Wynn Jumps 7% As Co-Founder Okada Forced Out

Shares of Wynn Resorts

have surged more than 7% on Tuesday after the casino company announced that its board had declared co-founder Kazuo Okada unsuitable and forced him out. According to the company, an internal investigation conducted by former FBI Director Louis Freeh discovered that Okada's company, Universal Entertainment Corp., had bribed gaming regulators in the Philippines. The report found that Okada, in his role as a director of Wynn Resorts, had violated the U.S. Foreign Corrupt Practices Act and company policy by giving around $110,000 in cash and gifts to foreign officials. His actions were in violation of federal law which prohibits U.S. companies and individuals from bribing foreign countries in relation to business deals in those countries. In a conference call on Tuesday, former Nevada governor Bob Miller, who is the chairman of Wynn's compliance committee, said that the company had "suitable ground to find Okada, Aruze, and Universal unsuitable" and that the "situation posed an ongoing risk" to Wynn Resorts, its shareholders, and its board of directors. On Friday, WYNN purchased Okada's stake in the resort company - 24 million shares - for $1.9 billion, or a 30% discount to market prices. For his part, Okada plans on fighting the decision by Wynn. Universal Entertainment Corp., which held the minority stake in the casino operator, vowed to take legal action and described the forced redemption as "outrageous." Hong Kong-based investment analyst Victor Yip added, "Okada and his associates will try every means to overrule the forced redemption. The legal dispute is not going to end here." Okada and his company deny that any improper payments were made in relation to dealings in the Philippines. Tensions between business partners Okada and Steve Wynn have been running high after Okada's Universal Entertainment decided to pursue the gaming projects in the Philipines. The dispute caused Wynn Resorts to remove Okada from his position as vice-chairman at the company. Subsequently, Okada sued WYNN last month over a $129 million donation the company made to a university foundation in Macau. The purpose of the lawsuit, according to Okada, was to protect his substantial investment in Wynn Resorts. In light of the lawsuits and back and forth accusations, and today's announcement that Okada has been thrown off the board and forced to liquidate his WYNN holdings at a 30% discount, it would appear that a once successful partnership is coming to an end. Kazuo Okada, who made his fortune selling Pachinko machines in Japan, met Steve Wynn in 2000 and quickly became his partner with a $452.5 million investment in Wynn Resorts, through his company. He was a board member since 2002. "I remember when Okada invested in Wynn," Takashi Kiso, head of the Tokyo-based consulting firm International Casino Institute Ltd told Bloomberg. "At that time, Wynn mentioned that Okada was the best partner and a promising entrepreneur. So it is a pity to see the recent dispute." Steve Wynn even named the high-end restaurant in his casinos Okada. The two also wrote a book together. For his part, Okada made a lot of money as a result of his investment in Wynn Resorts, at a time when, according to him, Steve Wynn had few backers. He has said that his company has received nearly the entire amount of the initial investment back in dividends alone. Obviously, however, being forced to sell back his stake in Wynn Resorts to the company at a 30% discount is going to eat into his overall returns - and, understandably, Mr. Okada is not too happy about that.