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Failed Las Vegas casino project leads to $700M lawsuit

The would-be backers of the failed Fontainebleau Las Vegas casino and resort have filed a $700 million lawsuit against the company behind the project. They are accusing the company of committing “massive fraud” investors by covering up problems with the Fontainebleau project, including cost overruns and fading prospects due to the 2008-9 recession. Fontainebleau has moved to dismiss the suit, claiming that some of the plaintiffs do not have standing to sue under Nevada law.

This business litigation includes some 46 plaintiffs, all of them lenders and investment funds. The plaintiffs either put money into the Fontainebleau Las Vegas, which was to be a casino and 3,815-room resort, or funds that purchased the debt from original investors. Despite $1.675 billion in financial backing, the development ran into problems, and Fontainebleau entered the project into bankruptcy in 2009 without finishing construction.

According to the suit, Fontainebleau hid information about the problems from investors. They accuse company executives of encouraging the investors to put more money into the project even as declining revenue projections due to the recession made the planned casino-resort increasingly unworkable. The investors poured a total of $700 million into the project, the suit alleges.

But some of the plaintiffs were not among the actual investors, which could put the fraud lawsuit at risk. In a hearing on Nov. 21, the defendants, who include the project’s lead developer, asked the court to dismiss the suit because some of the plaintiffs purchased the debt claim from the original investors. Nevada law prevents those with assigned debt from suing for fraud, a defense attorney claimed.

The judge presiding over the case did not issue a ruling on the motion to dismiss at the hearing.

The building currently stands half-finished, and completion has been delayed indefinitely.

Source: VegasInc, “Judge weighing arguments in $700 million Fontainebleau fraud lawsuit,” Steve Green, Nov. 22, 2011

John P. Aldrich
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