* Packer's private company pauses stake sale to HK's Melco
* NSW gaming regulator launches investigation of Crown
* Crown denies wrongdoing, says it will cooperate (Recasts on James Packer's company freezing the sale, adds regulator quotes, shares)
By Byron Kaye
SYDNEY, Aug 29 (Reuters) - Australian businessman James Packer has frozen a A$1.2 billion ($810.48 million) partial sale of his casino company to Hong Kong's Melco Resorts & Entertainment pending an investigation into alleged criminal activity at its Australian operations.
The delay is another setback for Australia's biggest casino operator, Crown Resorts, which has struggled to find stable footing since almost 20 of its staff were arrested in China in 2016 for breaching laws banning casino marketing.
Those arrests triggered Crown's withdrawal from Asia and Packer's personal retreat from involvement in the company he started a decade earlier, citing mental health issues.
The company is now at risk of losing its licence to operate a casino in Sydney, following allegations aired last month by the Nine Network, the Sydney Morning Herald and the Melbourne Age newspaper that it had partnered with criminal syndicates to bring rich Chinese gamblers to Australia.
The Independent Liquor and Gaming Authority of New South Wales state, where Crown is building a 75-floor waterfront gambling complex in Sydney, said on Thursday it was investigating the media allegations that Crown had engaged in money-laundering, breached gambling laws and partnered with tour operators linked to organised crime.
"In response to the allegations, the commissioner is to inquire into and report upon whether the (Crown) licencee is a suitable person to continue to give effect to the ... restricted gaming licence," it added.
Crown, which has denied the allegations, said it was considering the terms of the inquiry and would cooperate.
Packer's private company, Consolidated Press Holdings Pty Ltd (CPH), which holds his stake in Crown, said it would delay the planned sale of 9.99% of Crown to Melco by up to 60 business days pending the outcome of "regulatory processes".
CPH denied there had been any "breach of agreement, licence condition or legislation in connection with the subject matter of the transactions with Melco". It had paused the stake sale so the investigation "can proceed in an appropriate manner".
Packer's private company has already sold 9.99% of Crown to Melco, the Macau-focused company led by Hong Kong billionaire Lawrence Ho. Crown had held a third of Melco until its Asia pull-back.
Crown shares closed down 1.8%, in a flat broader market . ($1 = 1.4806 Australian dollars) (Reporting by Byron Kaye in SYDNEY, additional reporting by Niyati Shetty in BENGALURU; Editing by Stephen Coates)