Santa came early for shareholders of lottery operator GTECH Holdings (NYSE:GTK) last week. On Friday, an article in TheWall Street Journal broke the news that Brazilian law enforcement has decided not to prosecute either the company or three of its current and former executives. In response, GTECH's shares leapt up by 5.6%.
While not exactly unexpected, the news still must have come as a relief to investors in the company, who have suffered a string of bad news over the past few months. First came the report that Brazil's Public Ministry planned to indict the president and marketing director of GTECH's Brazilian subsidiary, as well as a former senior vice president of GTECH Holdings, on charges stemming from a contract between GTECH and Brazil's lottery operator, Caixa Economica Federal. Next came the news that the U.S. Securities and Exchange Commission (SEC) had caught wind of the controversy to its south and was launching its own informal investigation. Then, in May, it was learned that Puerto Rico had given a lottery contract, which GTECH wanted, to rival Scientific Games (NASDAQ:SGMS) instead -- a decision apparently influenced by the noise from Brazil. And finally, in August, the SEC decided that the scandal had gotten sufficiently hot that it needed to formalize its own investigation and subpoena documents from GTECH.
But it now appears that August was the high water mark for GTECH's danger. If the reports cited by the Journal prove true (Brazilian law enforcement has made no public announcement yet), then none of the company's officers are any longer in danger of criminal indictment in Brazil. The only real danger still facing GTECH in Brazil, then, would be the possible loss of certain allegedly "excessive" profits already earned. A Brazilian court has already ordered 30% of all lottery revenues destined for GTECH to be withheld pending resolution of the "excessive profits" matter, but GTECH is appealing that ruling.
In the U.S., it's likely that the SEC investigation will follow the Brazilian authorities' lead and conclude that the bribery charges were groundless. That would almost certainly head off any risk of the U.S. Department of Justice jumping on the legal bandwagon and filing criminal charges against GTECH for violation of the Foreign Corrupt Practices Act. In sum, the scandal down south appears to be winding down, with GTECH likely to win game, set, and match.
For Foolish background on GTECH's Brazilian imbroglio, read:
- GTECH Thrives but Holds Wild Card
- Can GTECH's Stock Survive SEC Probe?
- Gambling on GTech
- GTECH's Dicey Situation
Fool contributor Rich Smith has no position in any of the companies mentioned in this article.
