Kapunan: $25 million fraud case

Kapunan snagged in $25-m fraud case in New York

ANTI-CORRUPTION advocate Lorna Patajo-Kapunan has found herself at the receiving end of a $25-million securities fraud case now being heard by the New York District Court.
Kapunan, a long-time counsel of Macau gaming tycoon Stanley Ho and his gambling interests in the Philippines, is being accused along with fellow directors of a US-listed slot machine company, Elixir Gaming Technology, of making numerous glowing misrepresentations about its business prospects.

Those alleged financial misrepresentation eventually led two hedge funds, Prime Mover Capital Partners and Strata Fund, to invest and lose heavily in Elixir, according to the civil complaint.

Kapunan herself was alleged to have accompanied fellow Elixir officials to San Francisco in September 2007 to meet and convince the hedge funds about Elixir’s switch in business focus from a mere casino equipment supplier to a “business participation” strategy.

Elixir’s new strategy involved the company buying slot machines and placing those machines in various casinos in the region under a revenue-sharing scheme.

Elixir claimed that each gaming machine was supposed to bring in an average “net win” of $125 a day to the company and its shareholders, “based,” according to the complaint, “on extensive investigation and operational data obtained from Pagcor.”

“Defendants, including, in particular, Patajo-Kapunan, also boasted, falsely, that because of the influence of Ho and his family, Melco [the parent company of Elixir] and Elixir enjoyed a particularly close relationship with Pagcor that would greatly facilitate the company’s entry into the Philippine market,” the complaint said.

Elixir and its management was particularly cited for issuing a press release in September 2007 claiming that the slot machine company had “delivered agreements for the placement of...500 [gaming machines] at the Manila Prince Hotel,” the Malate hotel of Don Emilio Yap that to this day has remained unopened despite a costly renovation.

The long and the short of the complaint was that Elixir issued forward-looking financial reports that “overstated the number of slot machines under contract or actually placed in the casinos; overstated the financial results of the slot machines that had been placed previously; and falsely stated that each machine was equipped with computer software capable of tracking the revenue generated by each slot machine, when no such software had been installed,” said hedge fund counsel Daniel Osborn.

Elixir issued a short statement in reaction to the New York case, saying it “intends to respond to the complaint in a time and manner consistent with applicable federal and state law.”

“The company intends to vigorously defend itself against these allegations and remains laser focused on driving continued improvements in our core operations,” the statement said.

Kapunan, whose law firm was voted by the Bishops-Businessmen’s Conference as the only law firm deserving of the Institutional Spirituality Quotient, was unavailable for comment.

According to available public records, Kapunan accepted a directorship in another Ho company in Hong Kong in 2000, when her then law partner, Senator Raul Roco, was denouncing the gambling tycoon for the BW scandal that precipitated the downfall of the Estrada administration.