Federal Probe Delays Diller, IAC Licensing For MGM Resorts Investment

March 18, 2022
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The Nevada license application for investor Barry Diller was returned to staff Thursday for further investigation after a decision on his suitability and approval of IAC/InterActiveCorp’s $1bn investment in MGM Resorts International was put on hold due to a federal probe into stock option trades.

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Editor's Note: This story was updated with comment from IAC at 12:53 p.m.

The Nevada license application for investor Barry Diller was returned to staff Thursday (March 17) for further investigation, after a decision on his suitability and approval of IAC/InterActiveCorp’s $1bn investment in MGM Resorts International was put on hold due to a federal probe into stock option trades.

The Financial Times (FT) reported March 9 that Diller and two other investors were under investigation for potential insider trading connected to the purchase of Activision Blizzard options in January, days before the video game company was acquired by Microsoft.

The FT and other media outlets reported the investigation a week after the Nevada Gaming Control Board (NGCB) unanimously recommended licensing approval on March 2 for Diller and IAC, which controls about 14 percent of MGM Resorts.

Nevada Gaming Commission chairwoman Jennifer Togliatti cited several gaming regulations related to an applicant’s suitability as the reason for referring Diller’s license application back to NGCB staff for further investigation.

Togliatti did not mention the ongoing investigation by federal prosecutors and securities regulators in referring the application back to staff. She delayed any licensing decision on CEO Joseph Levin and IAC until the commission's April 21 meeting.

It is unclear how long the Diller investigation will take and when the commission will consider his gaming license application.

"Today’s referral back and continuance of the agenda items were procedural. We have steps to the licensing process to ensure that regulators each step of the way have, to the best of our ability, all the relevant information related to suitability of each applicant," Togliatti said in a statement emailed to VIXIO GamblingCompliance after the hearing.

"Therefore, news of an alleged investigation of an applicant by any government agency can warrant a remand back from the Nevada Gaming Commission to the Nevada Gaming Control Board pursuant to our processes, as was the case in this instance," she said.

Diller, 80, has a net worth of $4.6bn, according to Forbes magazine. Diller, music mogul David Geffen and Alexander von Furstenberg, son of Diller’s wife and famous fashion designer Diane von Furstenberg, are being investigated.

The U.S. Department of Justice and the Securities and Exchange Commission are investigating whether Diller and the two other men used non-public information to profit from Microsoft’s acquisition of Activision. The three investors purchased options to buy Activision shares for $40 on January 14 in a deal executed by J.P. Morgan.

The company’s shares were trading at $63 at the time the options were purchased, making the investment immediately profitable. As of March 9, the three had not sold their options, which were valued at about $60m worth of paper gains, the FT reported.

Diller, who confirmed he has been contacted by investigators, gave CNBC a statement denying any wrongdoing.

“None of us had any knowledge from any person or any source or any anything about the potential acquisition of Activision by Microsoft,” Diller said in the statement.

IAC spent $1bn to acquire its initial 12 percent stake in MGM Resorts in August 2020. Diller and Levin are both members of the MGM Resorts board of directors.

“The matter was simply delayed. We expect no issues with respect to Mr. Diller’s application nor with IAC’s,” the company said in a statement.

Neither Diller nor Levin appeared at Thursday’s commission meeting.

The NGCB initial hearing on March 2 was routine as the three-member board recommended approval of IAC, and the suitability of Levin and Diller to invest in MGM Resorts. IAC has invested in more than 150 brands world-wide, including People magazine and the Daily Beast.

Levin said he and Diller like MGM because it looked like a good investment. He told the control board that the investment “checked all the boxes in terms of business opportunities.”

When IAC purchased its initial 59m shares, Diller and Levin acknowledged in a letter to shareholders that they have bought into a “business that has relatively little to do with the internet today.”

At the time, BetMGM, the 50-50 partnership between MGM Resorts and Entain, was relatively new. Currently, BetMGM ranks among the top three online sports-betting operators, with FanDuel and DraftKings, in the U.S.

Consumers Slow To Embrace Cashless Gaming

On another matter before commissioners on Thursday, Scott Sibella, president of Resorts World Las Vegas, told Nevada regulators that the adoption of cashless gaming by consumers is going well, but it is still very new when it comes to table games.

The decision by Resorts World Las Vegas to offer consumers a completely cashless gaming and non-gaming experience was a risky one when the $4.3bn resort opened last June at the site of the former Stardust casino on the Strip.

“We continue to educate the table game customer,” said Sibella. “So it is gradually growing and that is what we are focusing on.”

Sibella said cashless wagering has been quickly adopted by a younger customer who like it and want to use it. He said casino staff are educating older customers because they have been using chips or Ticket In/Ticket Out for such a long time.

“But we know in time it will come just like it did with getting rid of coins,” Sibella said.

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