Galaxy Entertainment, which last week bought a 4.9 percent stake in Wynn Resorts for just under $1 billion, will be the subject of a suitability probe by the Nevada Gaming Control Board (NGCB), the regulator has confirmed.

Nevada Gaming Control Board Galaxy Entertainment

The Galaxy Entertainment Group’s purchase of a 5 percent stake in Wynn Resorts is good for the latter’s shareholders but will it sit well with Nevada regulators? (Image: Galaxy Entertainment)

Entities owning more than 10 percent of a casino in Nevada are subject to scrutiny from gambling regulators as a matter of course. A 5 percent stake demands a reporting requirement. In the case of Galaxy, NGCB has used its discretion to decide to pursue due diligence.

“As is its ordinary course, the Nevada Gaming Control Board engages in a due diligence process for any shareholder approaching a reporting requirement,” NGCB chairwoman Becky Harris said in an email to Bloomberg on Friday.

LVS Allegations

On Thursday Wynn Resorts announced that former majority shareholder Steve Wynn had divested his entire stake in the company. The founder and former chairman and CEO stepped down in early February amid allegations of sexual misconduct against his staff, allegedly spanning decades.

As several jurisdictions began investigations into Wynn’s own suitability as a casino owner, he sold his stock to safeguard the company’s licenses.

Hong Kong-based Galaxy is the second biggest operator in Macau, after LVS’ Sands China.It’s possible the NCGB’s curiosity may have been piqued by the company’s past reliance on the junket industry, which, according to an LVS executive, was once controlled by triads.

In 2002, LVS teamed up with Galaxy Entertainment Group as a management partner, to push for a gaming concession in Macau, but LVS ultimately broke off the relationship.

In 2007, former president of LVS William Weidner told a Nevada courtroom that was because “these guys want to do VIP rooms the way they … do them in Macau where the … triad guys run them because they’re the only ones that can grant and collect credit in mainland China, and they smuggle the renminbi across the border.”

LVS Chairman and CEO Sheldon Adelson made similar comments in 2013, prompting Galaxy to issue a filing with the Hong Kong stock exchange objecting to “certain inaccurate statements.”

Deal OK’d in Macau

Since then, however, Chinese President Xi Jinping’s corruption crackdown has forced Macau to regulate the junkets more stringently. today it’s unclear just how much influence triad organizations still have on the junket industry, if any at all – nor is there any reason to believe Galaxy has ever done business directly with any such organizations. The NGCB is likely to look into the LVS allegations, nevertheless.

Meanwhile, the Macau gaming regulator announced on Friday that the Wynn-Galaxy deal did not breach local gaming law. Macau gaming operators, and shareholders who own more than five percent of Macau gaming companies, are prohibited from holding a stake of 5 percent or more in other local gaming companies.

The regulator noted that the sale of shares was for less than five percent adding that because Galaxy has bought into Wynn Resorts and not Wynn Macau, the law did not apply.