The messy lawsuit over the way Wynn Resorts Ltd. forcibly bought back the entire stake of Kazuo Okada, its former largest shareholder, has been put on hold for six months after ensnaring both sides in federal criminal inquiries.
Clark County District Judge Elizabeth Gonzalez ruled Thursday after federal prosecutors expressed fear that the civil litigation would interfere with their investigation of methods Okada used to gain a casino license in the Philippines. In an action that attorneys in the case called very rare, prosecutors asked for the six-month freeze on part of the case but left open the possibility of wanting future extensions.
While almost all of the U.S. Department of Justice’s 34-page request focused on Okada’s dealings, a footnote indicated that Wynn also faces problems.
Recounting the $135 million donation to the University of Macau that Wynn announced two years ago, the court papers stated, “(T)he government also has been conducting a criminal investigation into that conduct.”
Assistant U.S. Attorney Russell Marsh declined to comment on which agency was carrying out the inquiry.
Wynn general counsel Kim Sinatra said she did not know source of the investigation but pledged that the company would “co-operate fully.”
The Wynn annual report contained a paragraph acknowledging that the Salt Lake City office of the Securities and Exchange Commission had launched an “informal inquiry” into the donation in February 2012 but made no mention of a criminal focus. The SEC told Wynn to “preserve information” relating to the University of Macau donation, gifts to any other educational entity and casino or concession gaming licenses or renewals in Macau.
Three months ago, Wynn announced that the Nevada Gaming Control Board had ended its own investigation after concluding that nothing improper happened.
Wynn has portrayed the huge gift as part of its long-standing philanthropic program. In court papers, Okada has tied the donation to the company’s quest for a land concession in the Cotai Strip, the rapidly developing gaming resort corridor in Macau.
Okada was the sole director to vote against the donation when it was put on the board agenda two years ago. The public and bitter rupture in the once close business and personal ties between Okada, the Japanese gaming tycoon, and company Chairman and CEO Steve Wynn largely began over the donation.
Later in 2011, the company commissioned a report by former FBI director Louis Freeh that concluded Okada had violated the Foreign Corrupt Practices Act by covering numerous expenses for Philippine gaming regulators. Two weeks ago, Okada released his own report by former Secretary of Homeland Security Michael Chertoff that concluded the Freeh investigation was “lopsided (and) lacks even the appearance of objectivity.”
Nevertheless, federal prosecutors wanted to stop Okada’s attempts to learn the methods and sources behind the Freeh report as “posing a real danger to the criminal investigation,” said federal attorney Joey Lipton. Not only could Okada learn about which direction the probe was taking, but it could have “a chilling effect on witnesses we have talked to,” Lipton said.
Attempts to negotiate legal boundaries with Okada had not produced an agreement, he said. In addition, attorneys for Steve Wynn’s former wife, Elaine Wynn, wanted to proceed with her quest to gain court approval through other avenues to sell her shares in the company, now worth $1.3 billion.
In the end, Gonzalez put everything on hold rather than rope off certain subjects.
She also noted the federal investigations in several cases have moved much more slowly than state court civil claims involving the same people.
Lipton described the six-month freeze not as a hard deadline but enough time to gauge the investigation’s progress.
In granting the six months, Gonzalez said, “That doesn’t mean in five months and 15 days you come back and say, ‘Judge, we need another six months,’ because it ain’t happening.”s