Wynn Resorts board sued for failing to investigate chief executive

WILMINGTON, Del. (Reuters) - The board of Wynn Resorts WYNN.O has been sued by shareholders, claiming the board knew for years that Steve Wynn, founder and chief executive of the casino operator, had been accused of sexual misconduct and failed to investigate.

FILE PHOTO - Steve Wynn, Chairman and CEO of Wynn Resorts, speaks during the Milken Institute Global Conference in Beverly Hills, California, U.S., May 3, 2017. REUTERS/Mike Blake/File Photo

The company declined to comment.

Wynn resigned on Tuesday after accusations of sexual misconduct by women who worked for him, becoming one of the biggest names in the business world to quit over such accusations. The accusations were reported by the Wall Street Journal in January.

Wynn has called the claims “preposterous” and the board of Wynn Resorts has said it was investigating.

Casino veteran Matt Maddox has replaced Wynn as chief executive of Wynn Resorts.

Shares in Wynn Resorts, which owns the Wynn, Encore Las Vegas casinos and Wynn Macau unit, have declined nearly 20 percent since the newspaper report on Jan 26. The company is worth around $17 billion by market capitalization.

The case is a derivative lawsuit, meaning any damages paid by Wynn and the other board members who are named defendants would be paid to Wynn Resorts, not directly to investors.

The lawsuit filed in Clark County, Nevada, claimed, based on press reports, that “a board representative” was notified of Wynn’s alleged misconduct in 2009 by Wynn’s then-wife Elaine.

The Norfolk County Retirement System, a Wynn Resorts investor, claimed in the lawsuit that the board should have known of its founder’s misconduct by 2015 when a lawsuit by Elaine Wynn accused her former husband of “reckless risk-taking behavior.”

The lawsuit said the board breached its fiduciary duty to investors by not investigating the accusations and by continuing to recommend Wynn’s leadership to investors.

Wynn Resorts illustrates the risk to a company’s stock from misconduct accusations against an executive.

The company has formed a special committee to investigate Wynn, which is often used as a defense against a derivative lawsuit. The plaintiff said the directors on the special committee were not truly independent of Wynn.

Dozens of high-profile men have been fired or have resigned from their jobs in politics, media, entertainment and business after facing accusations of sexual misconduct.

Twenty-First Century Fox Inc FOXA.O reached a $90 million settlement of shareholder claims over harassment allegations at its Fox News Channel, which cost the jobs of longtime news chief Roger Ailes and anchor Bill O'Reilly.

Reporting by Tom Hals in Wilmington, Delaware; Editing by Noeleen Walder