Las Vegas Monorail Bondholder Sues for Fraud
"According to the complaint, Citigroup's official prospectus for the $600 million-plus bond offering in 2000 failed to disclose a highly material report - one that 'seriously undermined the reliability of' ridership projections that Citigroup and monorail backers were using to convince investors that the monorail was a sound investment," writes Steven Miller.
The report in question (PDF, 1MB) was issued by Wendell Cox and commissioned by the Venetian Hotel Casino and Resort in Las Vegas. The report identified ridership and advertising far less that the figures on Citibank's prospectus.
From the lawsuit (PDF 1MB): "The conclusions in the [Wendell] Cox Report proved to be prophetic. In 2005, the first full year of operation, the Monorail did not achieve anywhere near the level of ridership that had been projected in the DRS Study. Monorail ridership was about ten percent greater than the optimistic projection in the Cox Report, but was about half the ridership projection in the DRS Study. Advertising revenue was substantially less than the conservative estimate in the Cox Report.
By mid-2006, Citigroup was not only fully aware of the existence and content of the Cox Report, but also knew the projections in the Cox Report had proven to be far more accurate than those in the URS Study with respect to the Monorail's first full year of operations. Citigroup also knew that, unlike the URS Study, the Cox Report set forth a substantial amount of objective, factual data in support of the conclusions set forth in the Report."
The monorail company filed for bankruptcy in January 2010 when analysts warned it would never generate enough revenue to service its state-issued bond debt. The bonds were issued by the state, but were not guaranteed by the state.
"The Las Vegas Monorail - despite years of protestations to the contrary - is still seeking a shotgun marriage with Nevada taxpayers, hearings in U.S. bankruptcy court confirmed" in November, 2011, according to Steve Miller in an Despite repeated promises of backers, government takeover of monorail looms.