Gaming mogul Steve Wynn may gain an edge in his courtroom battle for control of a $10 billion casino empire as business-partner-turned-rival Kazuo Okada is forced to answer questions from Wynn Resorts Ltd. (WYNN)’s lawyers.
The Japanese pachinko magnate’s court-ordered deposition, set for Sept. 18 in Las Vegas, will mark the first time Okada, who resides in Hong Kong and resisted coming to the U.S., will face Wynn Resorts’ attorneys after the casino operator’s board forcibly redeemed his 20 percent stake in the company at an $800 million discount.
The questioning of 69-year-old Okada under oath may show Wynn, 70, what he’s up against as he wages multiple legal battles to keep control of the company he started with Okada 10 years ago that operates casinos in Las Vegas and in the Chinese special administrative region of Macau.
Wynn, the company’s chairman and chief executive officer, also faces challenges from his ex-wife, who wants to sell her 10 percent stake in the company, and scrutiny by the U.S. Securities and Exchange Commission of an HK$1 billion ($129 million) donation last year to the University of Macau.
The Wynn Resorts board said Okada was “unsuitable” under Nevada gaming law as a controlling shareholder, claiming he made improper gifts and payments to officials in the Philippines where he’s building a casino resort. The deposition stems from Okada’s attempt, as a Wynn Resorts director, to gain access to corporate files going back as far as 2000 related to the company’s efforts to get a casino license in Macau.
Wynn’s lawyers have said Okada is trying to dig up evidence for a so-called unclean hands defense that Wynn improperly courted officials in Macau, just as he accuses Okada of having done in the Philippines.
Questioning Okada will reveal “what besides his own personal venom for Mr. Wynn and his personal agenda in his lawsuit against Wynn Resorts has motivated his request,” Wynn Resorts said in a June 18 court filing.
The deposition, which will take place behind closed doors, can be used as evidence in court, where Wynn and Okada are also squaring off in a separate lawsuit before the same judge over the alleged breach of fiduciary duty by Okada that prompted Wynn Resorts’ board to redeem his 24.5 million shares.
“The deposition will show whether or not Mr. Okada currently has any facts and evidence to support his claims against the Wynn side,” Close said. “If the Okada team does not have those facts now, it will certainly color the litigation going forward and the Okada side will face an uphill battle on their unclean hands arguments.”
Michael Weaver, a spokesman for Wynn Resorts, declined to comment on the deposition. Steve Getzug, a spokesman for Okada, also declined to comment.
Okada met Steve Wynn while selling gaming devices in Nevada, according to a court filing. In 2000, the Japanese businessman invested $260 million for a 50 percent stake in a predecessor company to Wynn Resorts. Two years later, Okada invested an additional $120 million and became vice chairman of Wynn Resorts.
Okada and his family are ranked 719th on Forbes’s 2012 billionaires list, with a net worth of $1.8 billion, while Steve Wynn is 491 on the list with an estimated fortune of $2.5 billion and his ex-wife, Elaine, is 913th with $1.4 billion in assets.
Wynn spoke to the closeness of their relationship while testifying to the Nevada Gaming Commission in 2004 in support of Okada’s “suitability” as a controlling shareholder, according to a June 14 court filing by Okada.
“I have never dreamed that there would be a man as supportive, as long-term thinking, as selfless in his investment as Mr. Okada,” Wynn told the commission, according to Okada, citing the CEO’s sworn testimony before the commission.
The fight between the two billionaires erupted Feb. 19 when Wynn Resorts said that its board had decided to redeem Okada’s shares and asked him to resign as a director. Okada must wait 10 years to cash out a promissory note for a redemption of $1.9 billion, an amount Okada said is 30 percent below the shares’ market value.
The same day, the company sued Okada in state court in Las Vegas, accusing him of making improper payments to gaming regulators in the Philippines, where he’s building two casinos and three hotels in Manila seeking to lure “high-limit, VIP gamblers” from China to compete with Wynn Macau.
An investigation conducted for the company by former Federal Bureau of Investigation Director Louis Freeh, who was also a federal judge and is now a lawyer in private practice, found that Okada and his associates gave more than $110,000 to Philippines officials, including payments for “luxury lodging, extravagant dinners, shopping, and cash to spend” in apparent violation of the U.S. Foreign Corrupt Practices Act, according to the complaint.
Okada had the lawsuit removed in March to the federal court, where he filed his counterclaims. U.S. District Judge Larry Hicks agreed with Wynn Resorts that Okada had no “objectively reasonable” basis to have the case heard in federal court. The judge sent the case back to Nevada state court and ordered Okada to pay Wynn Resorts $148,583 in attorney’s fees.
Each side claims the other has ulterior motives for making allegations of wrongdoing.
