Monday, June 29, 2009 | 2:23 p.m.
An attorney suing Harrah's Entertainment Inc. on behalf of disgruntled bondholders has lost his law license after pleading guilty to felony charges -- and the case against Harrah's has been voluntarily dismissed.
Arkansas-based lawyer S. Gene Cauley, a prominent plaintiffs' attorney in class-action securities lawsuits, pleaded guilty to wire fraud and criminal contempt in federal court in New York, another plaintiffs' lawyer in the Harrah's case said in a Friday court filing.
The filing, seeing to remove Cauley from the Harrah's case, said the Arkansas Supreme Court accepted the voluntary surrender of Cauley's law license after his June 1 guilty pleas.
Cauley got into trouble after a judge learned the attorney could not account for $9.3 million in settlement money he was supposed to forward to clients in a securities fraud lawsuit against Bisys Group, the Wall Street Journal reported.
A plaintiff's attorney still active in the Harrah's case didn't immediately respond Monday to a request for comment on why the Harrah's case was voluntarily dismissed and whether Cauley's troubles had anything to do with the dismissal.
A Harrah's spokesman declined comment on the case Monday.
The only issues remaining to be decided in the Harrah's case are possible claims from either side for legal fees and expenses, court records show.
In January, Las Vegas-based Harrah’s was sued in U.S. District Court in Delaware by bondholders S. Blake Murchison and Willis Shaw.
They claimed a 2008 Harrah's debt-exchange deal benefited some big corporate bondholders while placing other classes of bondholders in jeopardy, should Harrah’s default on its debt or file for bankruptcy protection.
Before the suit was voluntarily dismissed, attorneys for Harrah’s and its board of directors, who were also sued, said in court papers the suit should be thrown out.
They said the plaintiff bondholders were not harmed by the debt swap and Harrah's had no fiduciary duty to bondholders requiring it to treat all classes of bondholders the same. Harrah's said it only has contractual relationships with debt holders -- and had not violated any of those contracts.
Under the terms of the debt swap, completed Dec. 24, Harrah's exchanged $2.25 billion in old debt for $1.05 billion in new bonds and $290 million in cash. Harrah’s had plenty of takers for its swap offer because its bonds were trading at a discount to face value. Certain classes of investors were allowed to participate in the swap, while others were not. The deal substantially reduced the overall debt burden of the company, Harrah’s said.
Murchison this year also unsuccessfully sued Station Casinos Inc. of Las Vegas over its pre-packaged bankruptcy plan in which bondholders have been asked to make concessions. Cauley was not involved in that case.