Macau court ruling leaves junkets on the hook for investor funds

Macau court ruling leaves junkets on the hook for investor funds

Macau court ruling leaves junkets on the hook for investor fundsMacau casino junket operators are fearing the ramifications of a local court ruling on the nature of junket investor funds.

This week, Portuguese-language media outlet TDM reported that Macau’s Court of Second Instance had ordered a former VIP gambling promoter to repay an investor the HKD 2.5m (US $322k) she had given the junket operator.

The ruling, which was handed down last week, involved junket operator Cheong Wai Leng, who ran a VIP room at SJM Holdings’ Grand Lisboa casino. In 2009, Cheong solicited funds from multiple investors, offering returns of 3% per month on what Cheong characterized as deposits.

But luck wasn’t with Cheong, who ended up closing her Grand Lisboa VIP room, leaving investors high and dry. Cheong subsequently cancelled her junket license and refused to make her investors whole, insisting that there were risks associated with all investments.

But the Court rejected Cheong’s argument, saying that while “the related contract is titled as investment, there is nothing related to an investment purpose at all.” The court noted that none of the investors were granted rights normally held by shareholders, and wondered why Cheong was paying investors 3% monthly interest regardless of whether or not her business was actually turning a profit.

The Court also rejected Cheong’s argument that the investor contributions were deposits, as the law prohibits anyone other than banks from accepting other people’s money as deposits.

While the Court ordered Cheong to repay the investor plus interest, it added that the 3% monthly interest agreed to by the parties was “higher than the maximum allowed by law, so this must accordingly be reduced to three times the legal interest rate.” The ruling therefore caps the annual interest rate on junket operator investments/loans at 29.25%.

The verdict presents potentially serious implications for Macau junket operators, who would appear to be on the hook for investor funds even if the junkets become insolvent.

Macau’s junket industry has suffered a series of very public incidents in recent years which investor funds were stolen by junket staffers. It’s thought that these incidents aren’t actually anything new, but simply the result of previously media-shy junkets going public.