INVESTIGATIVE REPORT FOR THE MASSACHUSETTS GAMING COMMISSION APPLICANT: Sterling Suffolk Racecourse, LLC PRINCIPALS: Joseph O’Donnell Richard Fields October 18, 2013 Category 1 Gaming License Entity Gaming-License Investigation: Sterling Suffolk Racecourse LLC 1 Executive Summary On January 15, 2013, Sterling Suffolk Racecourse, LLC (“Applicant” or “SSR”) filed an application for a Category 1 gaming license with the Massachusetts Gaming Commission (“Commission”). The proposed casino would be at the site of the Suffolk Downs racetrack in East Boston. SSR and its affiliated entities submitted the requisite entity disclosure forms. A table of organization for the Applicant and its various affiliates relating to the casino project is attached as an exhibit to this report (Exhibit 1). In addition, numerous individuals submitted Personal History Disclosure Forms as qualifiers of the Applicant and were subject to a thorough background investigation. The reports on their individual qualifications are included herein. The principal entity members of SSR include the Coastal Development Ownership Group ( ) and the O’Donnell Group of Ownership Companies ( ). Caesars Entertainment Corporation (“Caesars” or “Company”) holds a minority interest in the Applicant through a subsidiary company, Caesars Massachusetts Investment Company LLC ( ), and is engaged as the prospective manager and operator of the proposed casino project through another subsidiary, Caesars Massachusetts Management Company LLC. Vornado Suffolk LLC, a subsidiary of Vornado Realty Trust (“Vornado”), holds a membership interest in the Applicant, but following its decision not to submit to regulatory filing requirements, Vornado was required by the Commission’s Investigations and Enforcement Bureau (“IEB”) to place its entire interest in the Applicant into a divestiture trust. Upon divestiture, Vornado was deemed by the Commission to no longer be a qualifying entity of the Applicant, however the trustee, Steven Kidder was deemed to be a qualifier and required to submit to the background check process. The entity members of the Applicant are: • Coastal Group Ownership ( ) o Coastal Development SSR LLC ( ) o Suffolk CCF LLC ( ) o Fisher WWCD Investors LLC ( ) o Sterling Racecourse Inc. ( ) • O’Donnell Group Ownership of Entity Gaming-License Investigation: Sterling Suffolk Racecourse LLC 2 o CS SSR Investor LLC ( ) o JJO Sterling Suffolk Inc. ( ) o Sixth Street Sterling LLC ( ) • Dreamport Suffolk Corporation ( ) • Ruane Family Trusts ( ) o SSR Investment Trust I ( ) o SSR Investment Trust II ( ) • Caesars Massachusetts Investment Company LLC ( ) • MAR Suffolk LLC ( ) • Hall Racecourse Properties, Inc. ( ) • Vornado Suffolk LLC ( , held in trust by trustee Stephen Kidder, a Boston attorney). The IEB waived the qualification requirements for the non-voting entity members: SSR Investment Trust I, SSR Investment Trust II, Dreamport Suffolk Corp., Hall Racecourse Properties, and MAR Suffolk, all of which hold or less interest in the Applicant. When the Applicant submitted its Business Entity Disclosure Form and table of organization with its application on December 6, 2012, Suffolk CCF LLC, which is a member of the Applicant, was owned by Coastal Development SSR and by Fisher WWCD Investors LLC (“Fisher”). As a result of its ownership interest, Fisher was initially designated as a qualifier of the Applicant, as were the individual owners of Fisher. On January 10, 2013, the Applicant advised the IEB that the structure of Suffolk CCF LLC had changed, whereby that entity is now solely owned by Coastal Development SSR. Thus, Fisher is no longer an owner of Suffolk CCF LLC, and therefore, was no longer required to qualify. As a result of the restructuring, Fisher now is a direct owner of the Applicant. The holdings of Suffolk CCF LLC in the Applicant were correspondingly reduced from to the current interest. Significantly, Fisher does not appoint any members of the Board of the Applicant. In light of this restructuring, and Fisher’s minimal holdings below of the Applicant, the IEB waived the qualification requirements for Fisher and removed the entity from the list of qualifiers. Fisher is owned by members of the Fisher family and non-family members of Fisher Brothers, a New York-based real estate and financial investment company. The IEB Entity Gaming-License Investigation: Sterling Suffolk Racecourse LLC 3 also waived the owners of Fisher, namely: Arnold Fisher, Kenneth Fisher, Steven Fisher, Winston Fisher, Emily Landau, and 3MB Associates LLC. The Applicant has a Board of Managers that serves in much the same way as a traditional Board of Directors of a corporation. The individual board members are appointed by the voting member entities that comprise the Applicant. The