s richest people with a personal fortune estimated at $25 billion, a substantial amount of which stems from his company’s profits in Macau, the world’s gambling capital.

* * *

The federal investigations and Jacobs’ lawsuit have their origin in a meeting at the company’s Macau offices on the morning of July 23, 2010. That day, Jacobs says in his lawsuit, he was told by Las Vegas Sands’ CEO Michael Leven that he was being immediately dismissed as president of the Macau subsidiary, Sands China Limited.

A few days later, the parent company’s deputy general counsel, Michael Kostrinsky, asked for copies of Jacobs’ emails and of the hard drive on his computer, according to an account of his deposition filed by Jacobs’ lawyers.

After a failed attempt to transfer the data via the Internet, the files were placed on a separate hard drive and delivered to the company’s Las Vegas offices. Kostrinsky then had material copied to his laptop where it was stored in a folder marked “Jacobs emails,” according to the summary of Kostrinsky’s deposition.

Kostrinsky said that lawyers with Glaser’s law firm, Glaser, Weil, Fink, Jacobs, Howard, Avchen & Shapiro, were aware that Las Vegas Sands had copies of the documents and had access to them, the summary alleged. The summary did not identify the lawyers, and it is unclear whether Glaser was among them.

Glaser declined to respond to requests for comment but directed reporters to Las Vegas Sands.

According to the summary, Kostrinsky said that J. Stephen Peek, a lawyer from the Las Vegas office of Holland & Hart working on the case for Las Vegas Sands, came to his office and spent an afternoon reading the files on his laptop.

Peek did not respond to a request for comment.

On Oct. 20, 2010, Jacobs sued Las Vegas Sands in Nevada, arguing that he had been wrongfully dismissed after a series of clashes with Adelson over what Jacobs alleged was improper and illegal conduct. One issue cited by Jacobs involved whether the company should continue paying a Macau legislator as its local lawyer.

Jacobs said in his lawsuit he ultimately warned Adelson and other executives that continuing this arrangement posed “serious risks” of violating the Foreign Corrupt Practices Act, the U.S. law that bans overseas bribery by American companies.

That assertion caught the eye of federal officials. On Feb. 9, 2011, the SEC sent a subpoena to Las Vegas Sands demanding documents in connection with possible violations of the anti-bribery law.

No copy of that document has been made public so it is unclear precisely what documents investigators are seeking. Las Vegas Sands publicly disclosed the existence of the inquiry in a filing with the SEC.

As the federal investigations moved ahead, the company mounted a vigorous defense against Jacobs’ lawsuit, which Adelson argued was based on inventions by a disgruntled ex-employee.

The company’s lawyers argued that Jacobs could not bolster his lawsuit with documents stored on his laptop because they were not his property and they contained material protected from disclosure by the attorney-client privilege. In response, Jacobs went to court and asked Las Vegas Sands to give him the same material from its files with the privileged material removed.

Lawyers for the Las Vegas Sands subsidiary said they could not move the documents to the United States without permission from officials in Macau.

At the July 2011 hearing before Judge Gonzalez, a lawyer for the Las Vegas Sands subsidiary in Macau said the Macau Personal Data Protection Act imposed strict procedures. The lawyer, Glaser, said the company would have to send lawyers to Macau and would have to “go document by document” and might have to ask “everyone who’s named on any of these emails” to sign a form consenting to their transfer out of the country.

The documents would then have to be reviewed by Macau’s Office for Personal Data Protection that would have the final say on each record.

David Fleming, a lawyer with the company’s Macau subsidiary, said in a sworn affidavit that he had met with officials in Macau who had threatened to impose criminal and civil penalties if the law were ignored. The company estimated that lawyers would have to spend eight to 10 weeks in Macau at a cost of more than $1 million to sift the documents.

Glaser told Judge Gonzalez that Macau’s privacy requirements were so strict, lawyers in the United States were not even allowed to review documents remotely. She said Jacobs’ requests for records had already put the company on “the cusp of violating the law.”

* * *

Nearly a year later, lawyers for Las Vegas Sands stunned the Jacobs legal team, acknowledging they had moved Jacobs’ files out of Macau and been studying them for nearly two years.

On June 28, Judge Gonzalez convened a hearing on the matter.

“Mr. Peek, I’ve got a question,” she began, addressing the Holland & Hart lawyer who had read Jacobs’ emails on Kostrinsky’s laptop.

“Why didn’t somebody tell me 11 months ago or so that the Macau Data Privacy Protection Act wasn’t going to be an issue because somehow the document had already gotten to the U.S. and geez, it was by mistake.”

Brad Brian, a lawyer for Las Vegas Sands’ Macau subsidiary Sands China Ltd., told the judge that the transfer of Jacobs’ files was “in error, it shouldn’t have happened.” It was only in late May, after months of talks with Las Vegas Sands lawyers, that Macau agreed the documents at issue, which were already in the United States, could be turned over to the Nevada court, Brian said.

Gonzalez reminded the lawyers that she had been told for months that it was not possible to negotiate directly with Macau authorities on their privacy concerns. “Nobody thought to say, ‘Gosh, Judge, we’re already talking to them because we screwed up and took this information we weren’t supposed to and we’re trying to see what we’re supposed to do now?'”

“In hindsight, if you could roll the clock back, there’s no doubt that it would have been better to advise the court of that,” said Brian, whose firm Munger, Tolles & Olson was brought into the case earlier this year and was not involved in the initial decisions on the Macau documents.

In a court filing, Las Vegas Sands lawyers detailed other instances in which the company transferred data from Macau to the United States without review by local authorities. These included five other company employees whose records might be needed for the federal investigation and data that was used by another outside law firm working for the company.

Two months after Jacobs’ attorneys delivered selected documents copied from his laptop to federal investigators, he reported a burglary at his Florida home.

According to a police report, Jacobs told investigators that someone had stolen a computer hard drive from its hiding place inside a coffee maker. Jacobs said other files were missing from a plastic crate near the door of his apartment.

Jacobs told the police nothing else was taken.

The coffee maker was sent to the Federal Bureau of Investigation for DNA testing.

The case remains unsolved.

Photo: Casino workers stand at gaming tables inside the Sands' newest integrated resort, Sands Cotai Central, in Macau Wednesday, April 11, 2012. (AP Photo/Kin Cheung)
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