The New York Post is reporting that Caesars Entertainment “acted improperly” when transferring assets prior to filing for Chapter 11 bankruptcy.
In January 2015, Caesars Entertainment Operating Co filed for voluntary Chapter 11 bankruptcy as part of a debt restructuring plan negotiated with two of the company´s largest creditors – Elliott Management Corp. and Pacific Investment Management Co.
The debt restructuring plan involved dividing Caesars Entertainment Operating Co into two units – one which would run its casino operations, while the other would be a Real Estate Investment Trust (REIT) that would own the casino real estate and charge the casino operation an annual rent.
If accepted, the company could have written off $10 billion of its $18 billion debt. However, the plan offered secondary creditors just pennies on the dollar. Naturally unhappy about the proposals, the secondary creditors filed for non-voluntary bankruptcy – alleging that the company had transferred its most valuable assets to other subsidiaries prior to filing for voluntary bankruptcy.
Examiner Appointed to Resolve the Argument
In March 2015, U.S. Bankruptcy Judge Benjamin Goldgar ordered an independent investigation into the allegations and appointed Richard Davis – a former assistant treasury secretary at the U.S. Treasury Department – to conduct it.
Davis was given the remit to look at any transactions or
apparent self-dealing or conflicts of interest that would support the claims of the secondary creditors. Nobody was to be exempt from the investigation – including current and former officers of the company and the company´s parent Caesars Entertainment Corp.
Davis´ report was due to be delivered in December. However, due to the tardiness of Caesars Entertainment Operating Co to hand over the documents necessary to conduct the investigation – and witnesses’ repeated requests to push back interviews – the delivery of the report was extended until February 15th.
“A Degree of Civil Fraud”
Now, according to the New York Post, preliminary details of the report´s contents have been revealed to company officials and creditors’ lawyers. According to sources close to the investigation, the report concludes that there was
a degree of civil fraud.
The news will likely be welcomed by secondary creditors of the bankrupt company, but devastating for board members of Caesars Entertainment Operating Co – who could find themselves personally liable for some of the debt and face criminal charges as well.
The findings could also be devastating for Caesars Entertainment Corp. If the allegations of fraud are upheld, state regulators could launch an investigation into the operations of the parent company. This would affect practically all of the company´s worldwide operations and could result in the suspension or retraction of the company´s gambling licenses.
Caesars Already Trying to Block Report
Caesars have already attempted to prevent the report from being made public. A request to the court to file the report under seal was rejected by Judge Goldgar; although he did concede to an abbreviated version of the report being presented to the bankruptcy court and a summary made available to the public. According to the Las Vegas Review Journal, Goldgar told Caesars´ lawyers:
You can’t have a bankruptcy process dependent on an examiner’s report on the theory that the report will then allow everyone to walk away smiling and holding hands, and then object to it ever being released.
The judge added that, if Caesars persisted in requesting that the report is sealed, he had the option of dismissing the case – in which case the secondary creditors´ non-voluntary bankruptcy case would commence – or issuing a Chapter 7 Liquidation Order, in which case any remaining assets of Caesars Entertainment Operating Co would be sold off and the proceeds distributed among all the creditors.
It looks like difficult times ahead for all the subsidiaries within Caesars Entertainment Corp.