Tuesday, March 13, 2012
Countersuit Escalates Feud at Wynn
In a suit filed Monday, Steve Wynn's former business partner Kazuo Okada fired back atWynn Resorts Ltd., portraying his ouster last month as a major shareholder in the casino giant as a scheme designed to defraud him and forcibly take control of his stake in the company.
Accusing Mr. Wynn of running publicly traded Wynn Resorts as a "personal fiefdom," Mr. Okada in his suit alleged that Mr. Wynn and company executives, lawyers, financial advisers, investigators and board members had helped enable the company to commit securities fraud and other violations in a rush to judgment against Mr. Okada.
Wynn Resorts didn't immediately respond to requests for comment following the filing.
The suit, filed in U.S. district court in Nevada, escalates a war between the two men that could expose one of the most successful casino operators in the world to extended litigation.
Wynn Resorts has said it was forced to move against Mr. Okada because his involvement in the company could threaten its licenses to operate casinos because, it alleged, he had participated in illegal activities.
Last month, Wynn Resorts declared that in an investigation the board alleged Mr. Okada had made inappropriate payments to public officials and was "unsuitable" to continue to be a shareholder in Wynn Resorts. The company said it could be at risk under Nevada law if it continued to allow Mr. Okada to hold shares.
The company forcibly redeemed Mr. Okada's shares for 30% less than the market value when they redeemed them. That amount won't be paid to him for 10 years.
The company says that was necessary under its articles of incorporation and Nevada casino laws.
On the same day that he filed the lawsuit, Mr. Okada appeared in a video posted on the website of his company, Universal Entertainment Corp., forcibly speaking out against the allegations by Wynn Resorts. He apologized for "causing any anxiety" to his Universal investors and employees and people related to a casino project in the Philippines that has been in the cross fires of the dispute.
"Steve Wynn's fundamental purpose is to retain absolute control over Wynn Resorts and to enrich himself," Mr. Okada said in the video. "To accomplish this he tried to remove the largest shareholder in Wynn Resorts."
Mr. Okada said the board's conclusion that he is unsuitable is "wrong."
"It was based on incomplete information and hearsay and based on an unfair process," he said. "We have never done anything improper for the purpose of receiving…government benefits."
Wynn Resorts filed a lawsuit last month in a Nevada district court that accused Mr. Okada of breeching his fiduciary duties as board member by planning a casino in the Philippines that competed against the company for Chinese gamblers and engaging in illegal activities, among other claims.
Mr. Wynn and other investors' stake in the company was boosted after Mr. Okada was forcibly ousted, but investors have been bracing for the countersuit by Mr. Okada.
On Monday, Mr. Okada made a motion to move the lawsuit to federal court.
In the countersuit, Mr. Okada said the company hadn't given him a proper chance to exonerate himself before finding him unsuitable. Many of the company's allegations against him changed over time, he said, adding to the notion that it was seeking to oust him without fair judgment, Mr. Okada said.
"The entire process was tainted by the desire to serve Mr. Wynn's pretextual goals of removing Aruze USA, [Mr. Okada's company], as the largest single shareholder of the company, silencing Mr. Okada and consolidating and maintaining Mr. Wynn's control over Wynn Resorts," the lawsuit states.
Among the charges Mr. Okada lobbed in his complaint are that the company could have engaged in securities violations and racketeering in its process to redeem Mr. Okada's stake, in a rush to cash him out before the company wins a Macau casino license and the stock price rises.
In addition, Mr. Okada says the company made a false promise to lend him money in order to induce him to agree to allow Mr. Wynn's ex-wife to sell shares in the company.
Mr. Okada asked the federal court to reverse the shares redemption because, he said, Mr. Okada's stock agreement with Mr. Wynn prevents the company from taking his shares.
Mr. Okada also questioned the legality of the provision in its articles of incorporation that allows the board—and not just a law enforcement agency or gambling regulator—to determine Mr. Okada unfit and redeem his shares.
Further, Mr. Okada argued that the redemption note the company made for Mr. Okada's stock—$1.9 billion, a 30% discount on the price of his shares—is invalid because it was determined by a financial adviser, Moelis & Co., that has a long history of doing business with Wynn Resorts.
"Wynn Directors' finding that there was a likely jeopardy to Wynn Resorts' gaming license lacked a sound foundation and was made without a thorough and complete review of relevant law, fact and evidence," the lawsuit states.
In the filing, Mr. Okada also added more details around his concerns about a promise by Wynn Resorts to donate $135 million to a foundation connected to a university in Macau. In the past, noting that the university sits on government land, he has said there was no discussion among board members of whether the large gift was an "appropriate use of corporate funds."
The company disclosed an investigation related to the donation by the Securities and Exchange Commission not long after. At the time, the company said Mr. Okada's concerns were due to the length of time the donation was to cover—12 years. The company said it had had lawyers review the donation to make sure it complied with U.S. antibribery laws.
In his complaint Monday, Mr. Okada said board members didn't receive a legal opinion sanctioning the donation.
In the lawsuit, Mr. Okada accused Mr. Wynn of misleading the board "by securing its consent to the donation, without disclosing his personal knowledge of the close connection between University of Macau and officials responsible for regulatory decisions related to Wynn Macau's gaming operations." He said he was concerned, since the donation was coming as Wynn was waiting for approvals from the Macau government to develop a new casino, it might appear "that Wynn Macau and Wynn Resorts were paying for benefits."
Wynn Resorts denies any wrongdoing regarding the Macau donation.
The suit names Mr. Wynn, company executives and directors as defendants.
Write to Alexandra Berzon at email@example.com