In February, I wrote about a proposed offering that involved a racially based share allocation scheme. See May Corporations Allocate Shares Based On Race, Gender, Or Ethnicity? Last month, it appeared that the offering was stalled at the Securities and Exchange Commission. See Intentionally Discriminatory Public Offering Stalled At The SEC. Recently, the company, Bally’s Chicago, Inc., disclosed that it intends to proceed with the offering. However, now the company says in an amended registration statement that it intends” to provide preferential allocations of Class A Interests to City of Chicago residents and Illinois residents during this offering”.

The company’s change of plans appears to be in response to litigation, which it describes in Note 14 to its Consolidated Financial Statements:

On January 29, 2025, the American Alliance for Equal Rights and certain other individuals filed a complaint against the City of Chicago, certain members of the Illinois Gaming Board, and the Company, alleging that the Class A Qualification violates federal laws and seeking, among other remedies, permanent injunctions to prevent the Illinois Gaming Board members from enforcing 230 ILCS 10/6(a-5)(9), to allow shareholders to sell their Class A Interests to white males, to mandate the rescission of the Host Community Agreement (“HCA”), and to require the rescission of shares sold under the Class A Qualification Criteria. In addition, on January 30, 2025, a complaint was filed against the City of Chicago (including the Mayor and Treasurer in their official capacities), certain members of the Illinois Gaming Board, and the Company, also alleging that the Class A Qualification violates federal laws and seeking, among other remedies, permanent injunctions to prevent the implementation of the HCA’s requirements for minority and woman ownership in the Company, and to prevent the exclusion of “otherwise qualified individuals” from participating in the Company’s ownership, Board, or employment. On January 31, 2025, an emergency motion was filed for preliminary injunction and temporary restraining order, seeking to preclude the closing of the offering while the case proceeds on the merits. On February 6, 2025, the court denied the plaintiffs’ request for a temporary restraining order to enjoin this offering.

The Company expects to incur substantial costs defending this lawsuit and if any person were to bring such a lawsuit against the Company in the future, the Company could incur additional substantial costs defending against any additional lawsuits. In addition, the time and attention of the Company’s management could be diverted from the business and operations. Furthermore, in the event that a court were to find the Class A Qualification Criteria to be invalid or unconstitutional, the Company could be found liable for monetary damages against the plaintiffs and the HCA could be terminated, which could adversely affect our ability to operate our casinos and could materially adversely affect our business, financial condition and results of operations.

It will be interesting to read any SEC staff comment letter on this issue.