Wynn ousts Okada in latest
round of billionaires' brawl
By Muhammad Cohen
HONG KONG - Casino mogul Steve Wynn has won another round in his brawl with Kazuo Okada, king of Japan's pachinko arcade-game business, removing him from the Wynn Resorts board of directors on Friday by a near unanimous vote of shareholders. Okada, the chairman of Universal Entertainment, beat Wynn to the punch by resigning on Thursday, while pledging to continue the fight. For more than a year, these battling billionaires have traded bribery allegations that could leave both as big losers.
The feud exploded a year ago when the board of directors ousted Okada as Wynn Resorts vice chairman, declaring him "unsuitable" after an internal investigation suggested he'd violated
US anti-bribery statutes to the tune of US$110,000. "Mr Okada's conduct poses a present threat to the company's reputation for probity, which is fundamental to preserving its current gaming licenses, applying for and receiving additional gaming licenses in connection with future projects," the company declared in a regulatory filing.
Okada wrote in a resignation statement released on Thursday: "When Mr Wynn needed my money, I was more than good enough for him and the Company. He called me his 'partner' and 'friend'. In 2004, he testified under oath that he 'never dreamed that there would be a man as supportive, as long-term thinking, as selfless in his investment as Mr Okada'. In 2008, he told the investment community, 'I love Kazuo Okada as much as any man that I've ever met in my life.'"
Taking the fifth
In 2000, Steve Wynn sold Mirage Resorts - the company that made Las Vegas a luxury destination with its Mirage, Treasure Island and Bellagio casino hotels - and cleared about $500 million. He spent most of that buying the Desert Inn site on the Las Vegas Strip and adjoining properties that would in April 2005 open as Wynn Las Vegas.
As that project took shape, Wynn won one of the gaming licenses Macau put up for bids. Wynn now had a pair of signature resorts to develop, but banks in those days didn't lend to casinos. Okada, who met Wynn in 2000, staked him to $455 million over the next four years, getting a 20% share of Wynn Resorts, the same percentage Steve Wynn owned.
In the wake of the investigators' findings, Wynn redeemed Okada's 20% stake for $1.9 billion (to be paid out over 10 years), a discount of $800 million to its market value at the time. Don't cry for Okada too hard; he'd already pocketed more than $600 million in dividends besides quadrupling his investment, and he's suing to get his shares back.
"This is different from anything we've ever seen in the regulatory world," a casino industry insider requesting anonymity said. "There have been forced buybacks of shares after regulatory findings [of wrongdoing]. This is the first time it's been done without a regulatory finding."
The forced buyback of Okada's shares coincidentally restored Steve Wynn's place as top shareholder in his namesake company. When Wynn and his wife Elaine divorced (for the second time) in 2010, they split the family shareholding, leaving each with about 10% of Wynn Resorts stock. As part of the divorce settlement, Elaine Wynn is obliged to vote her shares in agreement with Steve Wynn's. She is fighting that restriction in court.
Regulators and courts in five jurisdictions, from Tokyo to Washington, are currently examining the charges that have arisen from what's grown into a nasty, personal feud between Wynn and Okada. Based on its internal investigation headed by former US Federal Bureau of Investigation (FBI) director Louis Freeh, Wynn claims Okada entertained Philippine government gaming regulators in violation of the Federal Corrupt Practices Act (FCPA), which prohibits payments to government officials, as well as Wynn's code of ethics.
The industry insider, an expert on regulation and enforcement issues, noted that the charges were incurred at Wynn Macau and Wynn Las Vegas and asks why the company, if it believed a serious ethics violation was taking place, didn't act at the time. Moreover, the visits took place over a period of three years, raising the question of why Wynn officials didn't prevent repeats after the first instance. A Wynn consultant provided a copy of the Freeh report but did not respond to specific questions for this article. Universal also did not respond to questions.
Facing stagnation in pachinko - a version of pinball with an element of small-time gambling that's popular almost exclusively in Japan - Okada obtained a gaming license in the Philippines in 2008 and is building a $2 billion casino resort there. In his resignation statement, Okada asserts Wynn promised to cooperate with the project, but Wynn contends he tried to stop Okada from investing there. "Okada was expecting Wynn to go in with him, but Wynn didn't want to, though he didn't say 'no' outright at first," the casino industry insider said. "No US casino operator could do business in the Philippines, due to the levels of corruption there."
Last year, in a memo to employees, Steve Wynn wrote, "In breaking ground recently on his Philippine project, Mr Okada not only defied the wishes of the board, he became a significant new competitor." Last year, Philippines gaming revenue totaled $1.6 billion, compared with Macau's $38 billion. Gaming industry analysts dismiss the idea of the Philippines posing any threat to casinos in Macau - or Las Vegas - in the foreseeable future.
Freeh's report also casts doubts on a land deal related to Okada's Philippine project and entertainment expenses for gaming officials in South Korean, where Universal also has casino development plans there.
In response to Wynn's actions, Okada has raised questions about a land deal linked to Wynn's current $4 billion casino project in Cotai, the landfill area linking Macau's two outer islands that is supplanting downtown Macau as the hub of world's biggest casino destination, with revenues six times those of Las Vegas.
But Okada has principally focused his counterattack on a $135 million corporate donation from Wynn to the University of Macau. Launched as a private school, the university was re-christened as a public institution through the government-supported Macau Foundation in 1991. Neither the foundation nor the university is renowned for stringent financial oversight.
Okada contends he was the only director to oppose the gift. "Mr Wynn used my legitimate questioning of and eventual opposition to the $135 million donation to the University of Macau Development Fund - a donation which was decided without consulting me, an equal partner, at all and was without any clear objective or reason - as the perfect opportunity to brand me as 'unsuitable' by using the Freeh Report which deceptively claims to be 'independent'."
Authorities in Nevada, the US state where Las Vegas is located, cleared Wynn of any wrongdoing over the donation, paid as an initial $25 million gift and $10 million installments over the next 11 years. The US federal Securities and Exchange Commission that oversees publicly traded companies is still investigating the matter.
The Philippine Justice Department is probing the Freeh report's findings, as is the US FBI, apparently due to alleged involvement of Universal's American affiliate, Aruze USA. The industry insider believes Okada's reputed violations of the FCPA could have put Wynn's licenses and reputation in jeopardy, even though $110,000 seems like a fairly trivial amount.
But, more to the point, the insider believes Wynn wanted to get rid of Okada. "He was becoming a nuisance and a possible threat. The Freeh report gave him enough to do it," the gaming expert said. "If you were to do an audit of Wynn, you'd find all kinds of things - but no one has." The more accusations that fly, the shorter the odds that someone will take a closer look.
Macau Business magazine special correspondent and former broadcast news producer Muhammad Cohen told America's story to the world as a US diplomat and is author of Hong Kong On Air, a novel set during the 1997 handover about television news, love, betrayal, financial crisis, and cheap lingerie. See his blog and more at MuhammadCohen.com.
(Copyright 2013 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)