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(Reuters) - Caesars Entertainment Inc (CZR.O) is pulling out of a $1 billion casino joint venture in Boston and said a subsidiary was subject to a federal grand jury investigation into money laundering.
Shares of the company, which operates the Caesars Palace and Flamingo casinos on the Las Vegas Strip, fell as much as 9 percent on Monday.
Caesars said it would withdraw its application for the casino venture with the operator of Boston's Suffolk Downs racetrack after investigators for the Massachusetts Gaming Commission raised concerns over its suitability for a state gaming license.
In a regulatory filing on Monday, the company also said its Desert Palace subsidiary, which operates Caesars Palace, said it had received a letter from the financial crimes unit of the U.S. Department of the Treasury about "alleged violations of the Bank Secrecy Act".
Caesars also said a federal grand jury was conducting an investigation into the matter.
Caesars is saddled with more than $20 billion in debt incurred when it was acquired in 2008 by private equity firms Apollo Global Management and TPG Capital, both of which remain major shareholders.
Billionaire John Paulson is also a shareholder in Caesars.
The company's withdrawal from the Suffolk Downs project is a major blow to Caesars. Chief Executive Gary Loveman said in September that the proposed casino would draw elite international gamblers, making it one of the best cash-making opportunities in the U.S. gaming industry.
The report by the Massachusetts Gaming Commission, issued on October 18 and not yet public, raised a number of issues, Caesars said.
These issues included the company's financial condition and its business relationship - since terminated - with a partner in a particular hotel project, the company said.
The company said in the filing that it "strongly disagrees" with the commission's findings on the Suffolk Downs project and that neither it nor its affiliates had been found unsuitable by any licensing authority.
Caesars also said it was unable to determine the outcome of the federal investigations. The company could not immediately be reached for additional comment.
Shares of the company were down 7 percent at $17.40 in afternoon trading on the Nasdaq.
Reporting by Chris Peters in Bangalore; Editing by Anthony Kurian and Robin Paxton