Scientific Games’ third largest shareholder sued the gaming equipment giant Wednesday, claiming the company “schemed” with its largest shareholder to disqualify the investor.
The lawsuit, filed in Delaware by Sylebra Capital Partners, was in response to a lawsuit filed in June by Scientific Games. The legal action raised suitability concerns over Sylebra, which owns a 9.84% stake in Las Vegas-based Scientific Games, one of gaming industry’s largest equipment providers with business interests in both casinos and the worldwide lottery market.
Sylebra claimed the company and Chairman Ronald Perelman sought to “raise concerns with gaming regulators” about Sylebra’s suitability and “then use these fabricated concerns as a pretext to invoke a provision under the company’s charter to disqualify all Sylebra-related entities as investors.”
Perelman, through his New York-based MacAndrews & Forbes investment arm, controls almost 36.8 million shares of Scientific Games, or nearly 40 percent of the company.
In its four-month-old lawsuit, Scientific Games said investigators found that Sylebra owned a significant stake in a Russian company with alleged ties to illegal gaming, money-laundering and financial support of terrorist organizations.
The company said Sylebra, which has a significant presence in the Cayman Islands, refused to comply with requests for information and disclosure submissions for suitability by gaming regulatory bodies, according to the lawsuit.
On Wednesday, Sylebra attorneys wrote that Scientific Games never expressed any concern about Sylebra’s suitability to be a gaming investor when it first acquired stock in the gambling equipment company.
“Scientific Games even helped Sylebra navigate the regulatory landscape with full knowledge of their investment objectives,” attorneys wrote. However, a “shift in attitude coincided with a significant increase in the value of Scientific Games’ stock, which had nearly doubled since the Sylebra Plaintiffs’ initial investment.”
The 76-year-old Perelman – currently No. 49 on the Forbes 400 with a net worth of $9.2 billion – has spent more than $33 million to acquire additional Scientific Games stock since December.
“In response to Scientific Games’ efforts to ensure integrity and transparency, which is required by U.S. regulators, Sylebra has sued to distract from the basic and obvious fact – Sylebra has simply not provided plain vanilla information which would resolve this dispute as well as the lawsuit SG filed against Sylebra months ago,” Scientific Games Vice President of Corporate Communications Susan Cartwright said in a statement Wednesday.
In the lengthy 11-count filing, Sylebra sued the company and Perelman, as well as the company’s board, current CEO Barry Cottle and previous CEOs Kevin Sheehan and Gavin Isaacs. Accoridng to a statement, Sylebra is seeking more than $290 million in damages from Scientific Games.
In June, Nevada Gaming Control Board Chairwoman Sandra Douglass Morgan said the agency’s investigations division would review the Scientific Games lawsuit but wouldn’t open its own investigation. Sylebra’s ownership stake is below the state’s 10 percent threshold required for licensing.
Sylebra has been an investor in Scientific Game for roughly four years.
According to Nasdaq, Scientific Games is Sylebra’s third largest investment and its only gaming ownership, listing holdings in 28 public companies.
In the lawsuit, Scientific Games called Sylebra’s capital management structure “unusual.” The hedge fund has several entities in the Cayman Islands. Sylebra has a website – http://sylebra.com/ – and, according to Bloomberg, is a private asset management firm. It listed three principal executives.
According to an April 2018 article in Bloomberg, Sylebra’s $1.1 billion fund “profited from bullish and bearish investments in smaller tech companies” even as the overall stock market “tanked.”
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
