Caesars exits Boston casino project, says unit under federal probe


Caesars Entertainment Inc, the latest U.S. casino operator to fall under federal scrutiny, is pulling out of a $1 billion joint venture in Boston after background checks by a local gaming regulator.

Caesars, which denies any wrongdoing, said in a regulatory filing on Monday that it would withdraw its application to participate in a casino venture with the operator of the Boston's Suffolk Downs racetrack.

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The company's shares fell as much as 9 percent.

Caesars also said one of its subsidiaries was subject to a federal grand jury investigation, part of a nationwide crackdown on money laundering in the gaming industry. ()

The company - whose chief executive has described Boston as the future "second city" of North American gambling - said investigators from the Massachusetts Gaming Commission had raised concerns about its suitability for a state gaming license.

In a report received by Caesars on Oct. 18, the investigators cited the company's relationship with a partner in a separate hotel project - since terminated - as a matter for consideration when assessing its license application.

In a separate statement, Caesars said it had ended its relationship with Gansevoort Hotel Group, a company with which it had been redeveloping a property on the Las Vegas Strip.

Gansevoort Hotel Group did not immediately respond to a request for comment.

Caesars, which operates the Caesars Palace and Flamingo casinos on the Las Vegas Strip, is saddled with more than $20 billion in debt incurred when it was acquired in 2008 by private equity firms Apollo Global Management and TPG Capital.

The two firms, along with billionaire John Paulson, together own about 80 percent of Caesars.

Caesars' exit from the Suffolk Downs project is a major blow to the company. Only last month, CEO Gary Loveman said the proposed casino in Boston would draw elite international gamblers, making the city "one of the best" U.S. opportunities.

The company said in the filing that it "strongly disagrees" with the commission's findings and that neither it nor its affiliates had been found unsuitable by any licensing authority.

Ian Weissman, managing director of brokerage ISI Group, said Caesars had quit the Boston project before the Massachusetts Gaming Commission could rule on its suitability as a potential license holder.

This would preserve "a technically spotless track record, which may reduce the odds of future projects being rejected in other jurisdictions around the world," Weissman wrote in a research note.

South Korea rejected preliminary casino licenses in June for two international bidders, including a consortium of Caesars and Lippo Ltd.


Casinos have only been permitted in Massachusetts since 2011. Seven projects, backed by big casino operators including Wynn Resorts Ltd and MGM Resorts International, are pursuing three licenses in the state.

Nationwide, casino operators are facing increased scrutiny.

As part of a crackdown on non-bank financial institutions, the Treasury and Justice departments have begun to probe the degree to which casinos are complying with their anti-money laundering obligations.

In August, Las Vegas Sands Corp agreed to return $47.4 million to the U.S. Treasury to end a probe into the casino's failure to alert authorities to suspicious deposits by a high-rolling gambler.

Caesars subsidiary Desert Palace, which operates Caesars Palace, is the latest to fall under the spotlight.

Caesars said in Monday's filing that it had received a letter from the financial crimes unit of the Department of the Treasury about "alleged violations of the Bank Secrecy Act". A federal grand jury was also investigating the matter, it said.

The Bank Secrecy Act requires casinos with annual revenue of at least $1 million to file suspicious activity reports, which are used by government agencies.

A U.S. Treasury spokesman said he could not comment on any potential investigation.

Caesars said it was unable to determine the outcome of the federal investigations.

The company's shares closed down 5 percent at $17.81 on the Nasdaq.