How Wynn's Vice Chairman Could Tank the Company

Wynn Resorts

is down nearly 4% on news that Kazuo Okada, the casino group's vice chairman, intends to sue the firm for access to financial records. Okada filed the complaint, which would force the company to publicize its spending records. Okada is also chairman of Universal Entertainment Corp., which is Wynn's biggest shareholder. While Okada and Universal have not yet commented on the legal suit, Okada said in a regulatory filing that he wants to protect his investments in Wynn Resorts, which are estimated to be worth $380 million. The filings also show that Okada is seeking more information about the use of $30 million of capital from one of his companies as well as details about a stockholder's agreement with Stephen Wynn and ex-wife Elaine Wynn after the two divorced. "Not only was the request summarily denied but, shockingly, Wynn Resorts asked for evidence that the $30 million investment had even occurred," said Okada in the filing. Stephen Wynn, who founded the gaming company and remains its chairman, has not commented on the legal action. The drop in Wynn's stock price follows a drop in the company's Macau subsidiary's value on the Hong Kong stock exchange; Wynn Macau Ltd. Ltd. (HK: 1128) fell nearly 5% to HK$17.56 at the end of Thursday's trading in Hong Kong. Although the lawsuit does not yet touch Wynn's bottom line, it has spooked investors for a number of reasons. Firstly, if successful, the suit would force Wynn to make public a number of accounts and possibly raise questions about the group's previous investments. Okada's claim that Wynn Resorts asked for evidence of the $30 million invest raises questions over the transparency, accuracy, and reliability of Wynn Resort's books. Finally, the rift between Okada and Wynn could put a damper on the growth of Wynn's Asian operations, which has become increasingly essential for the gaming company during sluggish tourism at the firm's Las Vegas resorts. Aggressive investment in Macau has helped the company double its profit margins from post-recession lows and maintain healthy growth both in revenue and earnings, which impressed analysts enough to set price targets to $175 in July of last year. More recently, analysts cut those targets, with Deutsche Bank recently lowering its target to $157, although it maintained a buy rating for the company. Those ratings seem somewhat irrelevant now that there is a rift between one of the directors of the firm's Macau operations and its founding chairman. While some investors might wait to see how Nevada's courts respond to the complaint before taking a look at Wynn again, it might be better to wait even further until Okada and Wynn settle their differences altogether.