A collective of investors in the UK-based online gaming giant Entain (OTC: GMVHF) have initiated a class-action lawsuit aimed at seeking restitution for the harm inflicted on the company’s stock value by a bribery investigation concerning its previous Turkish operations. 

The lawsuit, submitted on Wednesday in London's High Court by 20 institutional investors, seeks $150 million in compensation. It alleges that Entain did not adequately notify investors about an investigation by the UK tax authority, HMRC, concerning bribery and corruption involving the Turkish subsidiary, Headlong. 

In the end, Entain would incur one of the largest penalties in UK corporate history, totaling £600 million (US$760 million) to settle the matter. The company's shares have nearly decreased by fifty percent since May 2023 when it alerted shareholders about the forthcoming penalty. 

 

Suspicious Connections 

In December 2017, Entain, previously recognized as GVC Holdings, transferred Headlong at no cost prior to its intended acquisition of the British traditional betting firm Ladbrokes-Coral. 

Online gambling is prohibited in Turkey, and the company sought to eliminate black-market operations that could provide regulators a justification to cancel the Ladbrokes agreement. 

However, in the past, Headlong represented a third of Entain’s income, and the firm used dubious cash-collection networks and payment processors to conceal dealings from Turkish financial authorities. It also supposedly offered bribes to Turkish officials to ignore the situation. 

HMRC charged Entain with not preventing Headlong employees from participating in bribery. The unit was managed so inadequately that certain employees were swindling the parent company by diverting funds. 

Entain, which currently holds 50% of BetMGM, faced the possibility of prosecution under the UK Bribery Act; however, prosecutors ultimately chose not to proceed, as this could have led to the company losing licenses globally, thereby threatening many jobs. 

 

Internal Turmoil 

If the case goes to trial, a judge must assess how much the Turkish investigation impacted Entain's decline in the stock market. Several other elements have negatively impacted its share price in recent years, particularly a number of unsuccessful acquisitions. 

Recently, activist investors have assumed a more significant role in the group and expressed worries regarding its strategic direction. This might have resulted in the resignation of the then-CEO Jeannette Nygaard-Anderson in December 2023 amidst speculations of internal turmoil. 

Andrew Williams, a partner at Fox Williams, the law firm that submitted the complaint, expressed his hope that the lawsuit would “offer institutional investors the opportunity to recover substantial losses, but more importantly, serve to improve transparency and governance within the UK’s gambling sector, reminding public companies that they need to take their disclosure obligations seriously.”