Wynn Resorts Forcibly Buys Out Co-Founder

Wynn Resorts [WYNN  Loading...      ()   ] has forcibly taken possession of the 24 million shares owned by its co-founder, Japanese billionaire Kazuo Okada, as Okada and former best friend Steve Wynn ratchet up their legal battle.

In a story first reported in the Wall Street Journal, the Wynn board—minus Okada—met in Las Vegas Saturday to ask for Okada’s resignation and forcibly “redeemed” his shares, repaying him with a steeply discounted $1.9 billion note which doesn't mature for ten years.

The company says in a statement that the actions were taken after a year-long investigation into Okada, his company, Universal Entertainment, and its private U.S. subsidiary, Aruze USA.

Wynn hired former FBI Director Louis Freeh to conduct the investigation. “Freeh’s investigators uncovered and documented more than three dozen instances over a three-year period in which Mr. Okada and his associates engaged in improper activities for their own benefit in apparent violation of U.S. anti-corruption laws and gross disregard for the Company’s Code of Conduct,” the company said in a statement. “These troubling discoveries include cash payments and gifts totaling approximately $110,000 to foreign gaming regulators.”

The report claimed Okada and his associates have “consciously taken active measures to conceal both the nature and amount of these payments.”

CNBC has learned that these violations allegedly include cash, travel to the Beijing Olympics, Chanel bags, and other gifts considered improper to Philippine regulators. Okada and Wynn have disagreed sharply over whether to expand gaming into the Philippines, and when Okada earlier pursued a project there on his own—putting him in competition with Wynn in the important Asia market—the board stripped him of his vice chairmanship. Now, with this latest investigation, Wynn’s compliance board, led by former Nevada Governor Robert Miller, deemed Okada's alleged actions “unsuitable" under the company’s articles of incorporation. Those articles allow the company to retake his shares, essentially removing them from the market. The shares are being repurchased at a discount after an independent financial advisor “concluded that a discount to the current trading price was appropriate because of restrictions on most of the shares which are subject to the terms of an existing stockholder agreement.” The money will be repaid in ten years with interest of two percent a year.

Okada has not yet responded and there's no word on whether he will step down voluntarily. Under Nevada law, a board cannot forcibly remove a director. Such action has to be taken through a shareholder vote, and it would take a vote of shareholders representing two thirds of shares to oust Okada. And if Okada refuses to resign, it’s not clear when shareholders will be asked. At the same time, the board is asking Wynn Macau, which is separately traded and has its own board, to remove Okada as a director. Sources close to the situation say Macau regulations do not need a shareholder vote to remove a director, the board can do it on its own. The Wynn Macau board is expected to take up the issue perhaps in the next week.

This latest move comes as both sides are due back in court in Las Vegas on Thursday over a lawsuit Okada filed against Steve Wynn and Wynn Resorts. The Japanese businessman is seeking to examine the company's books to determine how hundreds of millions of dollars of money has been spent in Macau by the company.

Wynn’s lawyers, including Robert Shapiro, argued in court earlier that Okada did not have a right to any more information than had already been made available to him through directors’ reports and SEC filings.

Judge Elizabeth Gonzalez replied that directors do have rights to examine the books, as long as their requests are reasonable. She ordered Wynn Resorts to determine what, if any, requests were considered reasonable, and to bring the remaining issues back to her this week for final judgment.

Wynn’s team is still determining if it will deem any of Okada's requests “reasonable” ahead of time.

The company will hold a conference call Tuesday morning. The U.S. stock market is closed Monday for the Presidents' Day holiday but shares in both Universal Entertainment and Wynn Macau will trade on Monday overseas. They could be impacted by the announcement that a large part of Kazuo Okada's fortune has been taken from him, money he won't see until February 2022.

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