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Caesars sues state gambling chief Stephen Crosby

Las Vegas gambling giant Caesars Entertainment has filed suit in federal court against Massachusetts gambling commission chairman Stephen Crosby, in part over Crosby's link to a landowner who stands to benefit from an Everett casino project.

Caesars was a partner with Suffolk Downs in a $1 billion casino venture at the East Boston racetrack, but was dropped from the project in October over concerns that the company would fail its mandatory state background check.

Now the company is "challenging the constitutionality, objectivity and fairness of the treatment of Plaintiffs by Stephen P. Crosby, individually and as Chairman of the Massachusetts Gaming Commission, due to, among other things, Chairman Crosby's conflicts of interest and his failure to timely disclose them," according to the lawsuit filed in US District Court in Boston.


Crosby, who has led the five-member commission since it was created in 2012, has said he has known Paul Lohnes, co-owner of the 29-acre Everett site, since the two were in the National Guard in the 1970s, and that they were business partners from 1983 to 1990 at a company that made cable television guides, the Globe reported.

The Globe also reported that in 1983, Lohnes invested in Crosby's former company when it was struggling, according to W. Alan Vandeburgh, Crosby's former partner. Lohnes became treasurer of the company, which went on to become the country's second largest producer of cable television magazines. Business ties ended in 1990 when the company, known as Crosby Vandenburgh Group, was sold.

Though the state ethics commission has cleared Crosby to participate in the licensing process for the Greater Boston resort casino license, Caesars alleged "this conflict would, on its face, predispose Crosby to favoring a rival application for the…license."

But the gambling commission, in response released this afternoon, said the lawsuit is "without merit," and defended the independence of its Investigations and Enforcement Bureau, known as the IEB.


"The IEB is ultimately responsible for the report it presents to the commission," the gambling panel said in a brief statement. "The facts in that report are the basis for the IEB's recommendation. Chairman Crosby had no role in the investigation, report or recommendations."

Crosby and the commission declined to comment further.

Caesars' experience in Massachusetts was a debacle for the company.

After working on the Suffolk Downs project for two years, and having spent millions on the venture, according to the lawsuit, the company ran afoul of commission investigators during the mandatory state background check.

Investigators raised several red flags, including that Caesars had signed a licensing deal with a hotel chain owned in part by a businessman allegedly tied to Russian mobsters.

The lawsuit alleges the commission's staff was much tougher on Caesars than on another applicant, MGM Resorts, which is proposing a casino in Springfield.

Investigators recommended MGM be found suitable to bid; a final decision from the commission is pending.

"There is no reasonable, non-discriminatory reason for the difference in the consideration and treatment by the [investigators] and [the] commission of [Caesars], on the one side, and other applicants, on the other side, nor have they provided any reasonable explanation as to why [Caesars has] been held to a different and higher standard from every other applicant," the lawsuit states.

The lawsuit alleges that Crosby influenced the commission's investigators to be tougher on Caesars, and that he made false statements in public that "distorted the historical record" on Caesars' conduct and response to the concerns of investigators.


It also alleges that the consultants hired to help vet the company had recommended to the commission's investigation arm that Caesars be deemed suitable to hold a casino license.

"Defendant Crosby's adverse treatment of plaintiffs was and is arbitrary and irrational, without authority under the law, and motivated by malicious and bad faith intent to block the fair and impartial consideration of [Suffolk Downs'] application, the suit alleges.

The suit asks the court to declare the background check "constitutionally flawed" and that the investigator's report on Caesars "is a nullity, entitled to no force or effect."

Mark Arsenault can be reached at marsenault@globe.com. Follow him on Twitter @bostonglobemark