Casino operator Caesars Entertainment’s messy bankruptcy just got a whole lot messier thanks to an extramarital affair involving a company attorney and a female financial adviser.
This week, Reuters reported that US Bankruptcy Judge Benjamin Goldgar had decided to discard the results of an investigation Caesars had launched in the hopes of proving that its actions prior to the January 2015 bankruptcy filing of its main unit Caesars Entertainment Operating Co (CEOC) were legal.
On March 16, Goldgar revealed that Melissa Knoll, an adviser hired by Caesars in 2014, had “tainted” the results of her investigation by having a tryst with Vincent Lazar, a Caesars attorney. Goldgar said that Knoll’s “sleeping with the enemy” meant there “isn’t any point in pursuing” the results of Knoll’s investigation.
Caesars hired Knoll to investigate allegations by junior creditors that Caesars’ controversial pre-bankruptcy asset transfers and debt reneging activities were intended to shield CEOC’s best assets from any restructuring and thus were illegal.
Last month, court-appointed independent examiner Richard Davis issued a non-binding report that determined there was sufficient evidence supporting the creditors’ allegation to make Caesars liable for up to $5.1b in damage claims. (Adding insult to injury, CEOC was tasked with paying the costs of Davis’ probe, which amounted to $41.8m as of Jan. 31.)
Knoll’s team was supposed to combine Davis’ findings with the results of her own investigation to help craft CEOC’s latest restructuring plan, which is due to be filed with the court on Monday. CEOC court documents had previously referred to Knoll’s work as “critical to the debtor’s success.”
Knoll was reportedly involved with Lazar when she was hired by Caesars but failed to disclose the relationship when she listed potential conflicts of interest with the bankruptcy court. The pair were reportedly rumbled after “a chance encounter in a social setting” with a government attorney during a bankruptcy conference at a Michigan resort. Knoll was removed from the Caesars investigation two weeks later.
JUNIOR CREDITOR LAWSUITS GET NEW JUDGE
In another Caesars bankruptcy wrinkle, a new judge has been appointed to oversee the lawsuits that junior creditors are pursuing against Caesars in Manhattan district court. Judge Shira Scheindlin, who had appeared sympathetic to the junior creditors’ complaints, recently announced she would retire on April 29.
Judge Jed Rakoff, who a 2011 Wall Street Journal profile described as having a reputation for “showing little patience with delays,” has handled some similarly messy court fights, including investors squabbling over scraps following the collapse of Bernie Madoff’s Ponzi scheme.
Caesars recently succeeded in having two of the four New York lawsuits postponed. Proceedings in the other two suits are scheduled to commence on May 9, but whether the judge switcheroo will delay these suits remains to be seen.