Caesars Under Pressure as Officials Probe Activities
The Las Vegas-based company dropped 1.6 percent to $17.53 at 10:13 a.m. New York time after falling 4.8 percent yesterday. The stock is now down 33 percent from a Sept. 17 record close. Caesars’ 10 percent notes due in December 2018 slid 0.8 cent on the dollar to a record low 47 cents yesterday, lifting the yield to more than 31 percent.
Since the close of trading on Oct. 18, investors in Caesars have learned the company was under scrutiny from U.S. regulators and two states. Caesars pulled out of a project in Boston and ended a hotel-licensing deal in Las Vegas after Massachusetts investigators recommended denying a permit. The company disclosed the money-laundering probe yesterday and said officials also raised questions about the head of its online gaming business, which will trade publicly next month.
“Although we never gave any credit for the potential Boston project in our Caesars valuation, it is a clear disappointment,” John Kempf, an analyst at RBC Capital Markets, said in a note to investors. “We are very surprised.”
Desert Palace Inc., owner of company’s flagship Caesars Palace resort in Las Vegas, was told in an Oct. 11 letter that the Treasury Department’s Financial Crimes Enforcement Network was investigating the resort for possible Bank Secrecy Act violations and is weighing whether to assess a civil penalty and take enforcement action. Nevada officials are also involved.
“If federal laws have been violated, that could very well lead to disciplinary action based upon Nevada gaming laws,” A.G. Burnett, chairman of the Nevada Gaming Control Board, said in an e-mail. The state is investigating matters regarding Caesars Palace and is working with U.S. regulators, he said.
Caesars, the largest owner of U.S. casinos, said in a regulatory filing yesterday it’s cooperating with the Treasury Department and the grand jury.
“Governmental authorities have been increasingly focused on anti-money laundering policies and procedures, with a particular focus on the gaming industry,” the company said, citing a recent settlement involving a major competitor.
Las Vegas Sands Corp., operator of the Venetian-Palazzo hotel complex on the Strip, agreed in August to pay $47.4 million to end a federal probe of its failure to report a high-stakes patron’s suspicious deposits.
Caesars left the Boston project on Oct. 18 over concerns raised by state officials. Investigators cited one of the parties involved in the Las Vegas hotel project, past jobs held by the head of Caesars’ interactive division and the parent company’s $23 billion in debt. Caesars was taken private in 2008 in a $30.7 billion buyout led by Apollo Global Management LLC and TPG Capital.
Massachusetts officials recommended the company not be licensed, Chairman and Chief Executive Officer Gary Loveman said in an Oct. 19 telephone interview.
Caesars signed an agreement with Gansevoort Hotel Group to rebrand Bill’s Gamblin’ Hall & Saloon on the Las Vegas Strip as a boutique hotel. Arik Kislin, an investor in Gansevoort, was identified in German court filings as allegedly having ties to organized crime in Russia, according to a 2012 report in the New York Post.
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. Kislin’s lawyer, Lisa Cohen, told the Post last year that he had “no recollection” about the company with the alleged mob ties.
The report by Massachusetts gaming investigators also noted matters related to the CEO of the Caesars Acquisition Co. unit that is selling shares to the public, and his work at public companies in the gaming industry prior to his employment by Caesars, the company said in yesterday’s filing.
Mitch Garber, the CEO of Caesars Acquisition, headed PartyGaming Plc starting in April 2006, as the U.S. began cracking down on illegal online betting.
Garber halted U.S. online gambling operations five months after arriving as CEO of PartyGaming. The company signed a non-prosecution agreement with the U.S. Attorney in New York in 2009, forfeiting $105 million as part of the deal.
Caesars has offered shareholders the opportunity to buy stock in Caesars Acquisition in a transaction that is expected to close Nov. 18. The new company will have a stake in Caesars Interactive, which operates online.
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