Crown plea to avoid 'litigation vortex'
The wide-ranging litigation, alleging fraud, relates to Crown's failed $US250 million ($240 million) investment in Fontainebleau - a 63-storey Las Vegas "destination casino resort" which filed for bankruptcy in mid 2009.
According to Fontainebleau's lenders, as much as $US400 million worth of cost overruns was hidden from the resort in order to keep finance flowing.
Crown acquired a minority interest in Fontainebleau in June 2007. Around the same time, a banking syndicate agreed to lend $1.85 billion to the project run by Miami-based developer Jeffrey Soffer.
Money was drawn against the loan from that date until April 2009, when Bank of America, as agent for the lenders, declared default under the loan agreement. Two months later Fontainebleau filed for bankruptcy. The incomplete shell of the 63-storey building remains an eyesore on the Las Vegas skyline.
According to court documents, by mid-2008 Fontainebleau's main principals had allegedly calculated the project was $US300 million over budget, but did not inform the lenders as they were obliged to do.
It is alleged that instead, to conceal these excessive costs, the "borrowers submitted fraudulent draw requests" on the loan "that contained falsified information regarding anticipated costs and budgets".
Banks that had loaned about $US800 million to the failed project have targeted Crown with the allegation that Crown defendants had "agreed and conspired with the Fontainebleau defendants to continue to misrepresent the financial status of the project" when Crown allegedly found out about the cost overruns.
In its submission to the Nevada court on Friday, Crown said it had suffered and would "continue to suffer reputational damage from insufficiently pleaded allegations of fraud".
The allegations have come to light while Crown's Macau joint venture, Melco Crown, has been embroiled in an investigation by Taiwanese authorities into allegations a subsidiary illegally circumvented the country's tight foreign-exchange controls to allow high-rollers to funnel $170 million of gambling funds to Macau.
The Victorian casino regulator says it is "actively monitoring" the investigation by Taiwanese authorities while it undertakes a mandatory review of Crown's suitability to continue holding its casino licence.
The NSW casino regulator is also conducting a probity check on Crown, which is seeking to increase its stake in a rival casino operator, Echo Entertainment.
Frequently Asked Questions about this Article…
Crown Ltd has applied to have a wide-ranging legal action in the Nevada Supreme Court dismissed, saying it risks being "swept further into the vortex" of massive litigation involving dozens of parties. The case relates to fraud allegations connected to Crown's failed US$250 million investment in the Fontainebleau Las Vegas project.
According to court documents and the lenders, Fontainebleau’s principals allegedly hid as much as US$400 million in cost overruns and submitted allegedly fraudulent draw requests with falsified budget information. Banks that had lent about US$800 million have targeted Crown, alleging Crown defendants conspired with Fontainebleau parties to misrepresent the project's financial status once Crown allegedly became aware of the overruns.
Crown acquired a minority interest in Fontainebleau in June 2007 and had a US$250 million (about A$240 million) investment in the 63‑storey Las Vegas resort. The project had a banking syndicate that agreed to lend US$1.85 billion, money was drawn against the loan until April 2009, and the project filed for bankruptcy in mid‑2009.
Bank of America, acting as agent for the lenders, declared default under the loan agreement in April 2009. Two months later Fontainebleau filed for bankruptcy, and the incomplete 63‑storey shell of the building remains on the Las Vegas skyline.
Yes. In its submission to the Nevada court, Crown said it has suffered and would "continue to suffer reputational damage from insufficiently pleaded allegations of fraud."
The allegations arose while Crown’s Macau joint venture, Melco Crown, was under investigation by Taiwanese authorities over claims that a subsidiary may have illegally circumvented foreign‑exchange controls to funnel about US$170 million of gambling funds to Macau. The Victorian casino regulator says it is actively monitoring that Taiwanese investigation and is conducting a mandatory review of Crown's suitability to hold its casino licence, while the New South Wales regulator is carrying out a probity check as Crown seeks to increase its stake in Echo Entertainment.
The article mentions Crown's US$250 million investment in Fontainebleau, a banking syndicate loan of US$1.85 billion to the project, alleged hidden cost overruns of up to US$400 million (and principals allegedly calculated the project was US$300 million over budget by mid‑2008), about US$800 million in loans targeted at Crown by banks, and an alleged US$170 million funnel of gambling funds to Macau linked to a Melco Crown subsidiary.
This case highlights that large litigation and regulatory probes can follow failed high‑profile investments and joint‑venture activities. For everyday investors, it’s useful to watch for ongoing lawsuits, regulator reviews and public statements (like Crown’s court filings about reputational damage), since those developments can affect a company’s legal exposure and public standing—even when the matters involve complex multi‑party disputes.
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