HONG KONG/LOS ANGELES The Macau government has launched an official investigation into Sands China, owned by billionaire Sheldon Adelson, after the company transferred documents linked to a wrongful dismissal case to the United States from Macau.
It is the latest twist in a saga that has become a firestorm for the casino mogul, who owns casinos in Las Vegas, Macau and Singapore and is the most active donor in U.S. Republican candidate Mitt Romney's presidential campaign.
Adelson's lawyers are due to face an August 30 hearing in the United States, where District Court Judge Elizabeth Gonzales will decide whether Las Vegas Sands Corp withheld financial documents in a case in which the 78-year-old is accused of having personally approved of prostitution at the company's casino in China's special administrative region of Macau.
Sands, the biggest casino operator in Macau by market value, announced the Macau investigation on Wednesday in a voluntary notice. It did not provide further comment on the probe.
The closely watched case began in October 2010 as a wrongful termination suit filed by Steven Jacobs, who was fired in July 2010 from his job as chief executive officer of Sands China Ltd, Sands' Macau subsidiary.
Jacobs claims in court documents that he was wrongfully dismissed after clashing with Adelson over what Jacobs alleged was improper and illegal conduct, including allowing prostitution and hiding the use of unauthorized construction workers for the Sands China casino.
His suit triggered a federal investigation by the U.S. Securities and Exchange Commission into its Macau operations.
Sands lawyers acknowledged to Judge Gonzales in June that they were in possession of documents from Jacobs' computer hard drive, after having previously said that the information could not be produced without violating Macau data protection laws.
Last week, the nonprofit investigative-journalism organization ProPublica reported that Sands had transferred these documents to the United States from Macau, citing a court filing and a deposition of Sands Assistant General Counsel Michael Kostrinsky.
Sands lawyers now say, according to a filing, that the documents were transported "in error" on a hard disk to the casino's deputy general counsel in the U.S. in November 2010 without notifying Macau authorities.
The charges cast a harsh light on Adelson, the largest individual donor to U.S. Republican candidates in 2012 campaigns. Adelson and his wife recently gave $10 million to the Restore Our Future, a super PAC to support Romney's presidential bid.
The company denies all the charges made by Jacobs. "These questions will be answered in due course in the most appropriate forum -- namely the courtroom," said Sands spokesman Ron Reese.
In March 2011, Las Vegas Sands also said it was being investigated by U.S. authorities for potential breaches of the Foreign Corrupt Practices Act (FCPA), which prohibits bribes to foreign officials by U.S. companies.
Shares in Sands China fell 3 percent after the market opened in Hong Kong on Wednesday but erased gains to trade down 1 percent ahead by midday.
The latest skirmish between Jacobs and Adelson and the Macau government investigation comes at a time when growth is sharply slowing in the world's largest gambling destination, dealing a further blow to Adelson's casino behemoth.
Las Vegas Sands' second quarter earnings released last week missed forecasts, hit by lower profits at its Asian properties that had previously been resilient in offsetting broader economic malaise.
Macau on Wednesday said gambling revenues inched up 1.5 percent in July from a year earlier, the slowest growth since the financial crisis in 2009 as a tropical storm reduced visitor numbers, compounding subdued demand from Chinese gamblers.
The August hearing in the U.S. could have significant ramifications for Sands and Adelson, ranging from a fine to a favorable ruling for Jacobs on certain issues. The former employee is seeking millions of dollars in salary, bonuses and stock options.
"In general, a sanctions hearing can be a big deal in this context," said Eli Richardson, a lawyer with Bass, Berry & Sims, who specializes in the Foreign Corrupt Practices Act. "The court could decide to rule in the plaintiff's favor just because the defendant did not produce what it should have produced."
Jacobs has also alleged he was fired because he objected to illegal demands made by Adelson, such as one involving the hiring of Macau lawyer, Leonel Alves, a Macau public official.
Hiring Alves, who was listed as Sands China's counsel for more than a year, could have put the company in violation of the FCPA, Jacobs claimed. Paying a public official in any capacity raises questions of bribery by U.S. companies abroad.
Adelson is also embroiled in other court battles, including one in Macau where he is being sued by Asian American Entertainment, a former business partner who is a Taiwanese businessman known as Marshall Hao.