Accusations fly on failed casino

Tuesday, Nov. 26, 1996 | 11:59 a.m.

Holders of $435 million in high-yield bonds in the casino are not being told that they can reject an offer by Harrah's Entertainment Inc. and continue to pursue their case in federal court, attorney Ed Weisfelner said Monday.

"Harrah's Entertainment should not be allowed to use this proceeding to involuntarily settle serious securities violations we believe occurred," Weisfelner told U.S. Bankruptcy Judge T.M. Brahney III. "They're coming at this through the back door."

Within weeks after Harrah's Jazz Co. closed its temporary casino and filed for bankruptcy protection, suits were filed in New Orleans federal court alleging that investors were misled by inaccurate projections of how much money the casino would pull in.

Harrah's Entertainment is Harrah's Jazz's primary partner and a defendant in the suits, which have been consolidated. A request for class-action status, under which all bondholders could join as plaintiffs, is pending.

Under the casino's proposed reorganization plan, the bondholders' $435 million investment would be converted into $187 million in new bonds and 51 percent of the stock in a new ownership company.

Weisfelner, whose clients hold slightly over $200,000 of the bonds, complained that in the disclosure statement sent to bondholders, Harrah's Entertainment was not spelling out its projection that the casino will initially lose $54.4 million from September 1997 -- its planned opening date -- through 1998.

That will reduce the value of the stock, Weisfelner said. In addition, there is nothing to prevent the new company from issuing additional stock -- and reducing the value of the stock traded to bondholders, he said.

Weisfelner also said bondholders should know which Harrah's officials plan to run the casino.

"We want to know if the people we believe released false and misleading information will now be managing the casino," he said.

Robert Rosenberg, an attorney for Harrah's Entertainment, argued that the details are included throughout the reorganization plan and that the disclosure statement meets all standards of federal law. He said the plan "clearly states throughout that the casino will be managed by Harrah's Entertainment."

Brahney said he believed the required information was in the disclosure.

"I know of no case where I have to educate a class (of creditors)," Brahney said. "You are asking for special treatment of a class."

Brahney said he would rule on the bondholders' objections on Dec. 5.

Harrah's Jazz says it hopes to open a scaled-down casino across from the casino next year. Although the company has agreed to a revised lease with the city for the casino site and voters have approved continuing the project, Harrah's Jazz still says it needs tax concessions from the state.

Gov. Mike Foster has publicly opposed a two-year tax cut as proposed by Harrah's Jazz, although he said the Legislature probably would have the final word on it.