Wynn Was Shocked, Shocked To Find Its Bribe-Loving Director Was Paying Bribes

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There's a possibly true anecdote about Greek uncompetitiveness that goes like this:

“An online store is more complicated than a regular store basically because of the way payments are carried out,” explained Fotis Antonopoulos, one of the co-founders of www.oliveshop.com, which sells olive oil-based products such as cosmetics, mostly to foreign markets. ...

Antonopoulos and his partners spent hours collecting papers from tax offices, the Athens Chamber of Commerce and Industry, the municipal service where the company is based, the health inspector’s office, the fire department and banks. At the health department, they were told that all the shareholders of the company would have to provide chest X-rays, and, in the most surreal demand of all, stool samples.

This is contrasted with the US system, where Antonopoulos says “I contacted the FDA and they sent us an e-mail with directions immediately. I filled in an online form and was done in five minutes. We received the approval 24 hours after making our application.”

Now, I'm sure you're as horrified as I am that the people in charge of protecting our health and safety will let us smear olive-derived creams on ourselves without so much as examining the poop of the people providing the funding to the people selling those creams. Fortunately, though, US regulators keep watch over some aspects of our lives to make sure they're not affected by shareholder irregularities. Specifically, they keep watch over our slot machines.

That is I suppose the genesis of this awesome Wynn thing. Quick recap (based largely on this report from former FBI director Louis Freeh because why not have a former FBI director involved): Steve Wynn had a friend, a Japanese engineer named Kazuo Okada, who runs a company named Aruze that was a 24.55% investor in Wynn Resorts when it IPOed in 2002 and a 19.66% shareholder as of ... last week. Okada tried to open his own casino in the Philippines, maybe doing some shady stuff with Wynn resources including the "city ledger" account set up by Wynn to, as far as I can tell, allow Okada to gamble more efficiently. Also maybe doing some shady stuff like kind-of bribing Philippines regulators, which is a violation of US law and also a serious no-no in the casino world. Things got unpleasant and Okada accused Wynn of doing some bribing himself, which was followed by that Freeh investigation by Wynn finding conflicts of interest and bribery by Okada.

Then things got amazing:

...the Wynn board met and made Okada's stock disappear. Unusual! But Wynn's charter lets them do that: "The Securities Owned or Controlled by an Unsuitable Person or an Affiliate of an Unsuitable Person shall be subject to redemption by the Corporation, out of funds legally available therefor, by action of the board of directors, ... to the extent deemed necessary or advisable by the board of directors." And:

"Unsuitable Person" shall mean a Person who (i) is determined by a Gaming Authority to be unsuitable to Own or Control any Securities or unsuitable to be connected or affiliated with a Person engaged in Gaming Activities in a Gaming Jurisdiction, or (ii) causes the Corporation or any Affiliated Company to lose or to be threatened with the loss of any Gaming License, or (iii) in the sole discretion of the board of directors of the Corporation, is deemed likely to jeopardize the Corporation's or any Affiliated Company's application for, receipt of approval for, right to the use of, or entitlement to, any Gaming License.

It's hard to know exactly what to make of all this, and some people are unimpressed by the bribery charges on both sides. On the other hand, there's probably some core of truth in the Wynn board's claim that, if Ozada is doing shady stuff, it will not help them either with their regulators in Vegas, Macau and elsewhere or with getting any future licenses. That's why major casino companies have provisions in their charters that allow this sort of thing.

Except that they don't, not really: Wynn's comps have charters that remove voting and dividend rights from shares held by people who have been found unsuitable by a regulator, or (what comes to the same thing) require those people to transfer their shares: but they can't just confiscate the shares at an arbitrary price, and they can't just do it if the board finds in its "sole discretion" that those people are up to no good.

So that's kind of weird, but Wynn's charter was written to give the board tons of discretion in getting rid of anyone it dislikes. Sort of. For now, let's just grant that Okada is a bad guy who can't go five minutes without bribing a regulator, and Wynn needed to get rid of all his influence as quickly as possible in order to keep its licenses. So of course they need to get rid of his 19.66% ownership of the company, the largest single stake in the company. The board can do that immediately - but it can't get rid of Okada as a director. They got rid of him in the Macau subsidiary, but the Nevada public company requires a shareholder vote to get rid of a director - unless he resigns, which is not looking likely. This is, let's say, a bit of a drafting malfunction in the Wynn charter.

So, awkwardly, Wynn has now announced that they've got a criminal who is unfit to be associate with a casino company on their board of directors. And he's not going anywhere. You might if you were suspicious draw some conclusions from that, such as that if Wynn's primary purpose here was to protect its squeaky-clean compliance reputation it might have found a way to resolve this without announcing that it had a crook on its board - one who supposedly, at a board meeting a year ago, had nothing but nice things to say about bribery:

One board member recalled Mr. Okada stating that, in Asia, one must follow the local culture, and that is why one should hire “consultants” to give the gifts. This board member understood Mr. Okada to mean that such use of consultants would help avoid prosecution under the FCPA. Another board member who was present recalled Mr. Okada stating that conducting business in the Philippines was all a matter of “hiring the right people” to pay other people. Yet another board member recalled Mr. Okada being “adamant” during the FCPA discussion that it is not corrupt to give “gifts.” A board member who participated in the meeting by phone recalled Mr. Okada claiming that, in the Philippines, “business is done in a different manner, and sometimes you have an ‘intermediary’ that will do whatever he has to do,” or words to that effect.

Wynn could get rid of his shares in a weekend, but a year after talking up bribery to his fellow directors, Okada is still on the board.

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