Cohen Milstein Sellers & Toll PLLC represents court-appointed Lead Plaintiffs, the New York State Common Retirement Fund and the New York City Pension Funds, in a derivative action against certain officers and directors of Wynn Resorts, Ltd., including:  former CEO and Chairman of the Board, Stephen A. Wynn; Secretary and General Counsel, Kimmarie Sinatra; and board members John J. Hagenbuch, Dr. Ray R. Irani, Jay L. Johnson, Robert J. Miller, Patricia Mulroy, Clark T. Randt, Jr., Alvin V. Shoemaker, J. Edward Virtue, and D. Boone Wayson (“Defendants”), arising out of allegations that Steve Wynn engaged in a longstanding pattern of sexually harassing and assaulting Wynn employees on Company property. 

On June 25, 2018, Defendants moved to dismiss Lead Plaintiffs’ complaint.  On September 6, 2018, the Court denied that motion, finding that it would be “futile” to make a demand on the Wynn Board.  The Court’s decision is precedent-setting, as it marks the first time any shareholder derivative suit has survived demand futility due to a board of directors’ failure to act in the face of allegations of sexual harassment by a company officer.  In denying Defendants’ Motion to Dismiss, Nevada State Court Judge Timothy Williams found that the allegations in the Amended Complaint “are sufficient to plead that the Board had actual knowledge of serious allegations that Steve Wynn was violating the law.  As a result, demand is futile since the Board faces a substantial likelihood of liability for its knowing and conscious inaction.”    

Case Background

The lawsuit, filed on February 22, 2018 on behalf of the New York State Common Retirement Fund and the New York City Pension Funds, is based on the officers and directors’ failure to hold Mr. Wynn accountable for his longstanding pattern of sexual abuse and harassment of Company employees.  The lawsuit seeks to preserve stockholder value in Wynn Resorts, Ltd. by, among other things, strengthening procedures for responding to claims of harassment and creating stronger governance and risk management controls at the Board level. 

On February 6, 2018, in response to vast public pressure following a January 26, 2018 Wall Street Journal exposé detailing Mr. Wynn’s history of sexual abuse and harassment following interviews with over 150 witnesses, Mr. Wynn resigned from the Company.  Meanwhile, Wynn Resorts’ stockholders have lost billions in market value and the Company faces mounting lawsuits, the possible loss of its gaming licenses, and other legal and regulatory sanctions.  The Board of Directors’ failure to act is consistent with the Company’s repeated poor marks for governance, underscoring a Board that is loyal to Mr. Wynn at the expense of the safety of Company employees.

The Complaint alleges that the Board knew of serious allegations against Mr. Wynn by, at the latest, March 28, 2016, when those allegations surfaced in litigation involving the Company and Elaine Wynn, Mr. Wynn’s ex-wife and former Board member. According to the Complaint, the Board’s subsequent failure to act on this and other reports of Mr. Wynn as a serial sexual harasser of Wynn Resorts’ employees was a breach of its fiduciary duties to the Company.  Because gambling is a heavily regulated industry that, in the jurisdictions in which the Company operates casinos, requires a showing of “suitability” to obtain and maintain a gaming license, the Board’s effective concealment of allegations against Mr. Wynn puts the Company’s gaming licenses in jeopardy.   The Complaint also alleges that, while knowing of Mr. Wynn’s pattern of sexual harassment and assault, five members of the Wynn Board engaged in significant and unusual insider selling of Wynn stock. 

On June 25, 2018, Defendants moved to dismiss the complaint.  Among other things, Defendants argued that the complaint failed to meet the standards under Nevada law to show that demand would be futile, because the Amended Complaint failed to plausibly allege that a majority of the Board engaged in intentional misconduct, fraud or a knowing violation of the law.  The Court rejected those arguments, finding instead that, Lead Plaintiffs had “pleaded that a majority of the Board faces a substantial likelihood for two separate reasons, each of which as alleged independently satisfies demand futility: 1) for knowingly failing to take action in the face of credible and corroborated reports that Steve Wynn sexually harassed and abused Wynn Resorts employees, including failing to notify regulators of information material to Steve Wynn’s suitability as a gaming licensee, and 2) profiting on this information through insider trading that came at the Company’s and shareholder’s expense.”

Contemporaneously, and in the alternative, Defendants also moved to stay the action pending the outcome of a securities fraud class action arising out of similar facts.  The Court also denied that motion. 

The case name is: Thomas P. DiNapoli. v. Stephen A. Wynn, et al., Case No. A-18-770013-B, District Court, Clark County, Nevada.