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Factors Influencing Mass Gaming Commission's Decision On Wynn

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This article is more than 4 years old.

Update: On August 5, 2019, Wynn Resorts’ General Counsel issued James Stern a letter confirming he had “voluntarily resigned” effective April 6th.   The original story was based on a brief that Wynn Resorts filed with the Massachusetts Gaming Commission saying that Stern had been informed on April 6th  “that Wynn Resorts would no longer require his services.”

Wynn Resorts (Wynn) had a tough week as a number of its executives testified in front of the Massachusetts Gaming Commission (MGC), a hearing that will play in influential role in whether or not the company is suitable to hold a gaming license in Massachusetts. find them suitable.  The suitability of Wynn was called into question after a Wall Street Journal article in January 2018 detailed allegations of sexual assault and harassment by Wynn's co-founder and former CEO, Steve Wynn.  Mr. Wynn continues to deny these allegations.

Walt Pavlo

Over three days (April 2-4) MGC heard testimony about former high ranking Wynn executives and board members, who knew of allegations of sexual harassment by Mr. Wynn and subsequent settlements, one for over $7.5 million.  Theses settlements were involved lawyers who went to great extremes to hide the settlements from MGC (and shareholders) and also retain agreements to keep those alleged victims quiet.

Perhaps most disturbing was the testimony of James Stern, head of security at Wynn.  He admitted to conducting covert operations to surveil former Wynn employees and former board member Elaine Wynn.  Stern's revelation of following Ms. Wynn came as a surprise to her, when asked if she were aware that she was being followed:

".... in the world we live in, gossip is always around, and people would speculate, and, I don't recall, I think someone suggested that maybe I was being surveilled, and I found that very difficult to believe.  It wasn't until this morning, when I learned that perhaps that was accurate."

Stern later testified that not only was Elaine Wynn followed but also former and current employees of Wynn.  An MGC commissioner asked Stern about his surveillance of employees he suspected of leaking information to the media about Wynn, "Did you think about the chilling effect of having employees followed?"  Stern replied, "I'm only thinking about that now."

He also expressed regrets of following Elaine but added that she was only followed when she was in the company of Kazuo Okada, a former Wynn shareholder who was in litigation with Wynn at the time.  Elaine, through her spokesman issued a statement that she has never met with Mr. Okada.  Two days later, Stern was told by Matt Maddox that his services were no longer needed, ending his 12 year career there.

MGC has to make a determination on Wynn's suitability and the testimony, combined with a detailed investigative report report it is relying upon, does not paint Wynn in a positive light.  Even if Wynn is found suitable and there is some huge fine, as some of speculated, there are more clouds on the horizon for Wynn ... lawsuits that make the testimony from last week look like a an easy interview.

Wynn is involved in three major lawsuits related to its obtaining a license here; 1) FBT Everett Realty v Mass Gaming Commission v Wynn, MA (Suffolk County Superior Court, Massachusetts State case), 2) Anthony Gattineri v Wynn Resorts and Wynn, MA (Federal case) and 3) Sterling Suffolk v Wynn Resorts and others (Federal case).

The state case involving FBT is related to the $40 million discounted price that MGC approved after an investigation led them to believe that one of the owners had ties to organized crime.   FBT now wants its money claiming that MGC interfered with the deal struck with Wynn to originally sell the land for $75 million.  In return, MGC has added Wynn as a third party defendant ... so if FBT prevails over MGC, MGC will look to Wynn to pay any amounts determined by the court.  If that case goes to trial, and it is moving along, look for depositions and testimony from former MGC chairman Stephen Crosby, former Governor Bill Weld (a part of ML Strategies who represented Wynn), Kim Sinatra (former general counsel at Wynn), recently fired James Stern and Matt Maddox (CEO of Wynn).  That testimony from that case could rock MGC as much as Wynn.

In the Gattineri federal case, Mr. Gattineri, one of the FBT partners, is claiming that Bob DeSalvio (head of Encore Boston Harbor) made an unwritten, side deal to make up for the loss on the land transaction.  Who knew about the side deal will include a host of witnesses, including the Wynn board members at the time.

Lastly, Sterling Suffolk, who had a competing bid for the license, has filed a $1 billion lawsuit claiming claiming that they were wrongly denied the license because of a RICO conspiracy.  Among the allegations are that the former MGC chairman, Stephen Crosby, steered the license to Wynn and that various Wynn executives have misrepresented information to the MGC.  That case is awaiting a judge's ruling to determine if the case can move forward.

Encore Boston Harbor is expected to open in June 2019 and a decision on Wynn's suitability is expected in the next few weeks.  The casino, which is 90% complete, cost an estimated $2.6 billion and will employ thousands.  While there are provisions to allow for a transition to another casino operator in the event of a finding of "not suitable" MGC has remained mostly silent on what actions it could take.  In March 2018, then-chairman Crosby made a statement after MGC initiated its investigation into Wynn saying that:

“I have said repeatedly that for now we must proceed with the Everett project as planned and be thoughtfully mindful of the thousands of people whose jobs may be affected by this issue and of the long-term economic benefits envisioned by this project ... But as a practical matter . . . Wynn Resorts proceeds with this project on an at-risk basis.”

That "risk" is Wynn building a casino that it cannot operate ... or that is what most of us assumed.

At the end of the hearings last week, an exchange between Wynn and the MGC captured the frustration of these many months of indecision regarding Wynn's license.  Commissioner Enrique Zuniga posed a question to Wynn chairman Phil Satre and CEO Matt Maddox, "if you were to receive an adverse finding from this panel,  relative to your license, what would you be required to do as a result?"

Satre responded with an air of frustration, no doubt brought on by days of his staff being grilled by MGC, "You're saying what would we do if we got an adverse decision?  Why would you care about that?  I mean our planning position at that point in time is not something that is an issue for you.  It's an issue for our shareholders.  It's an issue for everywhere else, but why is it an issue for you if you decided 'we don't want you.'"

Satre then looked at Maddox and asked if he had anything to add, to which he indicated "no."

 

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