Casino operator Caesars Entertainment Corp (CEC) has reportedly reached a deal to resolve Department of Justice claims of slipshod anti-money laundering (AML) protocols.
On Saturday, Reuters reported that CEC had reached a deferred prosecution agreement with the DOJ, under which it will pay $20m to satisfy criminal charges and parallel civil investigations by the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
In October 2013, CEC announced it was under investigation for AML lapses at its Caesars Palace property in Las Vegas. The activity in question reportedly related to wagers placed at the property’s sportsbook by illegal betting rings.
Reuters’ sources claimed that FinCEN had been pushing the DOJ to resolve its investigation and had threatened to unilaterally pursue its civil action if the matter wasn’t resolved quickly. FinCEN’s pushiness reportedly caused some tension between it and the DOJ.
FinCEN has taken a much closer interest in casino activities in recent years, fining Atlantic City’s Trump Taj Mahal $10m this February and slapping a hefty $75m penalty this June on the operators of Tinian Dynasty Hotel & Casino in the Commonwealth of the Northern Marianas. The DOJ also dinged Las Vegas Sands for $47m in August 2013 over its dealings with alleged Mexican methamphetamine suppliers.
A year prior to CEC’s 2013 announcement, Vegas sportsbook operator Cantor Gaming (now CG Technology) was caught up in an illegal ‘messenger’ betting prosecution involving its then VP of sports and racing risk management Mike Colbert and an east coast ring known as the Jersey Boys. Cantor/CG eventually resolved its legal dilemma via a $5.5m settlement. In December 2014, FinCEN put casinos on notice to better police activity at their sports betting operations.
CAESARS REACHES DEAL WITH BANKERS
Meanwhile, CEC announced late on Friday that it had convinced its senior bank lenders to sign on to the restructuring plan for CEC’s bankrupt main unit Caesars Entertainment Operating Co (CEOC). Earlier in the day, CEC’s shares had soared 17% on word that it had restarted negotiations with these lenders, who had broken off talks earlier in the week.
CEC has proposed restructuring CEOC into a real estate investment trust but convincing its various levels of creditors on the merits of this plan has been an uphill slog. CEC already had the support of the majority of its senior bondholders and the addition of the bankers means CEC now has commitments representing $11.7b of CEOC’s roughly $18b in debt.
CEC claimed the deal “paves the way toward a confirmable plan for the restructuring” of CEOC but CEC still has one gigantic obstacle in its path. Second-lien bondholders, who stand to bear the brunt of the $9b or so of debt that CEC intends to eliminate via CEOC’s restructuring, have filed lawsuits in New York and Delaware that threaten to drag CEC’s assets into CEOC’s bankruptcy.
A US District Court judge has promised to issue a ruling by the end of September on whether to permit these lawsuits to proceed while CEOC remains in bankruptcy limbo. The New York court considering one of these lawsuits has already hinted that it is leaning towards supporting the junior creditors’ position that CEC’s controversial pre-bankruptcy asset transfers were an “impermissible out-of-court restructuring.”