seven current managers and their respective appointing entities are: William Mulrow, Chair, appointed by Sterling Racecourse Inc. (Coastal); Joseph O’Donnell, appointed by Sixth Street Sterling LLC (O’Donnell); John Payne, appointed by Caesars Massachusetts Investment Company (Caesars); Charles Morneau, appointed by a plurality vote of the Major Members (O’Donnell Group, Coastal Group and Vornado); John L. Hall II, appointed by Coastal Development SSR LLC (Coastal); Robert Vincent, appointed by Cambridge Suffolk LLC (O’Donnell); and Stephen Kidder, the trustee of the Vornado divestiture trust who replaced Clifford Broser, formerly the Vornado appointee to the Board of Managers, on April 26, 2013. The officers of the Applicant are: John L. Hall II, President; Paul M. “Chip” Tuttle, Chief Operating Officer; John Rizzo, Treasurer and Chief Financial Officer; and Charles Baker, Secretary. The Commission retained Spectrum Gaming Group LLC (“Spectrum”) to conduct a suitability background investigation of the Applicant and its qualifiers. Spectrum acted as an agent of the Commission for purposes of conducting the background investigations. Spectrum conducted this examination in conjunction with the Massachusetts State Police and the Commission’s Investigations and Enforcement Bureau (“IEB”). Hereafter, the term “Investigators” will be used for this collaborative effort. In the course of this license investigation, the Investigators requested the production of voluminous records and documents from SSR and its affiliates. Such requests for relevant information were necessary in order to conduct the requisite, thorough background review. In all respects, SSR was cooperative and compliant, dutifully providing updated information upon request as the investigation progressed. Notably, the examination of the Applicant’s books and records revealed no irregularities or improprieties. Moreover, all of the natural person qualifiers were cooperative during this investigative process. The following report is the result of the Investigators’ investigation of the Applicant and its affiliated entities and natural person qualifiers. It includes an evaluation of the parent Entity Gaming-License Investigation: Sterling Suffolk Racecourse LLC 4 companies of Caesars, Apollo Global Management and TPG Capital LP. The review encompassed an evaluation of the statutory licensing criteria, including good character, honesty and integrity of the Applicant and the various qualifiers, as well as an evaluation of their financial stability, integrity and responsibility. The Investigators’ report expounds on four significant regulatory issues pertaining to Caesars’ suitability: • A license agreement with Gansevoort Hotel Group • Engaging Mitchell Garber to head Caesars Interactive Entertainment • The Watanabe matter involving a high roller • Caesars’ present financial status In addition, as detailed in the individual qualifier report section, there is concern relating to Richard Fields’ ability to demonstrate his financial stability as a principal of the Coastal Group. The issue relates to the fact that his net worth valuation is contingent upon the successful awarding of a license to SSR. Apart from Fields, the investigation did not reveal any significant derogatory information relating to any individual qualifiers or other entity qualifiers. The first significant issue involves a licensing agreement which Caesars entered into, through a subsidiary, Corner Investment Company LLC, with Las Vegas Gansevoort LLC, a subsidiary of Gansevoort Hotel Group (“Gansevoort”). One of the principals of Gansevoort, Arik Kislin, has been the subject of considerable media and law enforcement scrutiny over the past several years for alleged ties to Russian organized crime. Despite these serious allegations, as revealed during Caesars’ due diligence review of the proposed transaction and Kislin’s suitability, Caesars’ Compliance Committee approved the transaction and Caesars ultimately determined to proceed with the license agreement. This issue is addressed in detail in this investigative report. The second significant issue pertains to the hiring of Garber to be the head of Caesars Interactive Entertainment, Caesars’ subsidiary involved in the expanding world of Internet gambling (or “online gaming”). Garber previously headed two companies, PartyGaming LLC and Optimal Payments LLC, each of which entered into a non-prosecution agreement with the United States Attorney’s Office for the Southern District of New York. The non-prosecution Entity Gaming-License Investigation: Sterling Suffolk Racecourse LLC 5 agreements called for the forfeiture of substantial sums by each company. In turn, the USAO agreed not to prosecute the companies for any crimes related to their internet