Okada’s court filings trace the conflict to Steve Wynn’s 2009 divorce from Elaine Wynn, which left Okada as Wynn Resorts’ largest shareholder.
Okada, who made his fortune in pachinko and other gaming machines, said the divorce cut Steve Wynn’s stake in Wynn Resorts in half. “The possibility loomed” that Wynn would lose control of the company as he did 10 years earlier with Mirage Resorts Inc., Okada said in court papers.
Kirk Kerkorian’s MGM Grand Inc. bought Mirage Resorts from Wynn in 2000 after its shares fell 47 percent when its casinos’ returns failed to meet investors’ expectations.
Okada’s challenge in court now is to muster evidence showing the real reason Wynn wants him off the board is to avoid a repeat of the Mirage Resorts debacle, said Robert Klieger, a lawyer with Kendall Brill & Klieger LLP in Los Angeles who isn’t involved in the case.
“Okada tells a compelling story that Wynn was trying to eliminate the largest shareholder in order to maintain control of the company,” Klieger said in a phone interview.
Wynn Resorts has said in court filings that Okada’s pursuit of company records is a “charade” intended to distract attention from his activities in the Philippines.
“There is no corporate governance at stake here,” James Pisanelli, a lawyer for Wynn Resorts, said at a May 17 court hearing.
Lawyers for Okada said in court filings that, as a director, he isn’t required to establish a purpose or make factual allegations of actual wrongdoing to justify his request to inspect corporate records.
Nevada state court Judge Elizabeth Gonzalez, who is presiding over the litigation, ordered Wynn Resorts in March to hand over only two more pages of documents to Okada beyond what he’d already been offered. In June, after Okada made a renewed request, Gonzalez gave Wynn Resorts permission to question Okada before she decides whether he has a “proper purpose” for seeking the records.
Allowing the deposition is an unusual move by a judge so early in a high-stakes court fight, Close said. Okada may risk losing credibility with the judge if he doesn’t show in the deposition that he has a reasonable need for the records, said Close, the O’Melveny & Myers lawyer who’s following the case.
“This is very unfavorable to the Okada side,” he said. “You don’t want to give a free, early deposition.”
Okada’s records request already has succeeded on one front -- prompting the SEC to ask Wynn Resorts to preserve information about the University of Macau pledge. The company has said the pledge was consistent with its long-standing practice of supporting institutions in markets in which it operates.
The university donation doesn’t look troublesome on the surface because many countries require charitable contributions to get a permit or license, said Philip Urofsky, a former federal prosecutor who handled Foreign Corrupt Practices Act violations, now with Shearman & Sterling LLP in Washington.
It becomes a problem if the money ends up in the pockets of government officials, and Wynn Resorts may need to explain what steps it took to make sure the donation is used only for the university, Urofsky said.
“There’s nothing that says you can’t make charitable donations to improve your chances to win business,” Urofsky said in a phone interview. “If that benefits a foreign government, that’s fine. The FCPA is designed to fight corruption of government officials.”
As Steve Wynn spars with Okada, he is also trying to fend off his ex-wife’s attempt to sell her stake in Wynn Resorts.
Elaine Wynn, who sits on the company’s board, filed a request for a judge’s order invalidating the stockholder agreement with her ex-husband and Okada. That agreement bars her from selling her 10 percent stake.
The initial 2002 agreement, which stipulated that Okada and Steve Wynn would vote their 25 percent stakes as a block, gave Steve Wynn control over who was elected to the board, Elaine Wynn said in a June 19 court filing.
She came to own 10 million shares, worth about $1 billion, after the 2009 divorce that entitled her to half the couple’s community assets. The stockholder agreement was then amended to include her. Steve Wynn wanted to restrict her ability to sell the shares because he didn’t want to give Okada an opening to also renegotiate restrictions on his shares, she said in a court filing.
With the forced redemption of Okada’s shares in February, Elaine Wynn argued in the filing that there’s no longer a reason for her to be bound by the restrictions. Steve Wynn maintains that she can’t sell her shares without his consent, according to the filing.
Mark Fabiani, a spokesman for Elaine Wynn, declined to comment on her court filings.
If Elaine Wynn gets permission to sell her shares, Steve Wynn would hold only 10 percent of the company, rather than the 40 percent he controlled a year ago, making it more vulnerable to potential unsolicited bids.
Okada’s petition for access to Wynn’s books and records is Okada v. Wynn Resorts, A-12-654522-B, District Court, Clark County, Nevada (Las Vegas).
Wynn’s breach of fiduciary duty lawsuit is Wynn Resorts v. Okada, A-12-656710-B, District Court, Clark County, Nevada (Las Vegas).
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