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Did Private Equity Firms ‘Strip’ Gambling Empire Caesars Before It Went Bankrupt?

Caesars casino and hotel in Las Vegas.Caesars casino and hotel in Las Vegas.
Caesars casino and hotel in Las Vegas.Photograph by Bruce Bennett — Getty Images

A former Watergate prosecutor is due to release a report on a court-ordered fraud investigation into a series of corporate deals involving Caesars Entertainment that could break a deadlock in one of the biggest fights on Wall Street over the bankruptcy of Caesars‘ casino operating unit, Caesars Entertainment Operating.

Richard Davis and a team of lawyers and advisers have spent a year trying to determine if Caesars (CZR) fairly tried to rescue CEOC, or stripped away the best properties and left it with faded regional casinos and a crushing $18 billion of debt.

The examiner said in a court filing that the report would be filed under seal the week of March 7 with an outside date of March 14, along with a public summary of Davis’ findings. The full report will be made public in the weeks following the initial, redacted release.

The Chapter 11 proceedings have pitted aggressive players in finance against each other. Caesars and its private equity sponsors, Apollo Global Management and TPG Capital , have teamed up with Elliott Management. Bondholders are being led by Appaloosa Management.

(Read Fortune’s investigation into the Caesars bankruptcy: A private equity gamble in Vegas gone wrong)

Caesars has proposed injecting $1.5 billion into its operating unit to settle allegations of asset-stripping, and the examiner’s report could show whether or not that amount is fair.

But so far junior bondholders have refused to accept Caesars‘ plan, demanding that it inject more money into the bankrupt casino company which would be split into a real estate investment trust and a separate operating unit.

“The examiner’s report is not binding but it can be used as a roadmap for how to proceed,” said Jonathan Lipson, a professor at Temple University School of Law in Philadelphia.

In a best-case scenario for Caesars, formed by the 2008 buyout of Harrah’s Entertainment for $31 billion, Davis will say that most of the transactions were fairly valued.

But if Davis’ review of 8.8 million pages of documents and extensive interviews with over 70 witnesses determines transactions were improper or significantly undervalued, it could fuel attacks by creditors.

Appaloosa and other junior creditors have sued Caesars in different courts. The most advanced case, in federal court in Manhattan, has been stayed until 60 days after the release of Davis’ report.

Caesars has said it expects to win those lawsuits, but its advisers have testified that if the company loses it will wind up bankrupt.

U.S. Bankruptcy Judge Benjamin Goldgar of Chicago has already threatened to throw out the entire case if warring groups cannot come together and last month told the parties that it was “time to get cracking” on a way forward.

CEOC will provide an updated restructuring plan by March 23 and hopes to exit bankruptcy by Sept. 15, according to court documents.

Davis, who now has a private practice after more than three decades with Weil, Gotshal & Manges LLP, was a member of the Congressional investigation that resulted in President Richard M. Nixon’s resignation over the Watergate break-in.