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LVS Upped, but Down after upgrade & subpoena

HedgeFundLIVE.com — In this morning’s rendition of HFL Ugprades / Downgrades I heard that a Credit Suisse analyst upgraded Las Vegas Sands (NYSE:LVS) from neutral to outperform and put a $56 price target on the stock.  I did a quick news search and saw that casino revenues in Macau rose 48% on a year-over-year basis, according to the Macau Gaming Inspection and Coordination Bureau, to a record 19.86B  patacas ($2.49B). I haven’t seen the Credit Suisse note but it very well may have something to do with this fact.  The Chinese New Year was in February this year and last year so the comp seems to be apples-to-apples.  Nonetheless, LVS stock closed down more than 6% today.  This was thanks to a sneaky little paragraph in the “Risk Factors” portion of the LVS 10-K that was filed today.  The paragraph went something (or exactly) like this:

Any violation of the Foreign Corrupt Practices Act or applicable anti-money laundering regulation could have a negative impact on us.

We are subject to regulations imposed by the Foreign Corrupt Practices Act (the “FCPA”), which generally prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business. On February 9, 2011, LVSC received a subpoena from the SEC requesting that the Company produce documents relating to its compliance with the FCPA. The Company has also been advised by the Department of Justice that it is conducting a similar investigation. Any determination that we have violated the FCPA could have a material adverse effect on our financial condition.

We also deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations. Any violation of anti-money laundering laws or regulations by any of our properties could have an adverse effect on our financial condition, results of operations or cash flows.

My first thought after reading this was: “why didn’t the Credit Suisse analyst wait until the 10-K came out before publishing his upgrade?”  LVS filed their 2009 10-K on March 1 last year, so I can’t imagine it was much of a surprise that one would be filed today.  The investigations by the SEC and the DOJ are related to a wrongful termination suit that was filed by Steven Jacobs, the former CEO of LVS who claims that he resisted “repeated and outrageous demands” to employ “leverage” with Macau government officials.  Between Jacobs’ lawsuit and these investigations it looks like LVS equity will be plagued by an overhang for at least the near future if not longer.  LVS is in talks to develop a $20.3B project in Spain which current LVS CEO Sheldon Adelson has referred to as a mini Las Vegas Strip in Europe.  It is hard to believe that these events will improve those talks.  Then again Spanish government officials may not be too upset.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.