In a landmark decision on directors' responsibility, the Federal Court declared former Star chief executive Matthias Bekier failed to pass on details of suspicious conduct committed by Chinese junket operator Suncity in 2018 and 2019.
That included bundles of cash being delivered to the service desk in blue cooler bags or cardboard boxes and junket staff hiding under blankets to stay out of the view of CCTV cameras.
"I'm going to call it out early, Suncity is operating a business model under our noses which is problematic," Star senior investigator Andrew McGregor wrote in a 2018 email.
Despite these red flags, Mr Bekier did not suggest Suncity's contract be terminated, Justice Michael Lee wrote in a 501-page decision published on Thursday.
"The warning signals were flashing, the alarm bells were ringing," the judge wrote.
"Mr Bekier ought to have ensured that the board was apprised of all the matters relating to Suncity."
Junkets and their international VIP players were highly lucrative to Star, bringing in tens of billions of dollars to the business annually.
Suncity was Star's largest junket partner, drawing $2.1 billion into the casino group in the 2017 financial year.
Star, which runs casinos in Sydney, Gold Coast and Brisbane, heard separately that Suncity's owner Alvin Chau had his visa denied by Australian immigration after bundles of cash were seized in a hotel room and he had alleged links to a Macau triad.
Mr Bekier also "well knew" the casino provided "badly misleading" answers to lender National Australia Bank in 2020 about concerns gamblers were using their China UnionPay cards for gambling, which was prohibited by the foreign card scheme, the court found.
"The 'culture' that prevailed (at Star) was so dysfunctional and unethical that senior management was tardy in preventing junket operators from behaving inappropriately and lied to its bankers to secure an ongoing commercial advantage," Justice Lee said.
Both Mr Bekier and Star's former company secretary and general counsel Paula Martin breached corporation law by failing to disclose the Suncity and China UnionPay risks to the board, the judge found.
The decision marks a partial win for the Australian Securities and Investments Commission, which brought the lawsuit against Mr Bekier, Ms Martin and nine other executive and non-executive directors in 2022.
Former chief casino officer Greg Hawkins settled before trial, agreeing that he failed to pass on information about Suncity's conduct.
He was fined $180,000 and banned from managing corporations for 18 months.
Former chief financial officer Harry Theodore agreed to a $60,000 fine and a nine-month ban.
But the corporate regulator lost its case against former chair John O'Neill and other board members Wallace Sheppard, Kathleen Lahey, Gerard Bradley, Sally Pitkin, Benjamin Heap and Zlatko Todorcevski.
The law did not require board members to have omniscience in knowing everything management was doing, the judge said.
"Life can only be understood backwards, but it must be lived forwards," Justice Lee said, quoting philosopher Soren Kierkegaard.
But he had a "sense of disquiet" around the board's conduct, including the lack of interrogation of management about whether the business was being run ethically, lawfully and to the highest standards.
A hearing on penalties and banning orders for Mr Bekier and Ms Martin will occur on a later date.
The casino's share price has plummeted from $3.30 per share when Mr Bekier left in February 2022 to $0.12 on Thursday.
Star agreed in February 2023 to pay $150 million in penalties to ASIC for its non-compliance with anti-money laundering laws.
A casino spokesperson and Ms Martin's legal representative declined to comment on Thursday's decision. Mr Bekier's lawyers have not responded to AAP.
