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Gaming regulators to take up Wynn sexual harassment complaint

It’s the million-dollar question.

How much, if anything, will Wynn Resorts Ltd. be fined by regulators when the Nevada Gaming Commission meets in a special session Tuesday to consider a 10-count sexual harassment complaint from the state Gaming Control Board?

Wynn Resorts Chairman Phil Satre and CEO Matt Maddox are expected to attend the hearing, which could have wide-reaching consequences for one of the most iconic brands in the gaming industry.

The company already has signed off on a stipulation for settlement of the complaint issued in January by the Control Board. The 22-page complaint outlines how at least four Wynn executives failed to investigate sexual harassment allegations involving former Chairman and CEO Steve Wynn from eight female employees since 2005.

Steve Wynn has denied all harassment allegations.

In each count in the complaint, the company was cited for violating statutes and gaming regulations forbidding licensees from damaging the reputation of the state’s gaming industry through improper conduct.

The settlement stipulation takes the possible revocation or suspension of the company’s license off the table and gives the commission the discretion of setting a fine amount, if any.

Commission Chairman Tony Alamo has said he expects he and his three colleagues — a vacancy on the board has yet to be filled — to deliberate on a possible fine before reaching a determination.

Since the sexual harassment allegations were first reported by the Wall Street Journal in January 2018, Wynn Resorts has taken several steps to limit damage to the company and change its corporate culture and to satisfy regulators in two states that had begun investigations into numerous reports that surfaced after initial media reports.

Board investigation

The company’s board of directors launched an independent internal investigation and began reviewing policies and procedures. After Steve Wynn resigned in February 2018, the board separated the chairman and CEO roles, and elevated Maddox to CEO.

“Despite a defiant initial public reaction to the allegations and Mr. Wynn’s denials, within hours, the company commenced an investigation by a special committee comprised of independent directors,” the company said in a report delivered to the commission when the settlement stipulation was signed. “Within days, Mr. Wynn resigned as chairman and CEO. Within weeks, Mr. Wynn ceased to own any part of the company. Within months, the company implemented dramatically revised internal human resources and compliance policies, remade its board and installed new leadership in key positions.”

Over several months, the board approved six new directors, and it is now made up of nearly half women.

In addition to installing Maddox as CEO, a new general counsel, Ellen Whittemore, and a new president, Marilyn Spiegel, were appointed, and the company created a senior vice president of human resources position, bringing Rose Huddleston to the post.

New policies

The company also added several new policies, many of them directed specifically toward sexual harassment prevention, and it added a new compliance committee with numerous checks and balances to prevent any harassment allegation from going unchecked.

Now, it will be up to the commission to determine if what the company did is enough, and the impact of a fine.

Anthony Cabot, a distinguished fellow at UNLV’s Boyd School of Law who has appeared as legal counsel for companies before Nevada’s gaming regulators, likened the Wynn scenario to sanctions taken by the NCAA against schools accused of recruiting violations — all the troublemakers are gone, and the remaining student athletes are the ones who get punished.

“You have the perpetrators. You have the folks who maybe knew or should have known about the perpetrators and didn’t do anything about it and then you have whoever’s left standing,” Cabot said. “Fines are most effective against the perpetrator.”

Cabot said he believes regulators shouldn’t be placing the biggest financial burden on the company and its shareholders.

“I think a fine is in order, but again, I don’t necessarily think that it’s appropriate that the people who are left with the company bear the entire burden because like the student athletes, the people who are hurt most are just the shareholders who had nothing to do with it.”

There’s also the question of the amount of any potential fine.

Highest fine: $5.5 million

The largest fine ever levied by the commission was $5.5 million in 2014 against Cantor G&W Holdings, now known as CG Technology. In that case, the company’s top executive also was removed.

Putting that amount in perspective, Wynn Resorts last month reported net income of more than $814.8 million companywide in 2018, or roughly $2.2 million a day, meaning it would take just more than two days for the company to make the amount of the largest fine ever imposed by the commission.

But Wynn Resorts clearly wouldn’t want the notoriety of being assessed the largest fine ever imposed by the state.

The company also is conscious that whatever conclusion is reached by Nevada regulators would be assessed by the Massachusetts Gaming Commission, which is on the verge of setting an adjudicatory hearing with similar complaints on the company, which is building the $2.6 billion Encore Boston Harbor resort scheduled to open in June.

Business attorney Aviva Gordon of Henderson-based Gordon Law believes a hefty fine could lead to greater long-term punishment to the company because of the potential damage to the Wynn brand.

“In this particular circumstance, because there has been such public disclosure and interest and intrigue, I think that a fine in this circumstance can be painful, but to some extent superfluous beyond the real sort of damage to the business and the brand,” she said.

The other damage could come in the form of additional derivative lawsuits from shareholders accusing the company of not being vigilant in its oversight of company policies. At least five derivative lawsuits already have been filed against the company.

Sending a message

But Gordon acknowledged that a large fine could have a positive industrywide effect.

“I think the fine process is done both to directly affect the offending business, but it’s also done to sort of send a message to other businesses, and I think that message certainly can be received and it can change (corporate culture) if there are similar types of conduct or activity going on,” she said. “It can provide that kind of wake-up call to stop engaging in that kind of offensive or inappropriate conduct.”

Cabot added that high fines can send the message that sexual harassment won’t be tolerated by regulators.

“You come out with a statement with regard to the first offenders,” Cabot said. “You identify the problem and say, ‘You folks are going to get fined, but we’re making a message to the industry that this is not tolerable behavior.’ But the second person who does it gets a bigger fine and the third person who does it gets an even bigger fine. They’re letting the industry know that this is unacceptable behavior.”

Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on Twitter.

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