A group of Chinese investors in the Nevada casino claim the company is basically bankrupt. The casino’s financial issues are what is holding up the change in ownership, according to a report from the Las Vegas Review-Journal.
60 Chinese investors file law suit in L.A.
The bankruptcy claims surfaced in a class action lawsuit SLS investors filed in Los Angeles earlier this month. A group of 60 Chinese individuals who collectively contributed $400 million in loans in 2013 and 2014. They are seeking $225 million in damages.
The defendants in the suit extend beyond the original and current SLS ownership:
- American Dream Fund
- Henry Global Consulting
- Celena Asset Management
- Stockbridge Capital
- sbe Entertainment
- The Meruelo Group
The plaintiffs participated in these loans as a business investment, but there was another part of the deal that appealed to them. Citizenship.
In 1990, the US government enacted the EB-5 Immigrant Investment Visa Program. The law is an attempt to promote business in the US by offering green cards to foreigners with qualifying investments.
In order to qualify, the projects and investments need to satisfy the following requirements:
- The investment must be at least $500,000
- The project must qualify as “risky”
- Investments must be large-scale and create jobs
The loans for SLS supposedly met all of these qualifications. However, so far, none of the 60 plaintiffs have a permanent green card.
Now the first crop of five-year loans are nearing repayment. In addition to loan repayments to the Chinese group in 2018 and 2019, there is also an additional loan from another lender for $185 million due back soon.
SLS owners claim this will not affect the Meruelo sale
The current stakeholders of SLS claim this legal issue will not halt the current sale to Meruelo. However, turns out Meruelo cannot submit the sale to the Nevada Gaming Control Board until there is some sort of resolution.
Moreover, The Meruelo Group is hoping to renegotiate the property’s deal with its Chinese partners. According to the Review-Journal, Meruelo brought three offers to the table since May. The class action group rejected all offers, including this latest one.
The most recent proposition entailed repaying the loans five years later in 2023. Moreover, rather than pay back the value of the loan plus interest, Meruelo wants to pay back the equivalent of 14 percent equity in SLS Casino.
There is a very legitimate reason why the 60 plaintiffs are not interested in renegotiating. Considering they do not have any permanent green cards yet, the fear is substantial changes to the loan terms would void their EB-5 status. As such, they may end up making money, but the worry is they will do so with no citizenship in the US to show for it.
An excerpt from the lawsuit:
“The plaintiffs’ investment in the Phase II LLC will be completely wiped out and many of the plaintiffs will not be able to get their permanent green cards.”
Representation from the American Dream Fund claim the lawsuit is baseless. The attorney, Greg Garman, went on to say no one could have predicted how poorly North Strip projects would have fared over the past few years.