Wynn Resorts, Okada Bury the Hatchet
Wynn Resorts and Universal Entertainment have agreed to end a long, bitter court fight over Wynn’s seizure six years ago of former Universal Chairman Kazuo Okada’s sizable shareholding in the company.
In an agreement that appears to remove a major obstacle to the company’s efforts to restore investor confidence and extricate itself from the turmoil surrounding allegations of sexual assault and harassment against former Chairman and CEO Steve Wynn, the two sides have resolved their differences with a settlement worth approximately $2.4 billion. Okada is no longer the chairman of Universal, having been purged after financial irregularities were found in connection with the company’s Manila resort.
The terms call for Wynn Resorts to pay off a 10-year promissory note valued at $1.93 billion it issued in 2012 when it canceled some 24 million Wynn shares Okada owned through machine gaming manufacturer Aruze USA, a subsidiary of Japan-based Universal, the company Okada founded and the principal source of his fortune. The move had wiped out 30 percent of the value of Okada’s holding at the time.
Wynn also has agreed to pay Aruze $463.6 million in interest on the note.
In effect, Aruze is getting $78 per share at 6 percent interest calculated over the six years of the disputed redemption.
Universal-Aruze has agreed in turn to drop all litigation against Wynn, its Hong Kong-listed Wynn Macau subsidiary and their current and former officers and directors, including of course Okada’s longtime foe Steve Wynn.
“Today’s outcome is tremendous for our client,” said David S. Krakoff, a partner in the law firm of Buckley Sandler, which represented Universal. “It resolves long-running litigation on very favorable terms and provides substantial resources for Universal to continue its international growth.”
Significantly, the settlement entails Aruze’s agreement to withdraw from a tangled court fight that as of this writing still involves a counter-claim in the Okada-Aruze case filed against Wynn by his ex-wife Elaine Wynn for the right to dispose of her 9 percent equity stake in Wynn Resorts.
Her claim stems from the terms of a 2010 divorce settlement that effectively combined her shares with her ex-husband under his control, an agreement crafted in no small part to offset Okada’s influence and ensure Wynn’s dominance of the company’s affairs.
Subsequent to his resignation on February 6, Wynn filed a motion in Nevada state court to drop his opposition to Elaine’s claim—a move that conceivably frees them both to sell their stock, mostly likely in a buy-back by Wynn Resorts—but a judge dismissed it, citing the Okada litigation, which had been scheduled to go to trial in April.
It was not known at press time how the settlement may affect the outcome of the Wynns’ dispute.
Jefferies analyst David Katz said it “clears the way for Steve and Elaine Wynn to settle their suits, which would remove obstacles to the company capturing its highest value in the public markets. Our impression is that both would be positioned to divest their shares in an efficient manner, with the larger question being how to go about it.”
Fitch Ratings analyst Alex Bumazhny said, “It removes an overhang for the company although a question remains how Wynn Resorts will fund it.”
Okada was a co-founder of Wynn Resorts and bankrolled its 2002 IPO. But as the company’s largest individual shareholder he and Steve Wynn ultimately clashed over corporate strategy. Wynn opposed Okada’s desire to develop a casino in Manila, and problems arose when Okada pursued the project himself. His Philippine affiliate along with members of Universal management were implicated in a bribery scandal in that country, and Wynn’s board launched an investigation that concluded Okada himself was guilty. On the grounds that he had breached his trust and endangered the company’s licenses he was ousted from the boards of Wynn Resorts and Wynn Macau and his shares canceled. Okada denied any misconduct and sued Wynn to undo the seizure of his stock.
What remains for Wynn Resorts now is to distance itself as much as possible from Steve Wynn and the burden represented by his 12 percent equity stake. In that regard, burying the hatchet with Okada can only help.
Wynn’s standing as a major shareholder will be a key focus of regulatory investigations into the sexual misconduct allegations now under way in the company’s home market of Nevada, where it operates two luxury Las Vegas Strip resorts, and in Massachusetts, where it is developing a $2 billion-plus resort outside Boston. Macau regulators also are looking into the allegations. Wynn Macau operates three resorts there, and the market generates the lion’s share of the parent company’s revenues.
Those investigations will have to confront the issue of what the board of directors and upper management may have known about a slew of complaints from female employees regarding Wynn’s conduct. In some instances these date back years and included a slush fund Wynn’s lawyers created to pay one of his purported victims, a former Wynn Las Vegas manicurist, $7.5 million to silence her.
Lawyers for Elaine Wynn claim members of upper management knew of the payment and have cited it as evidence that Wynn ran the company as a dictator with the compliance of a board that functioned for all intents and purposes as an adjunct of his will.
It’s an accusation also raised in shareholder suits by public employee pension funds in six states accusing the board of violating its fiduciary duties by what at best could be described as tacit complicity in Wynn’s alleged predations.
