Will Wynn Resorts stockholder suit generate more than damaging headlines?
Whenever I write about Wynn Resorts these days, I always wind up sounding like the voice-over for the commercial for “Jaws 2.”
You remember that one. It was like the original “Jaws” only not as scary.
It starts, “Just when you thought it was safe to go back in the water …”
Cue the ominous music. Here we go again.
There’s splashing and screaming and overacting. Parts go flying. There’s tomato bisque in the water from here to Cape Hatteras.
Everything turns out all right, but only after a gaggle of minor characters have met their gruesome end.
A shareholder derivative lawsuit alleging violation of Nevada law was filed Monday in Clark County District Court against former Wynn Resorts Chairman Steve Wynn and a long list of attorneys and executives and attorneys, most of whom are no longer associated with the company. Reno attorney David O’Mara brought the 133-page suit on behalf of stockholder Dennis Rosen.
Corporate scandals often produce shareholder lawsuits, so the fact the litigation was filed wasn’t really surprising. Nor does it mean it will prevail despite a mountain of ugly details of alleged sexual impropriety and coverup.
But the list of defendants is little short of jaw-dropping. In addition to Wynn, a number of corporate and personal lawyers are named as defendants along with former company officials and current and former members of the board of directors.
As one veteran gaming industry observer quipped, it’s probably easier to report who isn’t named in the lawsuit.
Again, that’s not so shocking given the scale of the scandal, which to date has led to a head-slapping $55 million in fines from regulatory agencies in Nevada and Massachusetts.
But one named defendant makes the litigation truly newsworthy and could spell further trouble for the company as it prepares to open its new $2.6 billion casino resort, Encore Boston Harbor, in Everett, Massachusetts. It’s Wynn Resorts CEO Matt Maddox.
Maddox managed to survive a withering multi-jurisdiction investigation by the Massachusetts Gaming Commission and the Nevada Gaming Control Board in connection with the alleged sexual improprieties leveled against Wynn. That includes a $7.5 million payment to a former resort manicurist. Wynn has denied any wrongdoing in association with the corporate scandal that drove him from the top of one of the world’s best-known casino companies.
Maddox has already been hit with a $500,000 fine by Massachusetts officials. The company is trying to keep focused on its daily operations and the additional responsibility in Everett. While the latest lawsuit might have been predicted, it’s a major distraction at a really a bad time.
Making matters worse, of course, is the fact that the investigations have already led to severe penalties by regulators. A lot of damning facts have been stipulated to by the company and Maddox.
Naming a collection of formidable attorneys as defendants, among them former Nevada Gaming Commission member Frank Schreck, promises to further complicate the legal process. When you’ve been accused “breaches of fiduciary duties, negligence in professional conduct and legal malpractice, corporate waste, aiding and abetting breaches of fiduciary duties, abuse of control, and unjust enrichment,” it’s safe to say the professional courtesies are likely to be kept to a minimum.
Complicating matters is the public release of a withering, 200-page investigative report by Massachusetts regulators that excoriates Wynn’s own longtime attorneys. One snippet from the investigative report that was highlighted in the legal filing: “Their efforts at secrecy made it exceedingly difficult, if not impossible, for gaming regulators to detect this potentially derogatory information through typical regulatory means, which rely heavily on robust self-disclosures.”
From the lawsuit: “This is a case about holding the enablers of Steve Wynn’s decades-long predatory behavior towards women accountable for their wrongdoing. Steve Wynn’s sexual harassment of female employees at Wynn Resorts was egregious and long-standing. Simply put, Mr. Wynn took advantage of his control over the employment status of working women who needed their jobs at Wynn Resorts to support their children and families to coerce the women into performing sex acts on him at work.
“Egregiously, his conduct was actively aided and abetted by the attorney defendants and executives named herein – all of whom owed heightened fiduciary duties. These attorneys and executives not only turned a blind eye to Wynn’s open and notorious predatory behavior, but provided active assistance to Mr. Wynn by helping him structure and operate shell companies to pay off the affected women and by failing to report the relevant facts, thereby allowing the misconduct to continue for years and victimize numerous additional women.”
As I recall, “Jaws 2” lacked the excitement of the original movie. It turned out to be an inferior remake, and it wasn’t the last in the series.
We’ll see soon enough whether the Wynn Resorts stockholder suit has real bite and leaves blood in the water, or just a lot of red ink.