The Nevada Gaming Commission Thursday limited billionaire media mogul Barry Diller to a two-year license for his ownership stake in MGM Resorts International while he remains under investigation for insider trading by the federal Securities and Exchange Commission and Justice Department.
Diller, a member of MGM’s board of directors, shouted “That’s not fair!” from the audience when the Commission was discussing a license limitation instead of full-blown licensing. That could not be heard during the online broadcast, but Commissioner Ogonna Brown relayed the comments to Chairwoman Jennifer Togliatti who participated in the meeting remotely.
The Commission voted 4-1. Only Brown objected, saying no limitation was needed on Diller. If anything arose from the federal investigation, the Commission could take action, she said.
During the hearing, which lasted nearly two hours, Diller told the Commission that it was “bad timing” and he had no insider knowledge of his stock purchase that’s under scrutiny.
The issue arose when the Wall Street Journal, after the Nevada Gaming Control Board had recommended in March that Diller be licensed unconditionally, reported Diller, fellow media mogul David Geffen, and Diller’s stepson Alex von Furstenberg acquired a large amount of shares of Activision Blizzard stock mere days before the video game maker agreed to be acquired by Microsoft for $68.7 billion.
Activision shares soared on the news of the deal and the Journal reported that the three men had an unrealized profit of about $59 million on an options trade.
“Would we (do that) on the eve, knowing that there was a transaction to be announced?” Diller asked the Commission. “I didn’t wait until I was 80 years old to commit a fraud.”
Diller said he immediately recognized how it looked and wanted to give the shares back.
“We don’t need these resources,” he insisted. “I thought this was one of those situations where people were going to say, ‘Oh my God.’ It’s binary. We either did or did not have any knowledge of any acquisition or activity that was going to take place with Activision.”
IAC, of which Diller is chairman, has a 14% ownership stake in MGM. IAC CEO Joey Levin was approved his licensing without conditions.
Diller, the chairman of Expedia, founder of Fox Broadcasting Company and USA Network, and the former chairman and CEO of Paramount Pictures, can return to state gaming regulators for full licensing once the matter is resolved without any wrongdoing alleged, Commission members said.
The Journal reported that the Justice Department has undertaken a criminal probe to determine whether insider-trading laws were violated. The SEC is conducting a civil investigation.
Commission members said that while their staff interviewed Diller, they still lack the inside knowledge of the investigations and just want to be prudent.
Commissioner Steven Cohen, who paused several seconds before ultimately voting for a two-year license limitation, said a person of Diller’s means and success wouldn’t jeopardize that at this point in his life. But he said, “We don’t know what the future may bring. Because of that, it’s raised an issue in my mind of how we handle this application. But for this lightning-in-a-bottle trade, you are an absolutely perfect fit for MGM. … The question is how do we reconcile that to make sure everybody walks out of here where they need to be? You need certainty that your investment is safe. MGM needs certainty that a member of its board of directors will be serving for the rest of his life and all is merry.”
That elicited a response from Patrick Madamba, senior vice president and legal counsel at MGM Resorts, who said there hasn’t been an allegation or finding of wrongdoing. He said Diller has been guided by ethical conduct in his life.
“The record before you at the moment is a clean report of a person who’s lived an exemplary life for 80 years,” Madamba said. “This is an unfortunate intervening event, but at the moment it’s really right for anyone’s consideration until you get further down the road. Hypothetically if you get further down the road and something causes you concern and there’s some adverse finding, the system is already set up to deal with it through an order to show cause through a disciplinary action. You have a system in place and it’s worked for decades in the state and been a model of regulatory systems for many other jurisdictions around the United States.”
Madamba said a limited license is typically for someone who behaved in a way that would cause the Commission to be concerned. It’s something that can be seen and the course of action is to give a person a chance to implement remedial measures, he said.
“There’s nothing here at the moment that is an act of wrongdoing, a finding of wrongdoing, or an allegation of wrongdoing,” Madamba said. “There’s no conduct to remediate, but I suggest that you can find Mr. Diller suitable and place conditions of continuing to keep you apprised.”
Commission member Rosa Solis-Rainey, who made the motion for a two-year limitation, said, “There’s no way we could ignore the ‘intervening event.'” Allowing the process to work doesn’t “call into question the is veracity of what he’s telling us.” She said Diller has been forthcoming and cooperative, but that the issue “is just something that’s unknown to us at this point. While there are no accusations, the fact that we know suggests there may be more to it. It could be a coincidence or not. He either did it or didn’t. I don’t know what the answer is, but it’s not something we can ignore. To me, a gaming license is a privilege.”
Brown said there’s no evidence to show her a reason why there should be conditions placed on the license. “Coincidences occur all of the time.” If anything is found, Diller should let them know and the Commission can deal with it appropriately, she noted.
“Notwithstanding the uncanny timing, I don’t see anything he’s done as I sit here today that questions his integrity, character, or honesty. The limitation is not necessary. It’s not helpful. I don’t want to say we’re tarnishing someone’s integrity, honesty, or character, but it doesn’t help.”
John McManus, MGM”s executive vice president, general counsel, and secretary, called it a “difficult and unusual situation where you have an intervening leak of an investigation.”
Some states may not agree that Nevada is the gold standard for regulation, but the state has become a predictable environment for gaming license holders from across the world and how it sends a positive message that they can withstand scrutiny, he said.
“I think in this case, if we take what I call a more cautious approach of issuing a limited license, it might send a different message about the stability of the environment here and what a licensee or applicant can expect when they come to the jurisdiction,” McManus said. “It either happened or it didn’t. All we have is an investigation. If some of the feared situations occur in the future, it will likely be clear cut that there is some evidence of what he has told you and told others, and then it will be a very clear and easy path for resolving it.”
