An intense legal war is raging in a Nevada court between casino mogul Steve Wynn and Japanese pachinko machine tycoon Kazuo Okada, a man once seen as Wynn’s savior and closest friend.
A feud erupted into the media spotlight in January when Okada, then vice chairman of Wynn Resorts, filed a petition in Nevada state court seeking access to financial records pertaining to a HK$1 billion ($129 million) pledge the company had made in July 2011 to the University of Macau Development Foundation.
The pledge was one of a number of donations that appear to have been made to facilitate approval to open of a new casino in Macau, a city that already produces five times the gaming revenues of Las Vegas. Okada voted against the pledge, possibly upsetting Wynn who may have felt that the vote may have been motivated by Okada’s self interest in preventing Wynn Resorts from expanding in the world’s top casino market due to Okada’s own pending casino projects in Manila.
There may also have been some concerns that the pledge might be seen as improper by the Nevada Gaming Commission — which has the power to shut down casinos operating in violation of laws. In February the SEC did send a letter to Wynn Resorts demanding information about the pledge, though Wynn played down its significance.
On February 19 Wynn filed a fraud suit in Nevada state court against Okada invoking a clause in the Wynn Resorts’ recently revised shareholder agreement that allows the company to buy back shares from “unsuitable” shareholders at a 30% discount with a 10-year promissory note at just 2% annual interest. The share redemption essentially seeks to force Okada to take an $810 million haircut on Wynn Resorts shares worth $2.7 billion based on the last closing price. It would also force Okada to wait 10 years to see even that discounted price.
In support of the lawsuit Wynn alleged that Okada had committed fraud by seeking to build two casinos and three hotels in Manila that would directly compete against Wynn’s Macau casino for “high-limit, VIP gamblers” from China. In support of the allegation Wynn cited results of a private investigation conducted by former FBI director Louis Freeh finding that Okada had paid some three dozen bribes totaling $110,000 to various Philippine gaming officials, including to chief gambling regulator Cristino Naguiat.
In mid-March Okada returned fire by removing Wynn’s lawsuit to federal district court and counter-claiming that Wynn had been operating Wynn Resorts as a “personal fiefdom” in violation of corporation laws and that his shares weren’t subject to the forced redemption clause because he had agreed to buy them before that provision went into effect.
Okada also alleges that Steve Wynn had never voiced any concerns about his Manila casino projects even though he had known about them as far back as 2007. Okada also denied that the payments made to Philippines officials were gifts and that the Wynn board didn’t give him a chance to respond to the accusations before declaring him “unsuitable.” Okada’s suit seeks various compensatory and punitive damages.
Okada’s Universal Entertainment is one of only four firms that were awarded gaming licenses in the Philippines. Its current projects in Manila’s Entertainment City is valued at $2 billion.
Okada also posted a video on the website of Universal Entertainment, his Japanese gaming company building the Manila casinos, explaining that Wynn’s allegations against Universal’s project in the Philippines is based on nothing more than his prejudiced notion that the Philippines is a corrupt country.
“I became suspicious when Steve Wynn suddenly changed his attitude to question Universal’s investment in the Philippines after he had long been supporting it behind the scenes,” Okada said. “His attitude changed because I became suspicious regarding the purpose and reason for the large donation made to the University of Macau.”
Okada said he then began to look more deeply into his dealings with Wynn, including Wynn’s use of the $120 million he, Okada, had provided in 2002 to enable the company to secure a Macau gaming license. Wynn failed to provide a clear explanation or any detailed records, Okada said.
In June a federal judge sent the lawsuit back to Nevada state court, saying the suits turned mainly on issues of state law, not on federal anti-corruption laws.
The current fracas between Wynn and Okada came as a surprise to those who had followed Okada’s entry into Las Vegas casino scene a dozen years ago.
Okada, 69, is an engineer by training. He entered the gaming business by repairing jukeboxes, and built a fortune valued at $2.1 billion — making him one of Japan’s top two dozen tycoons — by making gaming machines for Japan’s ubiquitous pachinko parlors. In 2009 Okada made news in Japan by urging the government to legalize gambling as a way to help the nation shake off the recession. He had pinned his hopes for such a move on then new prime minister Yukio Hatomiya, but the issue was never raised before Hatomiya’s ouster the following year.
“In Japan, politicians are very weak in showing the will to do something,” said Okada at the time. “If a politician who displayed such a will were to emerge, the legislation would likely be passed at once.”
In 2000 Okada made a splashy entry into the Las Vegas scene by bailing out Steve Wynn at a time when he was fighting for financial and professional survival. At the time Wynn was so grateful that he declared, “I love Kazuo Okada as much as any man that I’ve ever met in my life. He’s my partner and my friend. And there is hardly anything that I won’t do for him.”
Though Wynn remains chairman of his namesake company for now, he is in danger of losing the post to either Okada or one of Okada’s hand-picked board members. After Wynn’s second divorce (from the same woman) earlier this year, his stake in Wynn Resorts was cut down to less than Okada’s. Okada has recently mentioned plans to install a slate of four directors at the next annual shareholders’ meeting, which could give him control of the board.