Caesars Entertainment Corp. (CZR) failed to fully vet a participant in one of its hotel projects or restrain a gambler who lost millions of dollars, the Massachusetts Gaming Commission said in a report yesterday.
Caesars’ compliance committee, responsible for making sure the company obeys gaming regulations, wasn’t given a full report on an investor in Gansevoort Hotel Group who was allegedly linked to organized crime, according to the report. Caesars licensed the Gansevoort name for a boutique hotel in Las Vegas. The report also cited the Las Vegas-based company’s handling of Terrance Watanabe, who lost money at its casinos in 2006 and 2007.
Caesars, the largest operator of U.S. casinos, dropped out of a proposed $1 billion resort in East Boston Oct. 18, after regulators recommended its application for a state gaming license be rejected, according to Chairman and Chief Executive Officer Gary Loveman. The company ended its agreement with Gansevoort, he said, though it didn’t sway regulators.
“We strongly disagree with the staff recommendation and were prepared to thoroughly address each of the concerns raised by the report,” Caesars said yesterday in response to the report. “We withdrew our application at the request of and in deference to our partners in the project.”
Massachusetts investigators received information from the Federal Bureau of Investigation that a Gansevoort investor “is in fact known to them and has been linked to various members of Eurasian organized crime,” according to the report.
Gansevoort agreed to end its role in Las Vegas to minimize any controversy for Caesars, Nancy Friedman, a spokeswoman for the hotel, said in an e-mailed statement on Oct. 19.
“We expected a serious government agency to act on the basis of substantiated fact, not rumor or innuendo previously printed in gossip columns,” Friedman said. “No new facts have arisen since we passed the internal gaming compliance process of Caesars prior to the execution of our agreements.”
A representative of the FBI in Las Vegas didn’t return an e-mail seeking comment late yesterday on the investor in Gansevoort Hotel Group.
Caesars’ compliance committee wasn’t given copies of reports the company commissioned on the investor, according to the Massachusetts report. Committee members told state investigators they approved the business relationship with Gansevoort in part because the hotel company was to have no role in Caesars’ gambling operations.
Caesars’ outside counsel advised the company that gaming regulators in Nevada and New Jersey wouldn’t have a problem, according to the report.
Watanabe claimed in a 2009 lawsuit in Clark County, Nevada, he was encouraged to gamble while intoxicated. Caesars later revised its policies and the case was settled, according to the regulator’s report.
The lawsuit couldn’t be independently confirmed in court records.
“The Terrance Watanabe incident is a classic example of how casino operators cater to their high rollers and are sometimes tempted to overlook unacceptable behavior by high rollers so that they can maintain their patronage and high level of play,” Massachusetts officials said in the report.
Attempts to reach Watanabe weren’t successful.
Caesars made changes to its policies, including having its compliance committee report to the company’s board, rather than to its CEO, according to the report.
The report also raised concerns about the company’s $23.7 billion in debt and the former employment of its online gaming chief executive in two businesses that forfeited gambling proceeds to the federal government in connection with non-prosecution agreements over their Internet betting activities.
Caesars rose 2 percent to $17.97 yesterday in New York. The stock is up 160 percent this year. Caesars $3.3 billion of 10 percent notes maturing in December 2018 were unchanged at 46.75 cents on the dollar, their lowest since the debt was issued in December 2009, according to according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
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