Gaming czars quarrel over Philippine casino

LAS VEGAS-LIKE A scale model of the rising Entertainment City Manila, simply known as Pagcor City, a Las Vegas-like gaming and entertainment complex.

An American gambling firm, using findings of a probe by a former head of the Federal Bureau of Investigation, has accused Japanese gambling tycoon Kazuo Okada of making improper cash payments and gifts totaling about $110,000 to gaming regulators, including those in the Philippines.

The report alleged that Filipino regulators had received dinners, Chanel bags and suites at Wynn Macau, all courtesy of Okada, 69, chairman of Universal Entertainment Corp. who made his fortune off pachinko machines, a cross between pinball and slots.

Universal Entertainment through subsidiary Tiger Resorts, Leisure and Entertainment Inc. broke ground on January 26 at the 12-hectare Pagcor Entertainment City on Manila Bay that the Philippine government hopes will become Manila’s answer to the Las Vegas strip.

Okada’s group and three others were awarded by state-owned Philippine Amusement and Gaming Corp. (Pagcor) with a contract to build a hotel-resort complex in the Entertainment City during the incumbency of Efraim Genuino, Pagcor chairman during the Arroyo administration.

Besides accusing Okada of improper payments to foreign gaming regulators, Wynn Resorts Ltd. chief executive Steve Wynn, 70, forcibly bought back Okada’s 20-percent stake in the casino company at a deep discount.

Okada was also asked to resign as a director of Wynn Resorts, the company said, adding that it will also recommend that he be removed as a director from the board of its Hong Kong subsidiary, Wynn Macau Ltd.

‘Outrageous’

As shares in Okada’s Universal Entertainment tumbled 21 percent, the Japanese mogul denounced the move as “outrageous,” vowed to block it and called for an independent oversight of the Wynn Resorts board.

“It is now more evident than ever that additional independent oversight is needed in the Wynn Resorts Board.

“Universal Entertainment will take all legal actions necessary to protect its investment and prevent a forced redemption of its shares,” Universal Entertainment said in an e-mail.

A source close to Wynn said Okada had known about the investigation by the Wynn Resort board when it was commissioned over a year ago.

Improper activities

Wynn Resorts on Sunday said that its board had decided Okada was “unsuitable” after reviewing a report presented to the Wynn board on Saturday that found more than three dozen instances over a three-year period in which Okada and his associates allegedly engaged in “improper activities for their own benefit in apparent violation of US anticorruption laws.”

The report came after a yearlong investigation by outside investigators led by former FBI director Louis Freeh, hired by a company compliance committee to scrutinize Okada and his associates.

Wynn, who owned a smaller stake in his eponymous casino company than Okada did, last year stripped Okada of his vice chair title.

Last month, Okada sued Wynn for denying him financial information related to a $135-million donation the company made to the University of Macau, which he had termed “inappropriate use of corporate funds.” The US Securities and Exchange Commission (SEC) is now looking into the donation.

Two weeks after filing a suit against Wynn, Okada broke ground on his casino at Manila, The Wall Street Journal reported Monday.

So far there has been no formal regulatory investigation into Okada’s business in the Philippines.

Pagcor chairman Cristino Naguiat said its officials had not received gifts in cash or any kind during his tenure which began in 2010, according to a statement e-mailed by the state-owned company.

Okada’s Pagcor visit

Naguiat said Okada visited Pagcor Monday on the heels of the shareholder dispute with Wynn arising from their disagreement in pursuing a casino development project in the Philippines.

Naguiat said Okada explained that the alleged $110,000 cash gifts to Pagcor officials mentioned in the press releases from Wynn Resorts were “inaccurate.”

Based on records of Okada’s group, the $110,000 questioned by Wynn represented various accommodations granted to Okada’s business associates not only from the Philippines but also from other countries from 2008 to 2011, the Pagcor chairman said.

Industry courtesy

Naguiat said complimentary accommodations were part of standard industry courtesy and reciprocity. Pagcor extends the same courtesy to visiting casino executives whenever they visit the Philippines.

Naguiat said this was the case as stated by Okada himself. However, the Pagcor chief emphasized that other than complimentary accommodations, no gifts in cash or in kind were received by Pagcor officials during his tenure.

“Although admittedly Pagcor officials received complimentary accommodations from Wynn Resorts, it is highly unlikely that the same amounted to $110,000 from July 2010 up to the present considering that there were only at least three official visits by Pagcor executives in Macau and Las Vegas combined. As for the period from 2008 to June 2010 only the previous management of Pagcor can answer that,” he said.

The Philippine Daily Inquirer tried to reach Genuino but he had not returned calls and text message as of press time.

A gaming industry consultant, Jonathan Galaviz, said the escalating battle bode ill for both Wynn and Okada.

“With allegations of this magnitude being thrown back and forth, the future business prospects for both companies in Asia will certainly be curtailed,” Galaviz said.

Tit for tat

“This is tit for tat,” said Michael Koehler, assistant professor of business law at Butler University, who writes a blog about the US Foreign Corrupt Practices Act (FCPA).

“This may be Wynn’s way of getting in the good graces of the enforcement attorneys … but it isn’t going to make his own SEC scrutiny go away,” Koehler added.

In fact, it could possibly increase the scrutiny, he said. “If Wynn had on its corporate board a person like this, who Wynn itself is alleging to have violated FCPA, what else do I need to look at?”

Wynn Resorts said it had bought back Okada’s 24 million shares held by Aruze USA Inc., owned by Okada, worth $2.7 billion based on Friday’s closing price of $112.69. Okada was the casino company’s largest shareholder.

It promised to pay him $1.9 billion in 10 years via a promissory note paying annual interest of 2 percent.

Okada and Wynn, the company’s founder and also a self-made billionaire, were close friends and business partners for 12 years before their relationship turned sour.

Longtime friends

The falling out between the longtime friends surprised many in the casino industry. Okada had helped pull Wynn back from the brink after he unloaded his Mirage casino to MGM Grand a decade ago, and helping to transform Las Vegas into a family-friendly destination.

Their friendship was so close that Wynn had proclaimed in 2008: “I love Kazuo Okada as much as any man that I’ve ever met in my life. He’s my partner and my friend. And there is hardly anything that I won’t do for him.”

Manila casino

However, Wynn had become increasingly concerned over Okada’s plans to open a casino in the Philippines, which would put them in competition with one another.

Wynn Resorts on Sunday said its probe stemmed from concerns the Wynn board had about Okada’s activities in the Philippines and statements he had allegedly made to Wynn directors that gifts to regulators are permissible in Asia.

The company said the investigation found numerous violations of the FCPA by Okada.

Wynn Resorts previously said it denied Okada information about its donation to the University of Macau for competitive reasons.

Okada has said that Wynn’s donation was inappropriate, in part because the last installment of the donation is due in 2022—the same year that Wynn Macau’s gaming concession expires.

Wynn Resorts also filed a lawsuit against Okada and his company in Nevada District Court, Clark County, for breach of fiduciary duty and related offenses. The company said it also plans to communicate with the appropriate regulatory agencies and government authorities on these matters. With a report from Reuters