Though the $7.5 million payment was a matter of court record, it was the publication of a Wall Street Journal story on January 26 that finally brought Wynn and the company under fire. It contained testimony from a host of current and former female employees who claimed the 76-year-old tycoon routinely pressured them into performing sexual favors and which taken together amount to a decades-long pattern of serious misconduct and harassment.
The report cites testimony from salon workers who entered fake appointments in the books to help other women workers get around a request for services in Wynn’s office or arranged for others to pose as assistants so they would not be alone with him. Former employees told of female workers hiding in the bathroom or back rooms when they heard he was on the way to the salon.
“Everybody was petrified,” said Jorgen Nielsen, a former artistic director at the salon. Nielsen said he and others repeatedly told company executives Wynn’s sexual advances were causing a problem, but “nobody was there to help us”.
Alleged victims reached as high as a former personal assistant to Elaine Wynn, whose bid to regain control of her stock resulted in 2015 in her own ouster from the board.
Wynn’s first response was to vehemently deny the allegations. But then he sought to negate the story’s impact by intimidating workers at his salons, according to new accusations leveled against the billionaire.
A manicurist suing Wynn for sexual assault, battery and infliction of emotional distress, claims that a week or so after the story appeared, Wynn brought salon employees before his executives and demanded that anyone who had ever felt assaulted or abused to raise their hands. No one did, “out of fear of retaliation,” the lawsuit says.
The next day, according to the suit, Wynn showed up with audio-visual personnel during a birthday celebration for a salon staffer and demanded that all employees record a video stating he had never assaulted them.
The suit, one of three recently filed in District Court in Las Vegas, claims moreover that Wynn continues to receive manicures, pedicures and other salon services either at the hotels or at a villa he maintains on company property and does so with “full knowledge and permission” of Wynn Resorts, the Wynn board and Claude Baruk Salons, which manages the facilities.
A company spokesman told the Associated Press that Wynn no longer uses spa or salon services at the hotels.
The state Gaming Control Board, which is conducting Nevada’s investigation, has set up a link on its website to receive complaints from alleged victims, several of which have been recounted in other news reports, in past court actions and in police reports.
Meanwhile, the board of directors, which initially hired an outside law firm to investigate the allegations, switched gears last month and dropped the firm, deciding instead to review the charges in-house. Since then, one director, Ray Irani, a former chairman and CEO of Occidental Petroleum, has resigned, and a second, Alvin Shoemaker, a director of Huntsman Corp., said he is leaving when his term expires in 2019.
The board’s current probe is being led by its remaining female director, Pat Mulroy, a politically connected former member of the Nevada Gaming Commission.
But it’s unclear if all the activity at the corporate level will have any impact on the company’s license in Massachusetts.
Members of the Massachusetts Gaming Commission, which is conducting an inquiry into the continued suitability of Wynn Resorts to complete and operate the $2.4 billion Wynn Boston Harbor in Everett, are focusing on whether Steve Wynn’s continued ownership of part of the company he founded is an issue—even though he has stepped down from running it.
Now the commission is deciding whether his company is fit to operate a casino in the state—while many officials are calling for his name to be removed from the casino even if the company is allowed to operate it. Wynn currently owns 12 percent of the company.
Commission Chairman Stephen Crosby pointed out last week, “He, as a major stockholder, he would be a qualifier, even though he’s out as CEO. In due time that will be one of the issues that we will consider along with all these others.”
State gaming law requires that key employees and stakeholders of more than 5 percent must pass a suitability investigation. Wynn passed those originally, but that was before the allegations of sexual misconduct surfaced, and before it was disclosed that he had paid $7.5 million in a settlement, something that came out during the high-profile divorce case between Wynn and his former wife.
The commission’s investigation is focused on whether the company itself, as opposed to just Wynn, knew about the settlement when it was applying for the license.
Crosby said the commission has “virtual absolute authority” to make decisions in such cases. “All of those issues are on the table, including the ones the governor and the attorney general raised.”
He referred to demands by Attorney General Maura Healey and Governor Charlie Baker that the Wynn name, at the very least, be removed from the casino.
Healey last week also questioned whether Wynn Resorts should be allowed to keep the license for the Wynn Boston Harbor, which is scheduled to open in June 2019.
In a statement the AG said, “It’s clear to me, if what’s being alleged is true, that the casino cannot bear Wynn’s name. I’m not convinced the company should have a license at all.”
The governor said, “I certainly think that’s one of the things that should be on the table. Obviously, the allegations from the beginning, all of them, have been horrifying and incredibly disturbing.”
However, Crosby refused to speculate on what might be done until the investigation is complete.
Wynn continues to deny all allegations. He issued a statement: It’s revolting that the media repeated such inflammatory claims from events that supposedly occurred four decades ago without the slightest bit of fact-checking or skepticism.”
He added, “This is not journalism, it is the peddling of smut and it is atrociously unfair to Mr. Wynn, his family and friends. Mr. Wynn is left to ask this simple question: when did we abandon such fundamental fairness, due process and decency?”