The casino business in Macau is once again under the government's lens following the arrest of the leader of the world's largest junket.
Alvin Chau Cheok-wa, the chief executive officer of Suncity Group Holdings Ltd., and 10 people have been arrested on suspicion of illegal cross-border gambling and participation in a money-laundering scheme.
The billionaire's arrest is the first time a prominent individual in the gaming business has been targeted.
According to the police, those involved in the case admitted that the organization had established gambling websites or engaged in telemarketing activities in other locations.
Wynn Macau Ltd.'s stock fell 10% on the news, while Sands China Ltd. and Galaxy Entertainment Group Ltd.'s stock dropped nearly 8%.
Junket operators act as intermediaries, bringing high rollers to casinos, giving credit to them and collecting on their debts. Macau is dubbed the Las Vegas of Asia and has benefited greatly from the casino sector.
Although VIPs have diminished in relevance for Macau casinos, accounting for only 15% of earnings in 2019, Citigroup Inc. said, the arrest comes as investors and experts alike have become more bullish on the business.
This month, a Bloomberg index tracking the six largest operators entered a bull market, while JPMorgan Chase & Co. and Credit Suisse Group AG improved their sector ratings.
Authorities in Wenzhou, eastern China, announced on Friday that Chau established a junket agent network on the mainland to assist residents in engaging in offshore and cross-border gambling activities.
The Macau administration stated on Saturday that he was escorted to a police station for questioning based on prior evidence and after receiving notification from mainland authorities about the arrest warrant.
Chong Kam-leong, a force representative, insisted the arrests had nothing to do with the mainland warrant but added: "Macau police have always cooperated with law enforcement organizations outside to exchange intelligence."
Prosecutors in Wenzhou, Zhejiang province, have charged Chau with being the brains behind a gambling ring that "wreaks havoc on the country's social order."
JPMorgan and Citigroup stated in notes made following the warrant's issuance that the arrest will harm investor sentiment toward the sector, albeit they downplayed the impact on casino earnings.
Meanwhile, the United Nations said Chau's arrest should serve as a significant wake-up call for the junket business.
"There is little doubt that Chau's arrest warrant will send shockwaves through organized crime in Hong Kong and Macau, but also in the Philippines, Cambodia, and Laos," Jeremy Douglas, UN Office on Drugs and Crime's Regional Representative for Southeast Asia and the Pacific, said.