It's strongly implied that Fredo had a nervous breakdown after Vito was shot. He was sent to Vegas to recuperate, under the protection of the Molinari Family on the West Coast. The idea that he was to "scope out" the Corleone Family's future in Nevada gaming probably was a sop to Fredo--a loincloth for his general uselessness. Notice how Michael goes out to meet face-to-face with Moe Green about buying him out of his hotel, rather than having Fredo do it.