An internal investigation by 500.com revealed what everyone knew anyway: the company is rotten to the core.
Japanese lawmaker Tsukasa Akimoto lost his job over allegations he accepted bribes from 500.com. The Chinese gambling company wanted in on Japan’s integrated resort industry, Japan’s attempts to launch a regulated, legal casino market. 500.com greased Akimoto’s palms to help its application go smoothly.
Akimoto lost his job, as did 500.com CEO Zhengming Pan who resigned when bribery allegations broke. The company has been struggling financially since China banned online lottery sales. The company tasked Pan with diversifying the company’s revenue streams and getting a foothold in Japan was crucial.
Akimoto stepped aside following revelations he accepted ¥3m ($39,550) from 500.com during a trip to the company’s headquarters. 500.com also paid for ¥100,000 ($1,320) worth of luxury goods during the trip. Akimoto argued he was willing to pay for himself but the company offered.
500.com Faces Class-Action Lawsuit in the U.S.
500.com is listed on the New York Stock Exchange (NYSE) in the U.S. where it faces a class-action lawsuit. Law firm Block & Leviton LLP filed the suit following Akimoto’s arrest. Block & Leviton shed light on the situation.
“The class action complaint, which was filed in the United States District Court for the District of New Jersey and captioned Sun v. 500.com limited, et. al., No. 2:20-cv-00485 (D.N.J.), alleges that 500.com, a Chinese online gambling platform, concealed from investors that its executives were bribing Japanese lawmakers in order to secure development rights for a casino resort project in Japan.”
“The truth began to emerge on Dec. 27, 2019, when a Japanese elected official was arrested and charged with receiving three million yen (approximately $27,400) in cash from 500.com. Then, on Dec. 31, 2019, 500.com announced that it would investigate the bribery allegations, and announced the resignation of its Chairman of the Board, and the temporary departure of its Chief Executive Officer pending the outcome of the internal investigation. As a result of this announcement, the 500.com stock price fell more than 12% in a single day of trading.”
Internal Investigation Reveals No Surprises
500.com promised to launch an internal investigation and it followed through on that promise. The Special Investigation Committee of the Company’s Board of Directors completed its investigation this week.
The internal investigation found no evidence of anyone violating the US Foreign Corrupt Practices Act of 1977, which is unsurprising. It is super rare that a company drops its executives in hot water even when the evidence points to wrongdoing. The US Foreign Corrupt Practices Act of 1977 makes it illegal for government officials accepting payment from certain individuals. This is especially true when there is a conflict of interests.
The investigation turned up nothing despite the cash Akimoto received being traced back to 500.com. It returned a not guilty plea despite the company’s auditors quitting over its own findings.
Those auditors, Friedmann LLP, resigned after discovering suspect payments that “may have reflected material weaknesses” in 500.com internal controls. Friedmann LLP stated it couldn’t stand behind the financial reports it prepared previously.
A Comedy Of Errors
It is easy to see why the company bribed officials because the company is bleeding cash. It lost a massive revenue stream when China banned online lottery sales. 500.com purchased a Swedish online casino, MultiLotto, but forgot to renew its license. This resulted in an eight-month suspension of gambling activities, which led to even more losses.
Investors in 500.com are extremely angry. US11.31 was the share price 12-months ago. It fell to US$7.92 on January 6 when the company corruption came to light. Those same shares crashed to US$3.03 when trading closed on October 7.
It’s difficult to see a way out of this mess for the company. The company needs a complete overhaul but that doesn’t come cheap and it simply doesn’t have the money. The authorities will closely scrutinise everything the company does in future. There’s a significant chance it will go to the wall. You won’t see it offering an Australian online casino any time soon, that is for certain.