The Nevada Gaming Control Board’s settlement with Wynn Resorts Ltd. may benefit investors suing the casino operator’s former directors and officers.
“Our lawsuit has four basic elements, and this (regulator) complaint admits all four of them,” said William Kemp, who is representing shareholders in nine investor cases filed in Nevada state court. Those cases have since been consolidated. “It was a total surrender by the company. I don’t know how they think they are going to try our case after they admitted everything.”
The investors still face a steep uphill battle as such cases are “very, very hard to win,” said Christine Hurt, associate dean and professor of law at Brigham Young University.
More than a dozen shareholders filed state and federal lawsuits last year to recoup stock losses stemming from a January 2018 news report that Wynn Resorts founder and former CEO and Chairman Steve Wynn sexually harassed employees for decades. Wynn has denied the allegations.
Shares of Wynn Resorts tumbled as much as 20 percent over the next five weeks amid fears the casino operator could lose licenses and suffer fines. Kemp said many of the clients — which include pension funds and individuals — sold their shares within days.
Scott Satkin, an associate at Newmeyer & Dillion LLP in California, said the settlement will help investors, but it’s not a slam dunk.
“The admission is not necessarily the smoking gun that is going to decide the whole case, but it certainly doesn’t look good” for the defendants, said Satkin, who is not involved in the cases.
The lawsuits claim that the Wynn directors and officers “did nothing to address” Steve Wynn’s alleged abuses and set the stage for financial losses when those allegations finally became public. Attorneys for Steve Wynn said the investors lacked sufficient evidence for their claims in a Jan. 29 filing.
“The court should dismiss the claims against Mr. Wynn for breach of fiduciary duty, civil conspiracy and concert of action because plaintiffs have not come close to advancing the specific factual allegations necessary to plead them,” the motion said.
A day earlier, the Nevada regulator published the result of its one-year investigation into the allegations, listing eight instances of sexual harassment claims by employees against Steve Wynn that were not investigated by the company.
Wynn Resorts agreed to settle with the regulator, admitting that the company failed to investigate allegations of sexual misconduct.
The regulator’s complaint and Wynn Resorts’ public admission will be “exhibit one and exhibit two” in the trial, Kemp said.
J. Colby Williams, a lawyer representing Steve Wynn in this case, declined to comment as did Michael Weaver, a spokesman for Wynn Resorts.
The Nevada Gaming Control Board report said that at least seven former executives knew of sexual harassment allegations made by female employees and did not investigate.
They include Kim Sinatra, corporate secretary for the board, and Marc Schorr, who served on the board after he knew of two allegations, the report said. Elaine Wynn admitted she knew of one allegation while serving on the board.
Sinatra is named as a defendant in the lawsuits. Neither Marc Schorr nor Elaine Wynn is named because they left the board years before the allegations became public.
Seven of the 10 directors serving on the board at the time the allegations became public have stepped down.
Hurt said that even though Schorr and Sinatra knew of allegations, it will still be hard to prove nonexecutive directors were aware.
Nonetheless, investors just need to show that the directors and officers missed red flags.
“You don’t have to know that the bad behavior is going on, you just have to turn a blind eye or not have a compliance system in place,” Hurt said.
Less than $5 million
Kemp said his cases are set to go to trial in July. Many investor lawsuits are settled out of court, said Jerry Burleson, a California lawyer who has been representing minority shareholders against corporations for more than a decade.
Kemp said the maximum amount his investors could win is less than $5 million because of the amount of shares owned. Lawyers representing investors in the federal lawsuits against the former Wynn board and officers did not respond to requests for comment.
Wynn Resorts has insurance against breach of fiduciary duty by directors and officers, Kemp said.
Investors who immediately sold shares following reports of allegations may have saved themselves from even greater losses.
Shares of Wynn Resorts fell from a high of $203 on Jan. 25 to a low of $163 in March. They recovered to nearly $202 by May as concern over the sexual harassment allegations subsided.
However, the shares started to tumble again in late May, this time amid concern over a trade war with China and slowing growth in the U.S. Wynn Resorts generates about 75 percent of its earnings from Macau, a Chinese gaming enclave.
The shares fell to a low of $92 on Christmas Eve.