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Danger: This Great Canadian Company May Be Laundering Money at 1 of its Locations

The government of British Columbia recently released a report dated July 2016 that notes the potential for money laundering at the River Rock Casino Resort, a casino owned by Great Canadian Gaming Corp. (TSX:GC). Following the news, shares of GC pulled back over 3% in Monday’s trading session. As more details are released on the story, investors should prepare for more downside.

Though the report is quite old, this is a new story which could severely hurt the company’s reputation.

Great Canadian Gaming Corp. has been a terrific cash cow to own for the long term; however, many investors may be clueless as to what they should do with their shares following news of such a scandal. Some investors have taken a “sell first, ask questions later” approach. Personally, I think this is the right (and cautious) way to approach such a situation.

I’d never recommend selling a stock after such an intraday decline, unless there’s some fraud going on behind the scenes. I have a rule of thumb to avoid potential downside brought forth by such unexpected events. If there are any signs of fraud or the potential for criminal activity in a business I’m invested in, I sell. Then I ask questions.

Sure, you could miss out on a buying opportunity if the news release was a misunderstanding, but a lot of the time, where there’s smoke, there’s usually fire, and as more news is released, the stock could be headed for a major downward spiral. If you used such a cautious strategy, you would have saved yourself from a world of pain in the case of Valeant Pharmaceuticals Intl Inc.

What exactly happened?

Investigations occurred on behalf of the British Columbia government following a transfer of $13.5 million worth of $20 bills in the month of July 2015. Staff members have also been potentially under-reporting suspicious activities.

Great Canadian Gaming Corp. stated that it “strictly adheres to all regulatory requirements and maintains the highest standards of reporting at our properties.”

What now?

The public report is likely to cause a tonne of volatility going forward. There is potential for more investigations, and if further news proves money laundering activities, shares of GC could be headed for a really nasty pullback. I’d avoid the stock at these levels, because there’s too much uncertainty going on, and if the company has been laundering more money than originally expected, there will be negative implications.

Stay smart. Stay hungry. Stay Foolish.

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Fool contributor Joey Frenette has no position in any stocks mentioned. Tom Gardner owns shares of Valeant Pharmaceuticals. The Motley Fool owns shares of Valeant Pharmaceuticals. 

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